2 Advantages Gen Z Has To Boost Retirement Savings Even If You're Broke
Younger generations face high living costs, but they have more time to save money and build nest eggs than baby boomers. While that may be two obvious facts, they come nestled in a new study that also suggests a couple of easy ways to achieve this aim.
Vanguard's Retirement Outlook research paper revealed two opportunities that Gen Z can use to accelerate their path to retirement. Using these levers can reduce financial stress and leave you with more than enough when you reach retirement age.
See whether the paper's suggestions are doable for you.
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Direct Retirement Plan Contributions to Riskier Investments
Defined contribution plans like 401(k), 403(b) and 457 plans are more accessible to Gen Z workers than they were for previous generations. These plans replace the admittedly stable income of pensions with the flexibility of investments that you can choose. Gen Z can opt for stocks, mutual funds, bonds and other assets in their defined contribution plans.
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Most people in Gen Z won't touch these retirement accounts for decades, so it makes more sense to pursue growth-oriented assets instead of bonds and CDs. These investors have time to ride the ups and downs of the stock market as they wait for long-term investment theses to materialize.
These defined contribution plans also come with notable tax advantages and employer matches. You get to save money while receiving free money from your employer equal to the match, as long as you contribute enough money to the plan.
Work 2 Additional Years
The research paper also suggests that Gen Z works two additional years, so they retire at 67 instead of 65. That way, you can receive full Social Security benefits when you retire instead of partial benefits. You can max out your Social Security payouts even bigger if you wait until 70 to retire.
Working two additional years is more feasible for low-intensity jobs, especially remote work. It's more difficult for labor-intensive workers like truck drivers and construction workers to continue working into their mid 60s. People who are too physically exhausted from their jobs to continue into their golden years can consider retiring once they can't work anymore and downshift into a job that isn't as physically strenuous.
Although the Vanguard research paper doesn't mention side hustles, having extra income sources can make it easier for someone in their late 50s or early 60s to leave a heavy-duty job if their body can't handle it. People who leave those types of jobs behind will then have more time to focus on their side hustles and potentially use those gigs to replace their main income.
Make Prudent Financial Decisions
Although those two financial levers can help Gen Z retire smoothly, it's important to keep your finances in check as you save and invest. The research paper warned that not every worker has enough personal savings to put money away for retirement. While you should contribute to get the employer's match since it's free money, you should prioritize paying off high-interest debt after maxing the match.
Becoming debt-free may require working extra hours and tightening your expenses. The path to long-term wealth isn't easy, but short-term sacrifices can make it all worth it. While getting rid of small line items in your budget can make a difference, such as the proverbial avocado toast, you will save the most money by focusing on big expenses like housing and transportation. Some people are living in tiny homes and buying used cars to save money on two of their largest purchases.
Finding ways to reduce how much you spend in these two categories will make it much easier to save money, get out of debt and build your retirement portfolio. Then, if you work a little longer, whether it be two more years at your full-time job or a few years of part-time work, you will give your nest egg more mileage. It's not easy to retire smoothly, but it is possible. It's better to focus on the possibility of a happy retirement and what you can do than it is to solely focus on high living costs.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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