Generation Z, born between the mid-1990s and the early 2010s, is facing a multitude of challenges in their life life as they graduate college in a post-covid world that might or might not be in a recession, and retirement is probably the furthest thing from their minds. However today’s Gen Z likely finds themselves grappling with a range of financial burdens that hinder their ability to save and prepare for their golden years. 

Does it mean that previous generations had it easier? While there is no denying that financial challenges existed for previous generations too, Gen Z is in the midst of a financial tsunami. College debt remains high, it’s tough to find jobs, wages haven’t kept up with inflation, interest rates are getting almost too high to buy a house and houses are too expensive even if you could afford the interest rates!

Here’s why it’s still important to think about retirement and to start saving for it early!

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Relying on employers’ retirement plans

As they enter the workforce, many Gen Z individuals rely heavily on their employers’ retirement and saving plans, typically centered around 401(k) accounts. While there is no denying that employer-sponsored retirement plans can be beneficial, the truth is that we’re not saving enough within them. Boomers, who have been in employment for the longest period of time, are the first to notice the limitations of retirement plans. With the average Boomer’s 401(k) having on average approximately $210k, many are finding that not to be enough to sustain them.

Additionally, Gen Z, who are just starting with these plans, face the risk of stagnant wages, limited job stability, and the absence of generous employer-matched contributions to their retirement accounts.

Lack of retirement planning and financial education

One of the major hindrances for Gen Z (if not the most significant hindrance) is the lack of financial literacy and retirement planning knowledge. Indeed, without a solid foundation in personal financial management, Gen Z may struggle to understand the importance of saving for retirement and making informed investment decisions. Many young adults are left to navigate complex financial matters on their own, often leading to poor decisions that have long-term consequences on their retirement prospects. 

According to recent surveys, less than 25% of Gen Z feel confident about managing their finances. Additionally, approximately 70% of Gen Z do not receive any form of financial education at school or in college. As a result, they are completely unprepared to tackle retirement planning and investment strategies properly. 

It comes at no surprise that financial literacy should not be the sole responsibility of schools. Parents also play a significant role in encouraging open conversation about money management and providing a structure to foster better money planning habits altogether. 

Escalating living costs

The ever-increasing cost of housing, education, healthcare, and over everyday expenses significantly impacts the American population. For Gen Z, it can also affect their ability to consider long-term financial plans. Indeed, many young adults find themselves caught in a vicious cycle of paying off debts and coping with high living costs, which unfortunately leaves little room to set aside funds for retirement. They are too busy trying to cope with hyper competitive housing markets, whether they are tenants or prospective homebuyers. Retirement plans become an elusive goal that many cannot comprehend yet.

Gen Z faces higher living costs than previous generations did at the same age. While there is no denying that living costs affect everyone, they are a significant burden for a generation of new professionals struggling to come to terms with student debts and low entry level wages. 

Entrepreneurship dreams 

A growing trend among Gen Z is the aspiration to become entrepreneurs. Over 60% of Gen Z have either launched their own business or plan to do so. Understandably entrepreneurship can be a fulfilling career choice for a creative generation of professionals. Yet, it still poses challenges in terms of financing, which can delay their retirement plan. New ventures require substantial financial investments and may not yield immediate profits, as such Gen Z have little room for retirement savings. 

As entrepreneurs tend to prioritize reinvesting in their businesses. Retirement plans are put off until a more stable financial position can be achieved. 

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Career planning first

Many Gen Zers are still in the process of defining their career paths. While they explore a variety of fields and opportunities, they is no possibility to dedicate funds to their retirement plans. Indeed, financial priorities may shift through these new circumstances. 

Almost half of Gen Z feel uncertain about their career path, and many of them are still considering leaving their current job, trying a completely new career, or even going back to school. These considerations can disrupt their retirement plan. 

Retirement strategies are tricky for everyone. Generation Z faces a unique set of challenges linked to the generational mistrust of conventional professional careers, the increase of living costs, and the lack of financial education. It is time for Gen Z to take proactive steps and set the foundation for a more secure retirement approach for all. 

What to do about it

As hard as it may be to save for retirement, it’s still something important to do. If your employer offers a 401(k) at work, go ahead and take advantage of it. It’s super easy to use and often comes with a match (i.e. free money). Start small, even 1-2% can add up over time. What you have on your side though as a Gen Z is time and compounding interest works great over time – little by little re-investing the dividends and it’ll add up! If/when you get raises, try to give your retirement a raise to and increase your contributions by a 1%. Saving for retirement isn’t easy but it’s a worthwhile endeavor!

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