Why Nearly Half of Gen Z Is Cutting Back on Retirement Savings
One of the key tenets of retirement savings is to be consistent — but 38% of U.S. workers have reduced their contributions in the past 12 months, a recent Clever Real Estate survey found. That number soars to nearly half (46%) for Gen Z.
In addition, many workers are withdrawing from their retirement savings, despite possible early withdrawal penalties. The survey found that 38% of workers have pulled money out of their retirement savings at some point, including 48% of Gen Z.
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For many young workers, the issue isn't a lack of interest in retirement planning — it's a struggle to balance long-term savings with today's rising costs. Here's why Gen Z is cutting back on retirement savings and more alarmingly, making early withdrawals.
Why Gen Z Is Reducing Retirement Contributions
Among all workers who have reduced their contributions, nearly half say it's because the cost of living is too high (45%), followed by high housing costs (32%) and high taxes (30%). The reasoning is slightly different for Gen Z.
Among Gen Z workers who reduced their contributions:
37% say it’s because the cost of living is too high
33% say it’s because taxes are too high
29% say it's to cover housing costs
29% say it's because they're saving for a home
"Gen Z workers are less likely to own homes, so [reducing contributions due to] general housing costs are a bit lower among that group — 29% versus 32% [overall]," said Jaime Seale, data writer at Clever Real Estate.
"However, housing affordability is still a big deterrent to saving for retirement — it just shows up as saving for a down payment, with 29% of Gen Z saying it’s why they reduced contributions, compared to 17% of overall respondents."
Why Nearly Half of Gen Z Has Made Early Retirement Withdrawals
Cutting contributions is only part of the story. Nearly half of Gen Z workers (48%) have also dipped into retirement savings early.
"Gen Z is in a season of life where they have significant financial responsibilities, such as student loan payments or saving for a down payment, while probably earning modest entry-level salaries," Seale said. "At the same time, they haven’t had a lot of time to build up their savings, leaving them financially vulnerable if they have an emergency expense."
Many Gen Zers may pull from their retirement account if they need quick access to cash. And often, these withdrawals are significant. Among Gen Z workers, 57% have withdrawn at least $10,000, while nearly 44% have taken out $25,000 or more. One in 5 Gen Z workers (20%) have pulled out $50,000 or more.
"Gen Z has decades to replenish their savings before retirement, but early withdrawals limit the power of compound interest, making it more difficult to build wealth and achieve a comfortable retirement," Seale said.
Gen Z has pulled money out of retirement accounts to:
Cover day-to-day expenses (39%)
Make a major purchase (28%)
Cover a medical or healthcare expense (24%)
Cover a non-medical emergency expense (20%)
Make a mortgage/rent payment (19%)
Pay off debt (19%)
"The No. 1 reason overall workers and Gen Z workers pull money out of retirement is to cover day-to-day expenses, but it’s even more common for Gen Z — 39% versus 30%," Seale added. "This suggests young workers are using retirement savings to make ends meet on an ongoing basis rather than just for isolated emergencies."
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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