Gen Z Guide to Retirement Planning

America’s youngest adults have some pretty ambitious goals. According to the Northwestern Mutual 2022 Planning and Progress Study, members of Gen Z have their sights set on retiring by age 59. And they may be well on their way. Nearly 70 percent of Gen Zers say they’ve been able to build their savings during the pandemic. Still, nearly three-quarters of them say their financial planning could use improvement.

“It’s encouraging to see the youngest generation of adults showing an inclination to plan and holding themselves to a high bar,” says Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual. “Developing a financial plan isn’t just the first step toward achieving your long-germ goals; it’s also what allows you to enjoy your life more along the way. With greater clarity around how to balance spending and saving, you’re able to live more in the moment and still have confidence in the future.”

The good news for Gen Z is that it has one of the greatest financial tools available: time. The earlier you start saving, the more time you have to take advantage of the power of compound growth.

Gen Z Guide to Retirement Savings

Save strategically

Whatever your target retirement age, do you know how much you should be saving to hit it? A financial advisor can help you get a sense of what you might need for retirement based on when you want to retire and the lifestyle you want to live.

That said, a good general rule is to save about 20 percent of your income. Whether you want to get to 20 percent or you have another number in mind, it’s okay if you’re not quite there.

“Start working toward your savings goal by upping your savings a little each year, perhaps timed with when you get a raise at work,” says Andrew Weber, CFP^® Professional, senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual. “By doing it this way, you’ll barely miss the extra money you’re saving,” Weber says.

You'll also want to think carefully about where you're putting your money. Weber says a thoughtful strategy about the right mix of products can yield a lot of tax savings down the road. 

Ideally, your income will continue to grow as you progress in your career, so Weber recommends taking advantage of what’s likely a lower tax rate for you now. Look into accounts like a Roth 401(k) or a Roth IRA. You'll pay tax now when the money goes in, but your funds will grow tax free and won’t be taxed when you take them out in retirement, a time when your tax rate may be higher.

Again, this is where a financial advisor can help. He or she can get to know you and show you how using a range of financial options can benefit you once you get to retirement.

And one more thing: Don’t worry about market volatility for investments that you don’t intend to use for decades.

“We’re playing the long game here,” Weber says. “Be patient and trust your savings will grow over a long period of time.”

Manage your debt

When used wisely, debt can be a great tool to help fund your education or buy a home. But certain debt, like credit cards, can be a drag as you make high interest payments that could be dedicated to other goals instead. That’s why it’s a good idea to make a plan for your debt and work to pay it down strategically.

Plan for risks

You obviously need to save to reach big goals like retirement. But a key part of planning that can be overlooked is preparing for known risks. Most of us understand the value of car insurance. You’re preparing for the risk of getting into an accident. But what about insuring your income or planning for an unexpected expense? Weber suggests setting up the following safety nets:

An emergency fund. In the event that you lose your job or a large, unplanned expense arises, an emergency fund can help you cover the cost without going into debt or dipping into savings earmarked for important financial goals. A good general rule is to keep a reserve of about six months of expenses in your emergency fund. 

Plan for disability. When you’re young and healthy, it’s tough to imagine a disability preventing you from working. But it’s more likely than you might think. The reality is that one in four 20-year-olds today are likely to experience a disability that causes them to miss work. A financial advisor can help you plan for such a possibility so that if it happens to you, you’ll stay on track for your goals.

Life insurance. If you’re young and on your own, life insurance may not seem like a priority. And it’s probably best to focus on other goals right now. But if you know you might want coverage in the future, consider adding whole life insurance, which is a type of permanent life insurance, to your financial plan. In addition to locking in a death benefit, your policy will also accumulate cash value, which is guaranteed to grow. Cash value can become a unique source of funding that you could use throughout your life, including in retirement.

Be open to getting help

The good news is that the Northwestern Mutual Planning and Progress Study found that 29 percent of Gen Z is planning to seek help from a financial advisor.

“Every client is different, of course, and it’s our job to understand each one and meet those individuals where they are,” says Mitchell. “Gen Z is confident and ambitious, practical and resourceful. They’re also honest and vulnerable. Those are a great set of characteristics to form really solid financial habits and strong relationships with their advisors.”

The relationship is important because financial planning isn’t something you set and forget. Your life will evolve and change, and your plan should as well. But the key is getting started and then revisiting your plan regularly.