As a local North Florida news reporter, I have seen countless generations navigate the ever-changing landscape of retirement planning. The recent trends among Gen Z and millennials have been particularly noteworthy. Despite retirement being seemingly far into the future, these younger generations are already ambitiously planning for the seven-figure sum they believe they’ll need to retire comfortably. And surprisingly, some are even aiming to retire much sooner than usual.
A recent YouGov survey revealed that for millennials, the desired retirement pot lies somewhere between $1 million and $2 million. On the other hand, Gen Zers estimate they’d be comfortable with around $500,000 to $1 million. Intriguingly, 14% of this youngest generation of workers aim to retire in their forties. That’s double the number of millennials who expect to retire between the ages of 40 and 50.
However, with an estimated life expectancy of around 100 years old, these frugal Gen Zers will need to stretch their retirement sum over an astounding 60 years. Most millennials, on the other hand, realistically anticipate retiring between 51 and 60 years old, still shy of the current average retirement age of 64.
Despite various attempts to raise the full retirement age to 70, less than 2% of Gen Z and millennials predict retiring after their 70th birthday. Interestingly, at least one in 10 of both generations declare that they never want to retire.
Pension Pots not Stretching
It’s one thing to dream of retiring by 40 while you’re still in your twenties, but the reality can often be very different. Today, individuals reaching retirement age are acknowledging a stark reality: their pension pots may not stretch as far as they’d anticipated.
Indeed, 18% of baby boomers and late Gen Xers have been forced to unretire—or plan to—because their pension pot isn’t stretching as far as they’d hoped. The current climate is hitting pensioners’ pockets hard. Over a third of respondents reported that the cost of living is now higher than they’d planned for, with 24% stating their retirement income is no longer enough to live on.
As a result, the average American now believes they’d need $1.46 million to retire comfortably. This figure is a 53% surge from $951,000 in 2020 and represents the highest level on record.
Additional research indicates that the number of those working past 65 in the U.S. has quadrupled since the 1980s. Today, almost 20% of Americans 65 and older are employed, accounting for 7% of all wages and salaries paid by U.S. employers. This trend is a clear indication that retirement planning needs to start early and be realistic.
Plan For Retirement Early
Despite the somewhat unrealistic early retirement plans of Gen Z, starting retirement planning early is paramount. Financial expert Suze Orman suggests that Gen Z and millennials could retire as millionaires if they effectively leverage compound growth.
For instance, depositing a monthly investment of $100 into an account with a 12% yield would accumulate approximately $1,188,342 over 40 years. However, delaying the investment journey leads to a lower accumulated amount. A millennial who starts investing five years later, at age 30, would accumulate around $649,626 by age 65.
Orman also emphasizes that the 12% annual average rate of return, which would make a Gen Z worker a millionaire before retirement age, is a conservative estimate. She believes you can expect up to a 25% rate of return on your money. The key takeaway for younger generations is the power of compounding in securing financial freedom.
Planning for retirement can be a daunting task, especially for younger generations. However, it’s clear that early and consistent efforts can lead to a comfortable retirement. As always, it’s important to seek professional advice when planning for the future.
