Gen Z Expects to Retire Early

While baby boomers might expect to keep working into their 70s before retiring, Gen Z has a fully different expectation for their own retirement decades from now, according to a recent report.

In a report published last week from Northwestern Mutual, Gen Z had a surprisingly young average expected age for retirement: 60. Gen Z, comprising of those aged 12 to 27, was also eager to start saving for their future retirement, with an average starting age of 22 for saving. This was in stark contrast to baby boomers, those born between 1946-1964, who said they, on average, started saving at age 37 and expect to work until they're 72 years old.

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According to Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, it comes down to a basic difference in philosophy for Gen Z.

"Whereas previous generations saw work as the dominant aspect of one's lifespan, Gen Z in large numbers appears to see employment as a financial vehicle to aspirational goals more than a source of fulfillment," Beene told Newsweek.

Altogether, the United States is facing a retirement savings gap, as adults believed they needed around $1.46 million to retire comfortably while the average amount adults had saved was only $88,400, according to Northwestern Mutual's report.

The $1.46 million number is a 15 percent increase over the last year and a whopping 53 percent increase from what Americans reported they would need in 2020, reflecting strong inflation across all sectors.

As Gen Z watches inflation occur over the span of their young adulthood, it's tough to say whether their goals of retirement at age 60 are too lofty or not yet, Beene said.

The average age that Americans started saving for retirement is 31, so Gen Z does have a significant leg up on their elders in terms of saving. With Gen Z entering the workforce, many are looking at their financial futures more critically after learning from the mistakes of those who came before them.

"These numbers tell a fascinating story about the profound shift in financial planning that has taken shape in America," Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual, said in a statement.

She added: "Young people today recognize the value of retirement planning and building wealth early on in life and are getting a significant head start over their parents and grandparents. At the same time, Gen Z is redefining retirement and signaling that they plan to have long and fulfilling post-career lives. The good news is that they are investing earlier so they can save the money they need to enjoy it."

Read more: Investment Portfolio: What It Is and How to Build a Good One

Social Security, a major source of retirement money, remains in limbo as experts have predicted funds will become insolvent by as early as 2033 if nothing changes.

This could put Gen Z at a disadvantage compared to their predecessors, who have more confidence that the Social Security program will be there to support them once they hit retirement age.

Still, the increased awareness of the challenges that await them could make Gen Z better off as they approach their retirement savings.

"Starting to save for retirement early is always a positive when assessing future wealth," Beene said. "Ultimately, I think those in Gen Z are more driven to experience life outside of work and are making retirement financial plans with that idea in mind."

Update 4/9/24, 10:36 a.m. ET: This article was updated with comment from Aditi Javeri Gokhale.