Gen Z expects a 40-year retirement. Good luck, experts say

Gen Z is showing startling confidence about retirement, according to a recent survey.

Not only do Zoomers think they will retire at age 60 on average, according to the Northwestern Mutual survey, but 2 in 5 also expect to live to be 100. They also expect to only need $1.2 million to fund this 40-year retirement. , the lowest estimate of nest eggs among the four generations of adults surveyed.

Research points to a stark gap between Gen Z’s expectations and the reality of their retirement, and financial advisors say those who don’t adjust their outlook or preparations could face a rude awakening.

“It’s possible, but are the 20-somethings ready to make any sacrifices today to ensure that such a long retirement is possible?” Kashif Ahmed, chairman of American Private Wealth, told Yahoo Finance. “I am pessimist.”

But Zoomers are not.

In fact, while they’ve saved an average of $35,800 for retirement so far, nearly two-thirds of Gen Zers “expect to be financially ready for retirement.” Only 52% of non-retired baby boomers, 45% of Gen X and 54% of millennials were so optimistic.

And Gen Z isn’t counting on Social Security to fulfill their retirement dreams, either.

The survey revealed that the generation expects the compensation program to only bring them 15% of their retirement income. By comparison, baby boomers expect it to cover almost 40% of their retirement funds, according to the report.

What bothers financial planners is the total amount Gen Z thinks they need to save — $1.2 million. By comparison, Americans in their 30s estimated they needed $1.44 million for retirement, while those in their 50s expected $1.56 million. (People in their 40s seem more optimistic with an estimate of $1.28 million, according to the report).

“Yes, you can survive on $1.2 million, but what kind of life are you willing to accept?” said Ahmed, noting that few Americans manage to collect so much in the first place. “Not comfortable.”

Asim Hafeez, who achieved financial independence, or optional employment status, in his 20s, said living on $1.2 million over four decades was unrealistic. For example, Hafeez pointed out that such a figure does not seem to take into account costs such as medical bills, which inevitably increase with age.

“It seems extremely miscalculated. There’s no way it’s going to be enough,” he said. “You’re older, you’re probably going to have more expensive medical expenses because your body is breaking down a bit. You might need extra care at some point.”

A recent analysis found that half of the 35 million people with traditional health insurance spent at least 16% of their income on healthcare costs. Each year, they spent an average of $6,663 on insurance premiums and medical services. And Medicare doesn’t cover long-term care, which can be very expensive.

So how much money would someone need to live comfortably in retirement for 40 years?

Linda Farinola of Princeton Financial Group broke it down.

If someone wanted to live on $4,000 a month after taxes for 40 years – assuming inflation of 3% and a return on invested retirement funds of 6% – they would need something close to 4 million dollars, she said.

“I don’t think they don’t fully appreciate the cost of living and the effect of inflation over 40 years,” she said. “Just show them the math. It’s simple math.”

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Younger generations may often not appreciate the expense of everyday living, said Jen Grant of Perryman Financial Advisory. Many can still rely on their parents to cover expenses such as phone bills and are unaware of other costs that emerge as people age.

“I think there’s this point where they’re on the brink of adulthood and they’re starting to make money…but I don’t think they’ve been completely immersed in some of the minutiae of the adult life,” she said. . “If you think all I have to pay is rent, utilities and food, that’s a different life than the rest of us thinking, ‘I have taxes. land for the county “and the older you get, the more nuanced the finances become.”

Still, there’s no need to completely burst the Gen Z retirement bubble, these experts said. If they really want to retire at 60 and plan for 40 golden years ahead, they just need to be realistic about achieving their retirement goals.

For example, Gen Zers should meet with a financial advisor and come up with a plan tailored to their individual needs, said Aditi Javeri Gokhale, chief strategy officer, head of institutional investments and president of retail investments at Northwestern Mutual.

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The Northwestern Mutual study found that “people who identify as disciplined financial planners reduce their retirement age by two years”, while “non-planners add two years”.

Gokhale said a planner could help Gen Zers achieve goals such as getting married and starting a family, getting their kids to school, and, in the long run, retiring.

“So it’s about five years, 10 years, 20 years, and then retirement. So to think about that, you have to start setting goals and planning your goals,” she said. “And that’s how you start having a conversation about short-term and retirement goals.”

Beyond saving in a traditional IRA or Roth and a 401(k), Hafeez recommended Gen Z consider other investments like real estate that provide cash flow.

“The holy grail of retirement is to focus on monthly cash flow which can also be adjusted for inflation over time,” he said.

Ahmed, meanwhile, stressed that there is no getting around hard work, diligent saving and proactive planning for an optimal retirement.

“I always tell my own kids to watch the squirrels in late summer and early fall. They’re busy grabbing all the nuts and whatever they’re going to put away,” a- he declared. “Because they know winter is coming… Winter is your retirement and you need to save for it now.”

Dylan Croll is a reporter for Yahoo Finance.

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