Younger Generations Struggle to Save for Retirement Amid Soaring Cost of Living
In a recent report by Fidelity Investments, it has been revealed that Millennials and Gen Z individuals are increasingly apprehensive about their ability to save for retirement in light of the escalating cost of living. The "2024 State of Retirement Planning" study disclosed that 57% of Millennials and 56% of Gen Z respondents anticipate encountering greater difficulties in saving for retirement than their parents.
The study highlighted several obstacles hindering individuals across generations from achieving their retirement savings objectives. While respondents cited inflation, consumer debt, and the necessity to establish emergency funds as primary barriers, younger cohorts face additional challenges such as managing student loan debt, saving for homeownership and wedding expenses, and grappling with childcare costs.
The pressing nature of these challenges is underscored by the regret expressed by respondents across all age groups regarding the timing of their retirement planning.
On average, Gen Z participants expressed a desire to begin retirement planning at the age of 17, yet they typically didn't start until 20. Similarly, Millennials regretted not starting retirement planning earlier, with their preferred starting age being 22 compared to their actual starting age of 27.
However, amidst these challenges, recent legislative initiatives offer a ray of hope. The passing of the SECURE 2.0 Act is seen as an essential step in bolstering retirement savings. This law allows employers to contribute to employees' retirement accounts while they repay student loans.
It also introduces emergency savings accounts, enabling non-highly compensated employees to save funds, with employees and employers able to contribute up to a specified limit.
The potential benefits of these legislative changes are not lost on younger generations. A significant proportion of Gen Z and Millennial respondents expressed optimism about the prospect of leveraging the SECURE 2.0 Act to enhance their retirement savings while concurrently bolstering their emergency funds.
Despite these proactive measures, a prevailing aspiration shared across generations is the desire to retire at an age conducive to maintaining an active and healthy lifestyle. The study revealed that an overwhelming 85% of respondents aspire to retire at an average age of 61-62.
Nevertheless, the motivations underpinning retirement vary significantly among generations. While Gen Z and Millennials prioritize objectives such as achieving debt freedom and career milestones, Boomers tend to emphasize emotional readiness as a determining factor for retirement.
Notably, a fraction of Gen X respondents remain undecided about their retirement timeline. However, they continue to adhere to Fidelity's recommended savings rate of 15% of their income, inclusive of both employer and employee contributions.
"Another way to look at the guidance is for people to aim to have 10 times their starting salary saved by the time they're 67, provided that they withdraw no more than 4.5% of their retirement savings – all of which should be adjusted up or down if they plan to retire earlier or later than age 67," suggested Rita Assaf, vice president of retirement products at Fidelity Investments.
"As an example, for someone at age 30, we recommend them having 1x their starting salary saved for retirement; and for someone at age 40, they should have 3x their starting salary saved."