Yahoo Finance Gen Z and Millennials: What Will Your Retirement Age Look Like?
If you’ve been paying attention to the news, you know there are concerns that Social Security reserves are hurtling toward depletion. One solution that has been proposed to combat the dwindling funds is to raise the full retirement age from 67 to 70 (and beyond), which will also reduce benefits for those claiming Social Security for the first time.
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Although lower- and middle-income beneficiaries will be hardest hit by this change, younger generations, especially millennials and Gen Z, still have plenty of time to prepare for what seems inevitable.
Jay Zigmont, Ph.D, CFP, founder of Childfree Wealth, said, “Social Security solvency has been an ongoing issue and is likely to get worse over time. Millennials and Gen Z need to prepare for the full retirement age going up, as it likely will, and for lower Social Security payments. Social Security should be seen as a bonus part of their retirement plan, not as the core of their retirement plan.”
Here’s some insight into what the retirement age might look like for Gen Z and millennials and what steps those generations should take now to prepare.
How Much of a Reduction in Benefits Will There Be?
Kendall Meade, a financial planner at SoFi, said that if the full retirement age is pushed back for millennials and Gen Zers, those generations will need to save more for retirement.
“It is estimated that by pushing the age back to 70, the average impact would be a 20% reduction in benefits,” she said.
Social Security benefits are modest to begin with. At the end of April 2023, the average Social Security benefit for a retired worker was $1,834.80. A 20% cut would equal a reduced benefit of about $1,477 per month.
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Retirement Savings Tips for Millennials and Gen Zers
If you’re worried about what your retirement age will look like, the solution is to stop worrying and start taking action.
“Picture retirement planning as preparing for a marathon that’s just been extended,” said Taylor Kovar, CFP, CEO at The Money Couple and Kovar Wealth Management. “If the finish line moves from 67 to 70, it’s time for millennials and Gen Zers to rethink their training regimen. The extra miles mean saving more, investing wisely and perhaps even prioritizing retirement contributions over other financial goals. If the hill’s gotten steeper, it’s time to lace up tighter and start running sooner.”
With that being said, here are some helpful retirement savings tips from Meade to help build a financially secure future.
Automate the Important
Meade said that we can be our own worst enemy when it comes to accomplishing goals.
“One way to overcome the challenges of human behavior is to automate your finances as much as possible so that you aren’t relying on willpower alone,” she advised. “Automation allows you to make a tough decision once and reap the rewards on an ongoing basis. When we have our retirement contributions come directly out of our paycheck, or even come out of our savings account as soon as we get paid, we never see this money in our account. This makes it out of sight out of mind and can keep us from spending it.”
Start Saving/Investing ASAP
By beginning as soon as possible, you are able to contribute more to your retirement savings but are also able to grow it more through the power of compounding.
Meade said that small delays in saving can have a huge impact on your outcome. She said that if you assume a 7% return and a starting salary of $75,000 with a 2% increase per year, the following balances are what you could have in your retirement account at 50 by contributing 15% beginning at various ages:
Starting at 22: $1,014,071
Starting at 25: $779,384
Starting at 30: $485,936
“The standard rule of thumb is to target 15% of your gross annual income going toward retirement savings, but keep in mind that this assumes you start at a young age and plan on retiring at a normal retirement age, around age 67,” Meade advised. “For those who may have started later or plan to retire earlier, you may want to increase the amount you save.” Meade also stressed that you should always take advantage of any employer match offered.
Save the Majority of any Raise or Bonus
Meade acknowledged that it could be tempting to treat yourself when you receive raises or bonuses, but by saving the money instead, you can do two things: prevent lifestyle inflation and increase your savings for retirement.
“Lifestyle inflation is when your spending increases as your income does; by keeping our expenses lower, we then find that we actually need less money in retirement to maintain our same lifestyle,” she said.
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