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The Guardian
6 days ago
- Business
- The Guardian
Born into crisis, gen Z is saving for retirement like no other generation
Research published at the end of last year by the Investment Company Institute with help from the University of Chicago found that gen Z – those born between 1997 and 2012 – are 'outpacing' earlier generations in contributing to retirement, having more than three times more assets in their 401(k) retirement savings accounts than gen X households had at the same time in 1989, adjusted for inflation. This mirrors a 2023 study from the TransAmerica Center for Retirement Studies, which found that gen Z is doing a 'remarkable job' saving for retirement with many putting away as much as 20% of their income towards the future. It's no wonder why. The oldest of this generation probably have early memories of the 2009-2010 financial crisis. They have lived through a global pandemic. Their social media accounts are frightening them with stories of political upheavals, global warming, indiscriminate violence, riots, chaos and anarchy. Older generations got this kind of news maybe once or twice a day. This generation gets it fed to them every minute. They yearn for security. And one way is to save their money. The question is, are they doing enough? What more could be done? Here are three things we should be considering. Thanks to the Secure2022 legislation, employers can now not only offer Roth 401(k) plans for their employees but can also contribute to those plans. We should all have one. That's because – within income limitations – contributions to a Roth 401(k) are made after taxes have been paid but then grow tax-free and can be withdrawn without any tax liability after the age of 59 1/2. gen Zers – who are likely to be paying less in taxes now due to their relatively lower salaries – can put this money away at lower rates, rather than just defer taxation to a future year when, under regular 401(k) rules, distributions become required. And they can let these sums grow without worrying about paying any more taxes in the future. As an employer, you can provide investment options that can help maximize their returns too. Another great after-tax vehicle is the 529 plan. By offering this plan, an employer can help their employees – both younger and older – put after-tax money away that will grow tax-free and can then be withdrawn if used to pay for higher education, private school or religious school. It's a great way for gen Zers to save for their future kids' education instead of paying for it out of funds that would be used for their own retirement years down the line. Health Saving Accounts have exploded in popularity over the past decade, and it's no surprise why. With these accounts – which need to be paired with a high deductible group insurance plan – employees can sock away pre-tax dollars to be used for medical expenses that are not reimbursed by their health plans. Gains and withdrawals are not taxed. The beauty of these plans is you don't have to use them or lose them – any unused balances just roll over to the next year. Some call it a 401(k) for healthcare, and they're not wrong. It's a great way for younger employees to put away money that could help pay for their future healthcare costs without interfering with their retirement savings. Agree or not, the Trump administration has reversed course with its predecessor and is now demanding student loan repayments. The result is that many younger people are going to need to face the reality of making good on their debt. One fallout will surely be less cash available to put away for retirement. But as employers, we can help. The Secure 2022 legislation now makes it legal for us to match their student loan payments with contributions to their 401(k) plans. This way even if they don't have enough funds to put away for the future, employers can help make up the difference. This is something we should all consider. As a certified public accountant, I have spent my life dealing with money – both my own and my clients'. And yet every day I learn something new and still have to rely on the internet to clarify and research financial questions that I have. Now, imagine being a 25-year-old trying to figure out all the options. It's impossible. A good employer should have an outside financial counselor on retainer who can provide one-to-one advice for their employees once or twice a year. My best clients do this. And it's not just about retirement. It's buying a house, getting insurance, owning a car … all the financial decisions that in the end affect what's left over for retirement. According to a recent Goldman Sachs survey 60% of gen Z respondents report 'having a personalized financial plan, not just for retirement but also for goals like buying a home or a car' and 68% 'believe their savings are on-track or ahead of schedule'. Sounds great. But I'm betting that 'plan' could be improved. Employers should be providing more help to help save for retirement. And the good news is that they have got a generation eager to take it.
