Gen Z’s 401(k) Money Soars 66% — 4 Steps Young People Are Taking To Retire Sooner
Investing In Themselves
“Gen Z is not looking to retire to margaritas on the beach, they want to retire to a more meaningful life and work,” said Dominic Wright, a certified financial planner and the voice behind the blog GenZFinancialPlanning.com.
Gen Z workers are not content with simply clocking in and out; they’re seeking fulfillment and purpose beyond the traditional 9-to-5 grind. Many are taking proactive steps to learn new skills or enhance existing ones through certifications and training programs. By monetizing these skills, they create avenues for supplemental income that can be channeled directly into retirement savings.
This approach enables them to not only save more but also work on side projects that resonate with their passions.
These side gigs can become the meaningful work they are looking for. Eventually, this income can replace their primary job, allowing them to transition to a retirement rich in purpose.
Maxing Out Retirement Accounts
The power of retirement accounts cannot be overstated, and Gen Z is harnessing this power early on. “Another step I see Gen Z clients take to retire sooner is diligently maxing out their retirement accounts every year,” Wright said.
Michelle Francis, owner of the financial planning and investment management firm Life Story Financial, recommended that workers should aim to save at least as much as the employer match offered. “This is essentially free money,” she said.
She recommended not only investing in a 401(k) or 403(b), but also in a Roth 401(k) if offered through the employer, or in a separate Roth IRA.
The appeal of Roth accounts lies in their ability to provide tax-free growth and income during retirement. By investing post-tax dollars in a Roth account, Gen Z workers position themselves for a retirement where their earnings can compound over time.
“401k plans and IRAs are massive engines to accelerate anyone’s path to retirement, and the earlier you can start the better!” Wright said. This is due to compound interest — the interest earned not just on the initial investment but also on the interest already generated by that investment.
“In other words, it’s earning interest on top of interest,” Francis said. “Even a small amount can really add up over the years when starting young.”
This makes it imperative to prioritize saving as much as possible in your employer’s retirement savings account to reap the rewards of this compounding phenomenon.
“Regardless of income, I always say that some money saved is better than no money saved when it comes to saving for retirement,” Francis said. She encouraged young workers to establish a savings habit by making small adjustments to their spending habits. For example, redirecting the money spent on eating out just once a month toward a retirement savings account can lay the foundation for disciplined financial planning.
Embracing High-Risk Opportunities
In a world where traditional career paths are evolving, Gen Z is unafraid to tread the less conventional route. Pursuing high-risk jobs, such as entrepreneurship, small-business ownership or sales careers, might appear daunting, but these paths come with the promise of higher income potential.
“Because Gen Z is young and have little obligations, they are at an ideal time in their lives to seek jobs that appear high risk because they can always find salary or hourly employment if it does not work out,” Wright said.
These high-risk endeavors demand time and effort, resources that many older individuals might lack due to existing commitments. By diving into these opportunities early in life, Gen Z is positioning themselves to reap the rewards of their efforts over time. Should these ventures not pan out, their age allows them to pivot and explore more stable paths, ensuring that they remain in control of their financial destinies.