Gen Z wants to retire early, but are they realistic?

Gen Z, the generation born between the mid-1990s and early 2010s, is entering adulthood with a generally positive financial outlook. Unlike previous generations, they appear optimistic, with a significant portion reporting improved financial situations and a strong belief in their ability to reach their retirement savings goals.

But is this aspiration grounded in reality, or is it a pipe dream fueled by a hot job market with an uncertain future?

Key relationships

• 75 percent of employed Gen Z workers received a raise or found a higher-paying job in the 12 months leading up to October 2023, a Bankrate survey released in November found.

• According to a Bankrate survey, a majority of Gen Z, 58 percent, felt optimistic about their financial future heading into 2024.

• However, that optimism seems out of step with how Gen Zers say they are saving for retirement. Gen Z is the most likely generation to say they are saving less money compared to last year at 17 percent and that they haven’t saved for retirement this year or last year at 29 percent, an exit poll found retired Bankrate.

• 29 percent of Gen Z did not contribute to their retirement account in 2022 or 2023, the Bankrate survey found.

• Gen Z, more than any other age group, thinks they need to be millionaires to be successful, at 16 percent, according to a May 2024 Bankrate survey.

Benefiting from a strong labor market

There’s no denying Gen Z’s optimism, despite financial challenges like student loan debt and an unaffordable housing market.

Bank-level surveys paint a clear picture: a significant portion, 37 percent, of Gen Z respondents reported that their finances have improved since 2020, and a whopping 58 percent believe their situation will improve even in 2024, according to a recent Bankrate survey.

This confidence can be largely attributed to the hot job market. Early career adults, especially Gen Z, have benefited tremendously from the booming labor market, with wages growing at a much faster rate for this age group than for other demographics.

“The surprising strength of the job market and millions of open positions have meant steady pay and plenty of opportunities for work and advancement,” says Greg McBride, Bankrate’s chief financial analyst.

Federal Reserve data shows that wages for Gen Z workers grew more than twice as fast as older workers (13 percent for those ages 16-24 versus 4 percent for those ages 55 and older) at the peak of the post-pandemic boom.

“Early career years can see faster salary growth as you move from part-time, entry-level jobs to full-time jobs, adding education, credentials and other skills,” says McBride.

In fact, 75 percent of employed Gen Zers received a raise or found a higher-paying job in the past 12 months through October 2023, a separate Bankrate study released in November found.

Gen Z also seems to be engaging with financial literacy differently than previous generations their age. They are following financial creators on social media, reading about investments online and talking about money more openly than previous generations.

Witnessing others achieve their financial goals can fuel their desire to do the same. This enhanced financial literacy can be a powerful tool for navigating the complexities of personal finance.

But is the future really that bright?

Gen Z’s financial optimism is refreshing, but it must be tempered with a realistic understanding of the economic landscape and their financial situation.

While the current job market favors Gen Z, its long-term sustainability remains to be seen. Economic cycles are a natural part of the system and despite strong growth, headwinds remain for younger generations.

Student loan debt, a burden carried by many people, strains finances and budgets. A majority of Gen Z borrowers, 74 percent, say they’ve been stuck on important financial decisions because of their student loan debt, according to a December 2023 Bankrate survey.

Inflation also reduces the purchasing power of savings over time. Market volatility and potential labor market fluctuations are also concerns.

Young people can also get help from their parents. The number of 25- to 34-year-olds living at home with their parents has increased 80 percent since 2003, according to Census Bureau data.

Gen Z’s financial vulnerability to a downturn is worrying. Nearly one-fifth (18 percent) lack emergency savings, leaving them exposed if they face job losses or unplanned expenses, according to a Bankrate survey in February.

“While the job market is hot right now, it may not always stay that way,” says Hanna Horvath, a certified financial planner and senior editor at Bankrate. “Having money to cover you in the event of job loss or other costs is very important.”

Finally, the rising cost of living, especially housing, could reduce the power of Gen Z’s seemingly impressive salaries.

“If your rent is eating up most of your budget, it can make it difficult to save or afford other necessary purchases,” says Horvath.

Gen Z’s view of retirement

About 45 percent of Gen Z and millennial workers feel like they’re on track with retirement savings, compared to 26 percent of Gen X and 34 percent of growth workers, according to a Bankrate survey.

Over a third (35 percent) say they would need more than $1 million to retire comfortably – the highest percentage of any generation. About 58 percent of Gen Z workers who know how much they will need to retire believe they will be able to reach it.

However, this optimism seems at odds with the fact that 29 percent of Gen Z did not contribute to their retirement in 2022 or 2023, the survey found.

“It’s understandable that many Gen Zers have not been able to prioritize retirement, given the inflationary environment,” says Horvath. “Fortunately, even small contributions to your retirement account can grow significantly over the years thanks to compound interest.”

Another factor to consider is the changing landscape of retirement itself. The traditional notion of retiring in your 60s may no longer be financially feasible for some. Social Security benefits may not be as strong when Gen Z reaches retirement age, and with an increasing life expectancy, they may need to financially support themselves longer than previous generations.

How Gen Z can secure a bright financial future

That’s not to say early retirement is an impossible dream for General Z. But achieving it requires a healthy dose of realism and a solid financial plan.

Here are some key steps they can take:

• Build an emergency fund: Having a safety net to cover unexpected expenses is essential. Aiming for three to six months of living expenses in an emergency fund is a good starting point. Worryingly, however, 79 percent of Gen Z say they would be nervous about having enough emergency savings to cover their immediate living expenses for a month if they lost the family’s main source of income tomorrow.

• Prioritize debt management: Student loans and other debt can be a massive burden for young people. Develop a plan to strategically pay down debt while saving for retirement.

• Invest early and consistently: Time is Gen. Z’s biggest advantage Even small, regular contributions to a retirement plan can grow significantly over time thanks to compound interest.

• Seek professional guidance: Navigating financial decisions alone can be overwhelming. Consulting a financial advisor can provide valuable personalized advice.

By setting realistic goals, prioritizing savings and making smart investment choices, Gen Z can increase their chances of reaching their financial goals.

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Gen Z’s financial aspirations are a positive sign. Their focus on building a secure future positions them well for long-term success. While early retirement may remain a dream for some, a secure and prosperous future is definitely within reach for this ambitious generation.