A recent GOBankingRates survey of American adults found that more than 25% of Gen Z have not started saving for retirement. Of course, 18- to 27-year-olds are relatively new to the workforce, so it may not be surprising that their retirement isn't top of mind (particularly with student loans). (because it weighs heavily on them).
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That said, having access to an employer-sponsored 401(k) can be a powerful incentive for young people to think long-term. According to the Transamerica Retirement Institute, most U.S. workers with access to employer-sponsored retirement plans do so, including 79% of Gen Z.
But what about those who haven't invested a penny in their future?
Stephen Carroll, a personal wealth advisor at Northwestern Mutual, said there may be cause for concern, but there's no need to panic. In fact, he said, because of their age, Gen Z is now in a great position to start establishing habits that will form the basis of a financially secure future.
“I'm a big believer that whether you make $50,000 a year or $2 million a year, if you can set a goal to save 20% of your income from day one, that's a very good habit to stick to. ” said Carol. “If you can start saving a little bit early on, it really helps.” Here's how to kickstart the process.
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roll the ball
Carol compares how to develop good financial habits to changing your diet to get better nutrition. “Even if you've been doing it wrong with your diet and nutrition for a long time, you don't go, 'Oh my god, I don't want to eat, how am I going to lose 80 pounds tomorrow?' You just need to start. And I think that also applies to investing.”
Many Gen Zers face student loan debt and other competing financial priorities, which can make it difficult to allocate significant amounts of money to building future wealth. But Carroll points out that no matter where you are in life, there are always competing priorities, such as saving for a home or sending your kids to college.
The important thing is to save money somethingEven a little bit, because forming habits is important.
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“I didn't have anything saved, so I started saving little by little and I said, “I'm going to put 10% of my income toward retirement.'' Well, now I'm saving 10%, but that's not true.'' That's not so funny. If not, it will probably go up to 13% next year. So if we can roll the ball down the hill, it makes it a lot easier,” he added.
Young savers in particular have the opportunity to take full advantage of the benefits of compound interest. This means that the interest you earn increases your principal savings and generates additional interest. “If you are 27 years old and you start investing tomorrow, it will probably take you 25 to 35 years and you need a lot of money to compound, so starting a year early can help you in the long run. It means a lot,” Carroll said. He said.
Think beyond your 401(k)
Carroll advises people not to think about their future wealth solely in terms of what's in their 401(k) or Roth IRA. While these types of accounts have long-term tax benefits, it's important to “build your balance sheet carefully” and consider having funds that are more easily accessible if needed. He said it was important.
“With a 401(k), you don't have access to it until you're 59 and a half years old, and life comes around again, so having money in a more liquid account in addition to your retirement plan can be a really big deal. Whether it's buying a home or weathering a storm like a layoff, it's good to have solid liquidity,'' Carroll said.
Planning your long-term strategy will help you decide what you want your balance sheet to look like at different life stages in the future. About 20% of Gen Z respondents in the GOBankingRate survey believe they can comfortably retire on less than $500,000. Additionally, 32% believe he needs $500,000 to $1 million to live a comfortable retirement.
Whether that's true depends largely on many factors, including Social Security, your expected standard of living, the cost of living where you live, how old you plan to retire, and how many years you need retirement savings.
To assess what's realistic, create a plan, and create a balance sheet with your specific goals in mind, Carroll recommends consulting a certified financial planner.
“It really depends on lifestyle,” he said. “If you want your lifestyle to remain relatively unchanged, it's never too early to build a financial plan and model that shows you what those numbers will be.” Must be taxable Or does it have to be an after-tax amount? What does that look like? ”
Have a non-judgmental conversation
Getting on the right path to future security and wealth, especially if you're starting from scratch, often starts with having money conversations with people you can open up to, Carroll said.
“People are funny about money. People tend to get too proud, so finding someone to be honest with and say, 'Actually, I don't know what I need to know,' or 'What's important in investing?' It's your turn. ?I don't really understand,'' he said.
“Maybe you can find it in a financial planner or advisor you work with, or a mentor or a parent. But remember that this is a non-judgmental conversation, and that is our wish with our clients.”
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This article originally appeared on GOBankingRates.com: Many Gen Zers have $0 in retirement savings: What this means for long-term wealth
