Gen Z expects a retirement age of 40. Good luck, experts say

Generation Z shows striking confidence when it comes to retirement, according to a recent survey.

Not only do Zoomers think they’ll retire at 60 on average, according to the Northwestern Mutual survey, but 2 in 5 of them also expect to live to 100. They also expect to need just $1.2 million to finance the 40- year-old retirement, the lowest nest egg estimate among the four adult generations in the survey.

The research underscores a striking discrepancy between Gen Z’s expectations versus the reality of retirement, and financial advisors say those who don’t adjust their outlook or prepare could be in for a rude awakening.

“It is possible, but is the 20-year-old willing to make the sacrifices today to ensure that such a long retirement is possible?”[ads1]; Kashif Ahmed, president of American Private Wealth, told Yahoo Finance. “I’m pessimistic.”

But there are no zoomers.

In fact, while they have so far saved an average of $35,800 for retirement, nearly two-thirds of Gen Z expect to be financially prepared for retirement. Only 52% of unretired baby boomers, 45% of Gen X and 54% of millennials were as optimistic.

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

The survey found that generation expects the entitlement program to deliver just 15% of their retirement income. By comparison, Boomers expect it to cover nearly 40% of their retirement assets, according to the report.

The point that bothers financial planners is the total amount Gen Z thinks they need to save — $1.2 million. For comparison, Americans in their 30s estimated they needed $1.44 million for retirement, while those in their 50s estimated $1.56 million. (People in their 40s appear to be 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 lifestyle are you willing to accept?” Ahmed said, noting that few Americans can lift that much in the first place. “Not comfortable.”

Asim Hafeez, who managed to achieve work-optional status in his 20s, said living on $1.2 million over four decades was unrealistic. For example, the owner of Empower Energy Solutions, a financial planning firm, pointed out that such a figure does not seem to take into account costs such as medical expenses, which inevitably increase with age.

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

A recent analysis found that half of the 35 million people with traditional Medicare spent at least 16% of their income on health care expenses. Annually, 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 might 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 — taking into account 3% inflation and a 6% return on invested retirement funds — they would need somewhere closer to $4 million, she said.

“I don’t think they 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.”

Gen Z expects a retirement age of 40.  Good luck, experts say

(Photo: Getty Creative)

Younger generations can often fail to appreciate the costs of day-to-day living, said Jen Grant of Perryman Financial Advisory. Many may still rely on their parents to cover expenses such as phone bills and are unaware of other costs that arise as people age.

“I think it’s that cusp where they’re on the edge of adulthood and they’re starting to make money … but I don’t think they’ve been completely absorbed in any of the adult details of life,” she said. “If you think all I have to pay for is rent and utilities and food, that’s a different life than the rest of us who think, ‘I have property taxes for the county,’ and the older you get, the more nuanced finances become.”

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

The hands of the financial manager take notes when he works

(Photo: Getty Creative)

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

Gokhale argued that a planner could help Gen Zers navigate goals such as getting married and starting a family, putting their children through school and, in the long term, retirement.

“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 goals,” she said. “And that’s how you start having a conversation about both short-term and retirement goals.”

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

“The holy grail of retirement is to focus on monthly cash flow that can also be inflation-adjusted as time goes on,” he said.

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

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

Dylan Croll is a Yahoo Finance reporter.

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