Of course, one of the reasons young people are so profoundly confused about investing is because it is a relatively new concept for this age bracket. Aggressive investing has grown in popularity as company-led pensions with predictable payouts have slowly disappeared—and, in turn, the notion of retirement has truly been redefined by the dissolution of end-of-career financial benefits once offered by employers. By their very nature, these plans served as a retention tool to incentivize employees to stay in the same job for a lifetime. Even if they didn’t love the work or the boss, this promise of financial security into one’s golden years was an alluring social compact for our many Baby Boomers. Which leaves today’s personal finance influencers with a captive audience of dreamers, asset-seekers, and serial entrepreneurs—because that old social compact is no longer on offer to many Americans from their employer. George Blount, a financial therapist and a managing partner at nBalance Financial, explains that “over the last 40 years, retirement has become a shell of what it once was, yet it is an essential element to cycle newer generations into our workforce. If we don’t start to address the lack of innate belief in retirement, we may have a society that looks more like a gerontocracy.” The Bureau of Labor and Statistics’ 2021 data supports Blount’s assessment. The data shows that 68 percent of private industry workers had access to employer-provided retirement benefits in 2021. Yet, only 46 percent had access to a defined contribution retirement plan, meaning that the employer made some kind of commitment to pay into the plan—but it is anybody’s guess how much the employee will access when their career ends decades down the line. Only 5 percent of employees had access to what Baby Boomers would think of as a pension, which is best described as a defined benefit retirement plan. What too many younger-generation folks don’t realize is that these kinds of plans—in which the employer transparently guarantees and shares the amount (or the calculation behind the actual amount) an employee is entitled to receive upon retirement—are now a thing of the past. In fact, for most working Americans in their 20s and 30s, these plans are practically extinct: A 2018 report noted that in 2017, only 16 percent of Fortune 500 companies offered a traditionally defined benefit pension plan to its new hires, as compared to 59 percent of that same group of employers that offered pensions in 1998. The key words here are “new hires.” Millennials and Gen Zers—does this sound like you?
What financial experts say Gen Z should know about retirement
Not to knock social media influencers, but retirement planning often requires an offline conversation. Daniel Strachman, CDDA, a financial services professional with more than 20 years of Wall Street experience, says that it is critically important to “sit with a professional, like an accountant, to truly understand what you are going to need to retire so you can plan accordingly before it is too late. You need to look at real living expenses to create a budget for retirement. This is very hard to do—and something most people fail at.” He explains that forced retirement rarely exists outside of some union and government jobs, so retirement dates and ages can vary significantly based on when a person wants to stop working—and when she has the financial means to do so. Strachman says the most important steps you can take are:
Pay yourself first.
The biggest error people make is that they don’t take advantage of the forced savings that retirement matching programs provide, regardless of age or closeness to retirement. You need to make the maximum contribution in order to get the maximum corporate match. If you don’t do that, you are leaving free money on the table.
Properly protect and allocate your assets.
Make sure your assets are protected and allocated appropriately for your age and life stage. You don’t want to wake up one morning and see that your 401k has become a 201k due to massive market selloffs. It is important to have a trusted investment professional help you with allocations to make sure that you are hitting your risk profile. Cryptocurrencies can and will play a part in retirement in the next 10 years—just like oil, silver, gold, and other commodities do. It is not a matter of if, but a matter of when.
Map out how you will move money during retirement.
You need to plan where your money is going to go once you retire. Sometimes people leave it within the retirement plan(s); others move it to a financial advisor. (Keeping money with a financial advisor who can see the whole picture of your assets may be better than simply keeping it in the plan.)
The top retirement pitfalls to watch out for
Every day, Blount homes in on the emotional, behavioral, and psychological elements that impact financial decisions. He is the author of What is Retirement?: The Concept, Plan Administration, and Readiness of Retirement, which helps people navigate their wealth journey in a more informed way. Although the concept of retirement as we once knew it is fading, he still says that there are several ways individuals can prepare for the time when they will no longer work every day for their income. He shares different cautions based on when you expect to stop working for your daily bread. They are intended to help you save, but there is no way to automatically convert the accumulated savings into an income stream. To do so requires the asset to shift to a different product—which will create a stream of income. Some may be taxed or subject to withdrawal penalties, which should be calculated now to ensure that your retirement goals are properly calibrated. Gen Zers can get ahead of costly pitfalls by learning more about taxes, maintaining savings and investment products with low fees, and over-calculating the amount they will need to generate a comfortable amount of cash on hand later in life. There is a different investment strategy required during retirement than during the years before retirement. Hence, the financial professionals who may have helped you accumulate retirement funds may not be the same ones who help you manage them during retirement. Mentally prepare for a lifetime of keeping a watchful eye on your investment accounts; build professional networks with finance experts who can help you create wealth both before and after retirement. While accumulating assets, increase your financial education to understand the context of financial decisions. Budgeting, emergency savings, housing, transportation, and leisure activities all involve finances. If you’re still intimidated by money and financial planning, decide to tackle those concerns now. Not doing so leaves you vulnerable to fraud.
