Gen Z Is Afraid They Won't Be Able to Retire. Are They Right?

Optimism is a trait that's often assigned to younger generations. But when it comes to retirement, Gen Z (people about 25 years old and younger) don't exactly have a rosy outlook about their personal finances.

McKinsey's research shows that nearly 25% of Gen Zers don't expect to retire, and their reasons are pretty practical. Many think the high cost of living and debt will keep them working well into their retirement years.

One major reason Gen Z may have a financially gloomy outlook is that soaring inflation has made it more difficult for all Americans to afford basic necessities. According to the Bureau of Labor Statistics, the average person now spends $6,081 in monthly expenses, which is an increase of more than $500 from 2021 and a whopping $1,822 increase from 2013.

Some of the pessimism Gen Z has about retirement is causing them to save a significant amount of their income. And that, in turn, is brightening their prospect of retirement.

Why Gen Z may be in better financial shape than they think

A study of Gen Z conducted by the Transamerica Center for Retirement Studies showed recently that 67% of them were already saving for retirement. That's an impressive portion of Gen Zers who are stashing their cash away, and the amount they're saving is equally remarkable.

Of those who have retirement accounts, Gen Zers save a median of 20% of their income. That's higher than the 15% recommended by Fidelity.

The median annual salary of Gen Z is $38,325, so that means some of them are saving $7,665 annually. Now, based on some of this data, we can estimate what the hypothetical retirement of a Gen Zer might look like.

Just for simplicity's sake, let's assume that a 25-year-old Gen Zer maintains the same salary and continues to put roughly $638 per month ($7,665 divided by 12) into a retirement brokerage account for the next 40 years. Assuming the average annual rate of return is 8%, our hypothetical retiree would have $1.98 million saved by the time they're 65.

This is just an example, of course, and it's likely that our hypothetical Gen Zer's median income will increase over time. Considering that Social Security only replaces about 40% of your pre-retirement income, having nearly $2 million saved at age 65 would go a long way toward creating a good retirement.

How to get started with a retirement plan

No matter your age, you need a plan in place if you want to make progress toward your financial goals. Here are just a few tips to help you get started.

• Use an investment calculator: Having a look at what your monthly savings could turn into by the time you retire is a great motivator. The U.S. Securities and Exchange Commission has an easy-to-use investment calculator that's a great tool for planning your retirement, allowing you to see how your monthly contributions build wealth over time.
• Contribute to your employee retirement plan: If your employer offers a retirement plan, it's usually a good idea to sign up for it. Many employers will match your contributions to a 401(k) plan up to a certain percentage, putting free money into your retirement account.
• Pay off debt: Having a lot of credit card debt or other high-interest debt can leave you off track for your retirement goals. There are some excellent debt payoff apps you can use to help you tackle your debt and then refocus your finances back onto retirement.

If you need extra help with your retirement planning, you can always hire a professional to assist you or even use a robo-advisor to help plan your retirement strategy. Or, talk to a Gen Zer. Chances are they might have a few good ideas.