What Gen Z and Millennials Need to Know About How Retirement Planning Has Changed

With pensions practically extinct, this is not your mother's retirement landscape. These tips will help Gen Z and millennials plan for their future—which will look a lot different than previous generations' retirement.

According to a 2021 survey by Credit Karma, social media has a tight grip on financial literacy education in 2021—with 56 percent of Gen Z and millennials saying that they intentionally use online resources such as Instagram, Facebook, Snapchat and Tik Tok to source personal finance advice. "When it comes to the parts of our financial lives that feel too daunting to even address," Credit Karma's July 2021 report explains, "Gen Z and millennials list 401K vs Roth IRA options (27 percent), stock market investments (25 percent), and crypto currency and digital assets investments as the most daunting."

Of course, one of the reasons young people are so profoundly confused about investing is because it is a relatively new concept for this age bracket. Aggressive investing has grown in popularity as company-led pensions with predictable payouts have slowly disappeared—and, in turn, the notion of retirement has truly been redefined by the dissolution of end-of-career financial benefits once offered by employers.

By their very nature, these plans served as a retention tool to incentivize employees to stay in the same job for a lifetime. Even if they didn't love the work or the boss, this promise of financial security into one's golden years was an alluring social compact for our many Baby Boomers. Which leaves today's personal finance influencers with a captive audience of dreamers, asset-seekers, and serial entrepreneurs—because that old social compact is no longer on offer to many Americans from their employer.

George Blount, a financial therapist and a managing partner at nBalance Financial, explains that "over the last 40 years, retirement has become a shell of what it once was, yet it is an essential element to cycle newer generations into our workforce. If we don't start to address the lack of innate belief in retirement, we may have a society that looks more like a gerontocracy."

The Bureau of Labor and Statistics' 2021 data supports Blount's assessment. The data shows that 68 percent of private industry workers had access to employer-provided retirement benefits in 2021. Yet, only 46 percent had access to a defined contribution retirement plan, meaning that the employer made some kind of commitment to pay into the plan—but it is anybody's guess how much the employee will access when their career ends decades down the line.

Only 5 percent of employees had access to what Baby Boomers would think of as a pension, which is best described as a defined benefit retirement plan. What too many younger-generation folks don't realize is that these kinds of plans—in which the employer transparently guarantees and shares the amount (or the calculation behind the actual amount) an employee is entitled to receive upon retirement—are now a thing of the past.

In fact, for most working Americans in their 20s and 30s, these plans are practically extinct: A 2018 report noted that in 2017, only 16 percent of Fortune 500 companies offered a traditionally defined benefit pension plan to its new hires, as compared to 59 percent of that same group of employers that offered pensions in 1998. The key words here are "new hires." Millennials and Gen Zers—does this sound like you?

What financial experts say Gen Z should know about retirement

Not to knock social media influencers, but retirement planning often requires an offline conversation. Daniel Strachman, CDDA, a financial services professional with more than 20 years of Wall Street experience, says that it is critically important to "sit with a professional, like an accountant, to truly understand what you are going to need to retire so you can plan accordingly before it is too late. You need to look at real living expenses to create a budget for retirement. This is very hard to do—and something most people fail at."

He explains that forced retirement rarely exists outside of some union and government jobs, so retirement dates and ages can vary significantly based on when a person wants to stop working—and when she has the financial means to do so. Strachman says the most important steps you can take are:

Pay yourself first.

The biggest error people make is that they don't take advantage of the forced savings that retirement matching programs provide, regardless of age or closeness to retirement. You need to make the maximum contribution in order to get the maximum corporate match. If you don't do that, you are leaving free money on the table.

Properly protect and allocate your assets.

Make sure your assets are protected and allocated appropriately for your age and life stage. You don't want to wake up one morning and see that your 401k has become a 201k due to massive market selloffs. It is important to have a trusted investment professional help you with allocations to make sure that you are hitting your risk profile. Cryptocurrencies can and will play a part in retirement in the next 10 years—just like oil, silver, gold, and other commodities do. It is not a matter of if, but a matter of when.

Map out how you will move money during retirement.

You need to plan where your money is going to go once you retire. Sometimes people leave it within the retirement plan(s); others move it to a financial advisor. (Keeping money with a financial advisor who can see the whole picture of your assets may be better than simply keeping it in the plan.)

The top retirement pitfalls to watch out for

Every day, Blount homes in on the emotional, behavioral, and psychological elements that impact financial decisions. He is the author of What is Retirement?: The Concept, Plan Administration, and Readiness of Retirement, which helps people navigate their wealth journey in a more informed way.

Although the concept of retirement as we once knew it is fading, he still says that there are several ways individuals can prepare for the time when they will no longer work every day for their income. He shares different cautions based on when you expect to stop working for your daily bread.

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If you are 30 years away from retirement: Figure out streams of income.

As the influencers say, you need to have multiple streams of income to build wealth. If you think that's true today, it will be even more true in retirement. Whether individuals have an Individual Retirement Account (IRA) or 401(k) plan, it is important to know that these products are asset-accumulation vehicles.

They are intended to help you save, but there is no way to automatically convert the accumulated savings into an income stream. To do so requires the asset to shift to a different product—which will create a stream of income. Some may be taxed or subject to withdrawal penalties, which should be calculated now to ensure that your retirement goals are properly calibrated.

Gen Zers can get ahead of costly pitfalls by learning more about taxes, maintaining savings and investment products with low fees, and over-calculating the amount they will need to generate a comfortable amount of cash on hand later in life.

02 of 03

If you are 20 years away from retirement: Play the long game.

Plan to invest in retirement and during retirement. As individuals invest their savings in the market, it is essential to remember that people are living longer, and you will need to invest assets throughout those retirement years to ensure you do not run out of money.

There is a different investment strategy required during retirement than during the years before retirement. Hence, the financial professionals who may have helped you accumulate retirement funds may not be the same ones who help you manage them during retirement. Mentally prepare for a lifetime of keeping a watchful eye on your investment accounts; build professional networks with finance experts who can help you create wealth both before and after retirement.

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If you're 10 years away from retirement: Make well-informed and confident decisions.

There is a lower likelihood of your income increasing year over year if you're approaching retirement during the next decade—and you'll have to compete in any job market with younger generations. Prepare yourself for retirement as if you were an entrepreneur starting a new business—because, essentially, that is what it may feel like.

While accumulating assets, increase your financial education to understand the context of financial decisions. Budgeting, emergency savings, housing, transportation, and leisure activities all involve finances. If you're still intimidated by money and financial planning, decide to tackle those concerns now. Not doing so leaves you vulnerable to fraud.

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  1. Credit Karma, Gen Z turns to TikTok and Instagram for financial advice and actually takes it, study finds. Accessed July 19, 2022.

  2. U.S. Bureau of Labor Statistics, National Compensation Survey. Accessed July 20, 2022.

  3. Willis Towers Watson, Retirement offerings in the Fortune 500: A retrospective. Accessed October 30, 2022.

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