The One Retirement Question Every Millennial and Gen Z Worker Needs To Ask
Retirement may look very different for millennials and Gen Z than it does for current retirees.
Americans who are currently retired rely heavily on Social Security — a new ZipRecruiter report found that 71% of fully retired workers rely on it as their primary source of income. Yet, this safety net may not be there in the same way for younger workers. According to the report, the question every millennial and Gen Z worker needs to ask is, "Will Social Security be there for us?"
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Here's what younger workers need to keep in mind when planning for their retirement years.
Why Social Security Could Look Different in the Future
For millennials and Gen Z, the biggest retirement risk is that Social Security could change significantly.
"The future of the U.S. Social Security program is precarious," said Nicole Bachaud, economist at ZipRecruiter. "In the next 10 years, a major source of its funding is projected to be depleted, which will reduce payments for current beneficiaries and create uncertainty about what will be available for future generations."
Bachaud said that this funding shortfall is a consequence of several converging factors:
An aging population: More older Americans are collecting benefits.
A shrinking labor force: The worker-to-retiree ratio is tightening due to reduced immigration, older workers retiring and persistently low birth rates.
Lower tax revenue: Income inequality is rising and tax caps limit contributions from high earners.
These issues aren’t unique to the United States.
"Other countries that have had these same demographic challenges have faced the same issues," Bachaud said. "Japan and Italy come to mind as two examples of countries with aging populations, low immigration and increased pressure on social programs aimed at supporting retirees."
However, there are potential solutions to the impending funding shortfall — but policymakers will need to step in to introduce these changes.
"Increased focus on social programs for older people, technological and worker advances to support a stressed healthcare system and tax and benefit reform are all potential solutions that have been stitched together to address these challenges abroad," Bachaud said. "The U.S. approach is currently uncertain, though it may adopt similar strategies."
What This Means for Millennials and Gen Z
With the future of Social Security being so uncertain, younger workers need to plan for sources of retirement income outside of government-funded programs.
"Social Security in 20 to 40 years will likely look different than it does today," Bachaud said. "Younger workers today should be taking their retirement savings seriously, even if the future seems far away."
Relying on Social Security as the single source of income in retirement could become riskier over time.
How To Build Retirement Income Beyond Social Security
The earlier younger workers start preparing for retirement, the more control they’ll have over their future financial flexibility.
"The timing of when a worker begins saving can determine whether they achieve a comfortable, on-target retirement or if they will need to keep working into their older years to bridge the financial gap," Bachaud said.
For younger workers, that means focusing on consistent, long-term strategies. Bachaud recommended the following:
Look for employer matches in 401(k) accounts and max out the match to help boost savings.
Take advantage of annual automatic savings rate increases, which can help grow savings over time.
"Older workers can take advantage of catch-up savings rates to bridge the gap faster," she said.
For millennials and Gen Z, the goal should be to make sure you’re not entirely dependent on Social Security to fund your retirement.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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