How Gen Zers Can Know If They’re on Track for a $1M Retirement
For many Gen Zers, a $1 million retirement nest egg seems like a substantial goal. But decades down the line, financial experts say reaching that milestone may not be as difficult or meaningful as it seems.
“When someone 22 to 25 tells me they want a million for retirement – that's a lot today, but in 40 years that won't buy very much, and that should certainly be looked at when that generation sets their target,” said Christopher Walsh, senior financial advisor and regional director at Capital Choice Arizona.
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So how can Gen Z know whether they’re on track? Here are some signs financial professionals said to watch out for.
You’re Saving and Investing Consistently
Rather than focusing on reaching a specific retirement balance, experts said Gen Z should build better saving habits. Walsh recommended consistently saving 10% to 15% of your income invested for your future.
“Gen Z can gauge whether they’re on track for a $1 million retirement less by a single number and more by consistent behaviors: starting to save and invest early, contributing regularly (especially to tax-advantaged accounts) and increasing contributions as income grows,” said Julia Bartak, a certified financial planner at Edward Jones.
It’s all about consistency. Even small amounts invested regularly grow over time due to compound growth.
“I found most of my success slow and steady. Slow and steady wins the race,” Walsh said.
Your Savings Rate Increases as Income Grows
As your income grows, so too should your savings rate. This allows you not only to maximize the benefits of compound interest, especially when you start early, but also to avoid lifestyle inflation that can make it difficult to build wealth.
“The best indicators are the factors you can actually control, like the percentage of your income you save each year, whether your savings rate grows as your income grows and whether you keep your money invested or pull it out every time the market drops or you lose your job,” said John Moran, certified financial planner at Domain Money.
You’re Taking Advantage of Retirement Accounts
One way to determine whether you’re on track for retirement is to look at where you’re saving. Tax-advantaged accounts, such as 401(k) plans, 403(b) plans and IRAs, can help you grow your wealth by reducing taxes on contributions, earnings or withdrawals, depending on the type of account.
Walsh suggested regularly contributing to retirement accounts and maximizing available options. For example, if you have access to an employer-sponsored retirement plan, consider contributing enough to receive the full company match.
Compound Growth Is Working in Your Favor
Moran recommended using a compound interest calculator you can find online, like the compound interest calculator on the U.S. Securities and Exchange Commission (SEC), entering how much you have saved today, how much you’re putting away each month, what you expect your investments to grow at and how long you’ll let it grow.
“You can play with the numbers until you hit your target. If you're coming up short, you can adjust your contribution amount or frequency, delay your expected retirement or rethink how much risk you take on in your investment strategy,” Moran said.
You're Keeping Lifestyle Creep and Unnecessary Spending Under Control
As income increases, lifestyle creep and unnecessary spending often become a problem. According to Moran, the assumption is typically that you’ll save more when you make more.
“Their income doubles, but it still isn't as much as they were expecting. They take on more responsibilities, maybe a new car or iPhone payment, and find they're still living paycheck to paycheck,” Moran said.
And for most, that cycle continues for another decade or so before they realize that if they want to hit that million-dollar mark, they'll have to either make more or spend less, he added.
Subscriptions are another problem, and they’re one that Walsh sees sneak up on this generation the most.
“It's five dollars a month here, $10 a month there. Not having a clear plan on the subscription tools you're actually going to use is a pitfall that could cost lots of compound growth over time,” he explained.
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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