Is Gen Z Struggling To Save for Retirement?

A recent survey by Ernst & Young reveals that 69% of Gen Z workers rate their current financial situation as only “fair,” or worse, with 32% rating their current money situation as poor or very poor. According to the report, finances are the top driver for anxiety in this generation.

While they're struggling with money, another report by Transamerica Center for Retirement Studies reveals Gen Z will have difficulty saving up for retirement and have been negatively affected by the pandemic.

“Generation Z began entering the workforce shortly before the pandemic. They are enduring the worst of the tumultuous labor market. Many have endured employment-related setbacks that negatively impacted their current situation, which could have repercussions for their long-term retirement prospects,” says Catherine Collinson, CEO and president of Transamerica Institute and TCRS.

With over 52% of Gen Z workers experiencing one or more negative employment impacts due to the pandemic, ranging from layoffs and furloughs to reductions in hours and pay, the question is how Gen Z is taking it all in.

How The Pandemic Affected Gen Z

Post-pandemic, Gen Z workers have faced a recession, massive layoffs, pay cuts, student debt, inflation, and a tough housing market. 

As many as 42% of workers became unemployed at some point during COVID, and almost six in 10 Gen Zers have trouble making ends meet. To deal with this, 36% of workers currently have two or more jobs, and 57% have a side hustle.

With the financial hardships, it’s understandable that 50% of workers cite paying debts as their priority, along with covering basic expenses, building emergency savings, and saving for retirement. 

However, it’s essential to note that 66% save for retirement, either through depositing 20% of their annual pay in a 401(k) or similar plan from the age of 19. In doing this, they’ve saved $29,000 in retirement accounts, but only $1,000 in an emergency savings account. 

The report also reveals that 28% of Gen Z workers have dipped into their retirement savings by taking a hardship withdrawal or early withdrawal from a 401(k) or similar plan or Individual Retirement Account (IRA).

How Does Gen Z View Retirement? 

While it is uncertain whether the pandemic was the reason for the shift in mindset, a part of Gen Z views retirement differently.

An October 2022 study by the Transamerica Center of Retirement Studies showed that 41% of Gen Z workers are more likely to dream of doing paid work in retirement. This could include starting a business, pursuing an encore career, or continuing working in the same field.

These numbers are supported by another study conducted by Intuit that demonstrates  experiences matter more than money to Gen Z, since 66% say they are only interested in finances to support their current interests.

In contrast, the latest report by Ernst & Young revealed that 39% of respondents said they are very stressed or worried about making the wrong choices with their money. 

Gen Z's Focus

Transamerica Center For Retirement Studies reports that GenZ has saved $29,000 in total household retirement accounts. 

They Have the Highest Rate of Contribution to a 401(k)

In comparison, every other generation has more, starting with millennials with $49,000 in savings, Gen X with $82,000, and boomers with $289,000.

While Gen Z has saved less, they also have a higher percentage of their income in savings. Still, about 28% of workers have dipped into their retirement savings. 

On the other hand, Gen Z has been trying hard to save up for retirement. Gen Z workers participating in a 401(k) or similar plan contribute 20% (median) of their annual pay, which is much higher than the recommended percentage of 10-15% that all other generations follow.

They Have A Side Hustle or A Second Job

The Ernst & Young report shows that 46% of Gen Z place importance on making money, which has normalized  them working multiple jobs to hedge their bets against the future. 

Nearly two-thirds of Gen Z were employed part-time or full-time last year, while 56% earned money from freelance or “side hustle” work. About 39% of Gen Z made money working both a job and a side hustle. 

What's Happening to Generation Z?

The COVID-19 pandemic has significantly impacted Gen Z's finances, with many facing financial hardships such as unemployment, pay cuts, and student loan debt. However, Gen Z has shown to be resilient and resourceful. 

Despite the financial challenges, Gen Z is still focused on retirement savings. However, it is also essential to understand that 47% of Gen Z report excessive anxiety or worry that is difficult to control.

Gen Z workers should start focusing on their mental health, pick side hustles with a lower time investment but higher profitability, and learn the best ways to invest money in ways that boost their retirement savings.

This article was produced and syndicated by Wealth of Geeks.