Yahoo
29-01-2025
- Business
- Yahoo
Vanguard just issued a warning for future retirees — here's why ‘retirement is changing' and how to prepare
When you think of the traditional retirement, you may think of an old person blowing out the candles on a cake, getting a gold watch as a parting gift, and heading off to the golf course. A near-record number of Americans are grappling with $1,000 car payments and many drivers can't keep up. Here are 3 ways to stay ahead 5 ways to boost your net worth now — easily up your money game without altering your day-to-day life Cost-of-living in America is still out of control — use these 3 'real assets' to protect your wealth today That's not what retirement looks like for many, though, and it's not what a growing number of future retirees want. Vanguard recently published an article titled "Retirement is changing – Are you prepared?" which addresses how people are changing their mindset about retirement. While it was written by one of the company's European executives and is based on a survey of British savers and investors aged 50 to 70, many American retirees will be able to relate. So, what is the big change Vanguard is talking about? Retirees no longer want to quit working cold turkey. They want to retire gradually for a mix of financial and social reasons. Unfortunately, while this may be the dream for many, it's not always the reality. Nearly 60% of American retirees stopped working earlier than they had planned, according to one study. Future workers must be prepared in case it turns out their ideal retirement ends up being off the table. Vanguard said that the majority of future retirees are not interested in just completely stopping work on a set date. Only 24% intended to adopt the cliff-edge view of retirement, working one day and then being retired the next. Most either planned to scale back hours slowly at their existing job (27%), "mostly" stop work on a set date (21%), or switch to a different job (14%). The reasons cited included not feeling ready to completely retire, to top up their income, and social reasons. This finding is very similar to that reported by TransAmerica Center, which said that 54% of U.S. workers plan to keep working in some capacity in retirement, including 16% who plan to work full-time and 38% who plan to work part-time. Forty-seven percent of workers also said they plan to reduce hours and phase down gradually, while just 24% immediately plan to stop working at a certain age or after saving a specific sum. These plans for part-time work mean that life could look very different for tomorrow's seniors — but it's also worth noting that making your financial plans based around this dream could lead to problems. Read more: Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Vanguard has an important warning for those who plan to retire gradually — it's not always going to happen. It found that of those who had already retired, only 38% retired gradually, much lower than the 62% of non-retired people who plan to retire gradually. Pew Research also noted that only around 19% of adults ages 65 and over in the U.S. were working either full-time or part-time in 2022. This means it becomes very important to prepare for the reality that you may not be able to retire gradually as planned. To make sure you're prepared: Save enough money to support yourself by the traditional retirement age of 62 even if you hope to retire later Consider your health status and job skills when deciding whether a phased-in retirement is likely to be possible Focus on finding an "age-friendly" employer who has plenty of older workers on staff and who appears to value experience as much as youth Take good care of your health with exercise and regular preventative care to maximize the chances you'll be healthy enough to phase into retirement gradually Set realistic expectations for your retirement, which likely means working until 70 is probably not in the cards Retirement doesn't have to look like it once did — you can try to set yourself up for the gradual retirement so many dream of. However, you must be ready in case that doesn't happen and proactive about saving the money you need for a secure future even if you retire at a younger age. I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) 'Savers are losers': Robert Kiyosaki warned that millions of 401(k)s and IRAs will be 'toast' — here's his advice for older Americans who want to protect their wealth Suze Orman: If you think you're ready to retire, think again — 4 critical money moves to avoid a financial crisis in retirement This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Yahoo
29-01-2025
- Business
- Yahoo
Vanguard just issued a warning for future retirees — here's why ‘retirement is changing' and how to prepare
When you think of the traditional retirement, you may think of an old person blowing out the candles on a cake, getting a gold watch as a parting gift, and heading off to the golf course. A near-record number of Americans are grappling with $1,000 car payments and many drivers can't keep up. Here are 3 ways to stay ahead 5 ways to boost your net worth now — easily up your money game without altering your day-to-day life Cost-of-living in America is still out of control — use these 3 'real assets' to protect your wealth today That's not what retirement looks like for many, though, and it's not what a growing number of future retirees want. Vanguard recently published an article titled "Retirement is changing – Are you prepared?" which addresses how people are changing their mindset about retirement. While it was written by one of the company's European executives and is based on a survey of British savers and investors aged 50 to 70, many American retirees will be able to relate. So, what is the big change Vanguard is talking about? Retirees no longer want to quit working cold turkey. They want to retire gradually for a mix of financial and social reasons. Unfortunately, while this may be the dream for many, it's not always the reality. Nearly 60% of American retirees stopped working earlier than they had planned, according to one study. Future workers must be prepared in case it turns out their ideal retirement ends up being off the table. Vanguard said that the majority of future retirees are not interested in just completely stopping work on a set date. Only 24% intended to adopt the cliff-edge view of retirement, working one day and then being retired the next. Most either planned to scale back hours slowly at their existing job (27%), "mostly" stop work on a set date (21%), or switch to a different job (14%). The reasons cited included not feeling ready to completely retire, to top up their income, and social reasons. This finding is very similar to that reported by TransAmerica Center, which said that 54% of U.S. workers plan to keep working in some capacity in retirement, including 16% who plan to work full-time and 38% who plan to work part-time. Forty-seven percent of workers also said they plan to reduce hours and phase down gradually, while just 24% immediately plan to stop working at a certain age or after saving a specific sum. These plans for part-time work mean that life could look very different for tomorrow's seniors — but it's also worth noting that making your financial plans based around this dream could lead to problems. Read more: Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Vanguard has an important warning for those who plan to retire gradually — it's not always going to happen. It found that of those who had already retired, only 38% retired gradually, much lower than the 62% of non-retired people who plan to retire gradually. Pew Research also noted that only around 19% of adults ages 65 and over in the U.S. were working either full-time or part-time in 2022. This means it becomes very important to prepare for the reality that you may not be able to retire gradually as planned. To make sure you're prepared: Save enough money to support yourself by the traditional retirement age of 62 even if you hope to retire later Consider your health status and job skills when deciding whether a phased-in retirement is likely to be possible Focus on finding an "age-friendly" employer who has plenty of older workers on staff and who appears to value experience as much as youth Take good care of your health with exercise and regular preventative care to maximize the chances you'll be healthy enough to phase into retirement gradually Set realistic expectations for your retirement, which likely means working until 70 is probably not in the cards Retirement doesn't have to look like it once did — you can try to set yourself up for the gradual retirement so many dream of. However, you must be ready in case that doesn't happen and proactive about saving the money you need for a secure future even if you retire at a younger age. I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) 'Savers are losers': Robert Kiyosaki warned that millions of 401(k)s and IRAs will be 'toast' — here's his advice for older Americans who want to protect their wealth Suze Orman: If you think you're ready to retire, think again — 4 critical money moves to avoid a financial crisis in retirement This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Sign in to access your portfolio
