No such thing as overprepared: 3 retirement tips for Gen Z employees to consider today

January 25, 2022 4:20 PM

The younger generation of workers may be decades from retirement — but they’re at the right age now to start preparing for it.

Gen Z is slated to make up the largest percentage of the workforce in the next ten years, which means they will eventually make up one of the largest demographics of retirees. But while they’re ahead of the game when it comes to saving — with younger generations putting 15% of their annual salary away into retirement accounts compared to 10% for Baby Boomers and Gen X workers — they still have a lot to learn.

“If you're in your twenties, [retirement] may seem like a really long way away,” says Anne Lester, the former head of retirement at JP Morgan. “So it falls to the bottom of your list, until there you are, 15 years later going, ‘I should have been saving more.’”

For younger workers, retirement may come up faster than anticipated: 59.4% of Gen Z respondents and 59.5% of millennials plan to retire before 60, according to a recent survey by Northwestern Mutual.

To help younger employees get on the right track as soon as possible, it’s important they understand terminology like pension plans, 401(k)s and IRAs, Lester says. While these terms may be comfortable for older employees, they’re entirely new for employees who just entered the labor force. Having a firm grip on their retirement strategies will help them navigate career ups and downs while staying on the right financial path.

Lester shared some of the biggest takeaways young employees should be considering when contemplating retirement:

Automate your savings

Automation is one of the best tools younger employees have at their disposal that older employees didn’t, so it’s important they take advantage.

“If you're lucky enough to have been automatically signed up in a workplace savings program, that's great, but if you haven't been, make sure you're in it,” Lester says. “And if you don't have a workplace savings program, set up an account through your bank online.”

Automation ensures that employees can set up tools like IRA accounts and make sure that that money comes out of your paycheck before they even know they have it.

Increase your rate of savings whenever you can

This may be the hardest step for younger employees receiving a paycheck for the first time, but it may be the most critical, according to Lester. And it doesn’t have to be as painful as it sounds.

“Promise yourself that every time you get a raise, you will increase your savings — ideally by half of the size of your raise,” she says. “If you're earning $100,000 a year and you get a 5% raise, save two and a half percent of that. That way you get the benefit of enjoying the additional paycheck that you've got.”

To make it easier, some companies can have it programmed directly into their 401(k) plans. That way, an employee’s standard of living goes up, but they’re not getting used to the additional money, making it a painless way to increase their savings rate.

Let a professional manage your investments

Many jobs include automatic investments into target-date or managed funds. As much as younger employees may feel like they can figure it out on their own, investing in the services of a financial professional may be worth it, Lester says.

“It is really easy to get caught up in a cycle of fear and greed,” Lester says. “And what tends to happen when people are being driven by those things is that they tend to buy when the market's going up and they tend to sell when it feels scary and the market is going down.”

Having a professional manage that aspect of their retirement can lift a weight from young employees' shoulders. No matter their age, making long-term decisions with a clear head and steady guidance can reduce stress and the margin for error.