Gen Zers Making $100K+ Aren’t Saving for Retirement: Here's Why
Even Gen Z households earning over $100,000 aren’t prioritizing retirement savings. A recent Bank of America report found just 26% of high-earning Gen Zers contribute to a 401(k), and only 23% invest in an IRA.
Here's a closer look at what's holding them back — and what it could cost them.
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Why High-Income Gen Z Aren't Saving for Retirement
Rising living costs are making it harder to save, even for households earning six figures.
"Prices are going up, costs are going up, and I think the perception from many Gen Z folks is that there's an insufficient income to make up for that high cost of living," said Matt Gellene, head of specialized consumer client solutions at Bank of America.
He noted that Gen Z is saving, but the focus tends to be on the short term. The report found that 66% of this generation is saving, but their priorities are saving for major life events (37%), building an emergency fund (33%) and paying down debt (29%). Saving for retirement comes in behind those other goals, with 20% of Gen Z actively saving for the long term.
"Overall, I'm encouraged that Gen Z in general is starting to save, but they're just not looking far enough down the road," Gellene said.
Why Skipping Retirement Savings Early Can Cost You
Delaying retirement savings can have an outsize impact because of compound growth. The earlier you invest, the more time your money has to build on itself — and even a few missed years can significantly reduce your long-term returns.
"Compound interest is the critical piece," Gellene said. "It's always the key to making wealth really grow. And the longer you don't contribute, the less time you have to get the benefits of compounding. Even if it's a couple of years, when you do the math, it's not a modest increase."
The report found that older Gen Z are more likely to be saving for retirement than younger members of this generation. Only 10% of younger Gen Z (ages 18 to 22) put a portion of their paycheck into a 401(k), but 33% of 26- to 29-year-olds are contributing.
"I get encouraged when I see older Gen Z thinking about retirement, but the most important thing is to encourage the younger folks to start saving now, because that's when you get the benefit of compound interest," Gellene said.
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Start With a 401(k) To Build Retirement Savings
For many Gen Z employees, the simplest starting point is a workplace retirement plan. Aim to contribute at least enough to get the full company match.
"If you're with a company that has a match, it's free money," Gellene said. "You should be doing everything you possibly can now to put that money aside to get that employer match, because even if you want to catch up later in life, you're going to be missing out on the match for all those years."
If you do not have access to a 401(k), Gellene recommended saving in a Roth IRA.
"Generally, if you're Gen Z, you're going to be in a higher tax bracket when you retire than you are right now," he said. "So making those contributions after-tax today and then getting the opportunity to take them out of the account tax-free in the future is a strategy that we tell our Gen Z clients to think through."
How Much Gen Z Should Save for Retirement Each Month
Whether you're contributing to a 401(k), an IRA or both, Gellene suggested aiming to save 10% of your monthly income.
"It's a good sort of baseline," he said. "At the end of the day, any amount helps, because if you can get into a habit, you're going to be better off."
Ideally, you'll increase your contributions over time as your earnings increase.
"The most important thing is that people start early," Gellene said. "That 10% is a good benchmark, but if you don't do it early, you're not going to get the compounding and you're going to end up having to catch up."
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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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