Gen Z Is Guessing What They’ll Need For Retirement (In The Wrong Direction)

Published on October 10, 2023

Is Generation Z saving enough for retirement? The answer is complicated. According to a new survey from Northwestern Mutual, people in their 20s expect to need just $1.2 million to retire comfortably versus $1.56 million for people in their 50s. Gen Zers (born between the mid-1990s and mid-2010s) believe they will retire earlier (age 60) compared to millennials and Gen Xers, who plan to work until age 63 and 65, respectively. Despite all this, Gen Z members believe they will be financially prepared for retirement.

How much do people need to save for retirement?  Of course, that depends on how much one needs for monthly living expenses and lifestyle preferences. “If someone wanted to live off $4,000 a month after taxes for 40 years—taking into account 3% inflation and a return on invested retirement funds of 6%—they would need somewhere closer to $4 million,” said Linda Farinola, founder of Princeton Financial Group. This is far above what the Gen Z cohort expects to need.

Why is Gen Z underestimating retirement savings?

Age and lack of financial education are essential factors. So are major life events, such as marriage, starting a family, or buying a home, which they have yet to pursue.

Also, for many Gen Zers, money is not a driving factor in their careers. Nearly two-thirds (64%) said personal fulfillment is more important in a job than money (36%). It makes sense that this attitude about money and the workplace crosses into their retirement savings plans.

So what’s the key to encouraging Gen Zers to save for retirement?

Remember that this generation has different values, financial goals, and life experiences (and expectations), so alternative options for retirement savings speak to their interests. That includes saving for retirement with a self-directed IRA.

Gen Z: Enhance your retirement readiness with a self-directed IRA

A self-directed IRA can help younger workers build a diverse retirement portfolio beyond stocks, bonds, and mutual funds by including alternative assets such as real estate, precious metals, royalties, natural resources, NFTs, and other nontraditional investments. Gen Zers will be happy to know that these alternatives enable them to invest over the long term in assets they know and understand, and that support their eclectic interests.

Because those assets’ performance is not correlated with the stock market, they’re shielded against market volatility. This is especially important in our current financial environment. Plus, self-directed IRAs enjoy the same tax advantages as their regular counterparts (with lots more investment flexibility).

A note to young investors: self-direction means you’re taking control of your investment decisions. So do your homework, research your investments, and be sure you are making informed decisions. Another note: tap into the resources and guidance available from the team at Next Generation.

Next Generation provides comprehensive account administration, transaction support, and asset custody for our clients’ self-directed IRAs. We also offer many educational materials for investors to learn at their own pace with our webinars and white papers. You can also schedule a complimentary educational session with a Next Generation representative who will answer your questions about the many options available through these plans, tailored to your specific interest(s). You can always reach us directly by calling us at 888.857.8058 or emailing NewAccounts@NextGenerationTrust.com.