Gen Z Guide to Retirement Planning

Peter Richardson is a vice president of Planning Excellence at Northwestern Mutual.

America’s youngest adults have some pretty ambitious goals. That includes long-range goals like retirement or shifting into a “work optional” phase. According to the Northwestern Mutual 2025 Planning and Progress Study, working age members of Gen Z have their sights set on retiring by age 61. In comparison, working age millennials and Gen Xers expect to work until 64 and 67, respectively.

The good news for Gen Z is that it has one of the greatest tools on its side: time. When you start saving early, you harness the full power of compound growth.

How much will Gen Z need to retire?

One part of Gen Z’s outlook is that they don’t expect to get a pension and are doubtful about getting any retirement income from Social Security. (Northwestern Mutual expects that Social Security will continue to pay out at a significant level even if the trust fund disappears.)

To get some perspective, it can be helpful to look at actual retirement savings for various age groups. According to the Federal Reserve, these are average retirement savings, including 401(k) accounts:

• Under age 35: around $30,000
• Age 35–44: around $132,000
• Age 45–54: around $255,000
• Age 55–64: around $408,000
• Age 65–74: around $426,000

With those numbers in mind, here are some practical steps to help get ready.

Gen Z Guide to Retirement Savings

Save strategically

Maybe you want to retire early, or maybe you see yourself staying in the workforce longer than usual. Whatever age you’re targeting, it’s important to know how much you should be saving to hit your goal. A financial advisor can help you get a sense of what you might need for retirement based on when you want to retire—and the lifestyle you want to live.

That said, a good general rule is to save about 20 percent of your income each year. Whether you want to get to 20 percent or you have another number in mind, it’s okay if you’re not quite there. When you get a raise, try to up your retirement savings.

You'll also want to think carefully about where you're putting your money. A thoughtful strategy about the right mix of products can yield a lot of tax savings down the road.

Ideally, your income will continue to grow as you progress in your career, so this can be a good time to take advantage of what’s likely a lower tax rate for you now. Look into accounts like a Roth 401(k) or a Roth IRA. You'll pay tax now when the money goes in, but your funds will grow tax-free and won’t be taxed when you take them out in retirement, a time when your tax rate may be higher.

Again, this is where a financial advisor can help. Your advisor can get to know you and explain how using a range of financial options can benefit you in retirement.

And one more thing: Don’t worry about market volatility for investments that you don’t intend to use for decades. Avoid the temptation to attempt to jump into the market at the perfect time. Remember that you’re playing the long game. Be patient and trust your savings will grow over the decades.

Manage your debt

When used wisely, debt can be a great tool to help fund your education or buy a home. But certain debt, like credit cards, can be a drag as you make high interest payments that could be dedicated to other goals instead. That’s why it’s a good idea to make a plan to get out of debt and work to pay it down strategically.

Plan for risks

You obviously need to save to reach big goals like retirement. But a key part of planning that can be overlooked is preparing for known risks. Most of us understand the value of car insurance. You’re preparing for the risk of getting into an accident. But what about insuring your income or planning for an unexpected expense? Consider setting up the following safety nets:

An emergency fund. In the event that you lose your job or a large, unplanned expense arises, an emergency fund can help you cover the cost without going into debt or dipping into savings earmarked for important financial goals. A good general rule is to keep a reserve of about six months of expenses in your emergency fund. It could even help you take advantage of a great opportunity that comes your way.

Plan for the possibility of a disability. When you’re young and healthy, it’s tough to imagine a disability preventing you from working. But it’s more likely than you might think. The reality is that one in four 20-year-olds today are likely to experience a disability that causes them to miss work, according to the U.S. Social Security Administration. A financial advisor can help you get covered by disability insurance to help keep you on track for your goals if you’re ever sidelined by an illness or injury.

Life insurance. If you’re young and on your own, life insurance may not seem like a priority. And it’s probably best to focus on other goals right now. But if you know you might want coverage in the future, consider adding whole life insurance, which is a type of permanent life insurance, to your financial plan. In addition to locking in a death benefit, your policy will also accumulate cash value, which is guaranteed to grow. Cash value can become a unique source of funding that you could use throughout your life, including in retirement.

Be open to getting help

It’s already time for Gen Z—especially those working full time—to seek help from a financial advisor. After all, Gen Z is already dealing with student loans, thinking seriously about their careers and starting to hit major life milestones. At Northwestern Mutual, our advisors will ask deep questions to get to know you and your goals. Your advisor will get to know you and help you build a plan that takes advantage of opportunities and helps you prepare for blind spots that could get in your way. Then they will work with you to update your plan as your life evolves.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.