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Oct 22, 2021

Gen Z: Here’s how You Can Become a Super Saver

Even if you make less than $50,000 per year, you can start building a nest egg.

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Gen Z is comfortable, confident, and saving more than ever for retirement.

That’s according to Principal Financial Group’s recent survey of “super savers,” people who contribute 90% or more of the maximum amount possible to employer-sponsored plans, or who made a contribution of 15% or more to those accounts from their paychecks.

Employer-sponsored plans, which include 401(k) and 403(b) accounts, allow most users to contribute up to $19,500 annually.

And you don’t just have to be a high earner to be a super saver. More than half of those surveyed earn less than $100,000 annually. And almost a quarter of respondents make less than $50,000 per year. More than half of the super savers surveyed estimated that they saved $20,000 or more in 2021. The highest percentage—31%—of respondents estimated that they saved $20,000 to $29,999 in 2021. 

The study finds that it’s possible for Gen Z to start making strides in saving for retirement and other future goals, regardless of their income.

How Gen Z  is saving

The survey polled 1,408 people between the ages of 19 and 56 who have retirement plans with an employer. Of those surveyed, 43% identify as Gen X, 49% are part of Gen Y—also known as Millennials, and 8% are members of Gen Z. 

Gen Z, which is defined by Pew Research Center as people born after 1996, hasn’t received as much media attention as Millennials, because it’s a smaller demographic and, for the most part, is just now joining the workforce. Gen Z also faces a unique set of challenges, as they’re entering their adult lives with an economy marked by the Covid-19 pandemic. 

While Gen Z was the youngest generation polled, they still account for almost 10% of the super savers in the survey. Those Gen Z respondents feel comfortable about the present, and positive about the future. Seventy-eight percent of Gen Z super savers describe their current financial situation as “comfortable.” Almost three-fourth of Gen Z respondents feel comfortable about the retirement planning process. Six-seven percent of Gen Z savers surveyed said that they’re confident they’ll have enough money to live comfortably in retirement.

Gen Z reported the highest degree of confidence in their financial future:

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Gen Z
0%
Millennials
0%
Gen X

Gen Z is also most confident they will have enough money in retirement:

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Gen Z
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Millennials
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Gen X

In fact, increasing contributions to retirement savings is a top priority for Gen Z super savers, with 33% of respondents saying it’s the most important goal they’re working towards. (Saving for a big purchase, such as a house, was the top goal for 61% of Gen Z respondents.)

And Gen Z seems to understand that it’s important to start saving for retirement as early as possible. Of all the groups surveyed, 71% said that they started saving for retirement in their 20s. The highest percentage, 16%, said that they started at age 22, which is around the age when many people graduate college and enter the workforce.

How you can become a super saver

Since most members of Gen Z are just entering their 20s, the research demonstrates you can be a super saver and get started early saving for retirement. Stash has some suggestions to help you get started. 

Time is on your side:

Hypothetical Projection: All investments involve risk, including loss of principal. This projection illustrates hypothetically, how factors such as recurring investments (amount and frequency) may impact the long-term value of investing given an 5.25% hypothetical rate of return (compounded annually). Please note, your account may be different for many reasons including, but not limited to, market fluctuations and volatility, changes in your recurring investments, withdrawals and additional investments, time horizon, taxes and fees, including your Subscription fees. This projection does not represent the actual performance of any client nor does it reflect the performance of any of the underlying investments therin. Diversification, asset allocation, and dollar cost averaging does not ensure a profit or guarantee against loss. Your actual investment return and principal value may fluctuate, so you may realize a gain or loss when shares are redeemed or sold. Please consider your objectives before investing. Investment outcomes and projections are forward-looking statements and hypothetical in nature. Your account balance may be more or less than your original investment. This example is for illustrative purposes only and is not indicative of the performance of any actual investment.
Hypothetical values shown in this tool assume the following factors: 1.) initial contribution of $100  2.) monthly contributions of $50 at an annual rate of return (compounded monthly) 3.) a 40 year time horizon 4.) No other account deposits, investments, fees, or dividend reinvestment 5.) No withdrawals taken from this account. This tool does not take your existing account balance into consideration.

Hypothetical Projection: All investments involve risk, including loss of principal. This projection illustrates hypothetically, how factors such as recurring investments (amount and frequency) may impact the long-term value of investing given an 5.25% hypothetical rate of return (compounded annually). Please note, your account may be different for many reasons including, but not limited to, market fluctuations and volatility, changes in your recurring investments, withdrawals and additional investments, time horizon, taxes and fees, including your Subscription fees. This projection does not represent the actual performance of any client nor does it reflect the performance of any of the underlying investments therin. Diversification, asset allocation, and dollar cost averaging does not ensure a profit or guarantee against loss. Your actual investment return and principal value may fluctuate, so you may realize a gain or loss when shares are redeemed or sold. Please consider your objectives before investing. Investment outcomes and projections are forward-looking statements and hypothetical in nature. Your account balance may be more or less than your original investment. This example is for illustrative purposes only and is not indicative of the performance of any actual investment.
Hypothetical values shown in this tool assume the following factors: 1.) an initial contribution of $100 2.) monthly contributions of $50 at an annual rate of return (compounded monthly) 3.) a 30 year time horizon 4.) No other account deposits, investments, fees, or dividend reinvestment 5.) No withdrawals taken from this account. This tool does not take your existing account balance into consideration.

Having a retirement account can help you start saving for the future, and if you don’t already have one you can consider opening one. With Stash, you can open an individual retirement account (IRA). You can use an IRA to set aside money for the future, especially if you don’t have an employer-sponsored plan. There are two kinds of IRAs: Traditional and Roth. Traditional IRAs are often called tax-deferred accounts because you don’t pay taxes on that money until you withdraw from the account in retirement. On the other hand, you make contributions to a Roth IRA post-taxes, so you don’t pay taxes on the money when you make withdrawals.

Traditional vs. Roth IRA

A traditional IRA is funded with your pre-tax dollars, so the money you contribute to your traditional IRA can lower your annual tax bill.

There are annual limits to what you can contribute. You can put up to $6,000 away each year. Once you’re 50 or older, you can contribute up to $7,000 annually.

After age 59 ½, you can take money from the account with no penalties. By age 70 1/2 you’re actually required by the IRS to start taking money out of your account. This is called a required minimum distribution (RMD).

RMDs are the amount you must withdraw from your traditional IRA starting at age 70 ½. The amount is determined by an IRS formula that comprises life expectancy and account value.

Roth IRAs

In contrast, you  fund a Roth with the money you’ve already paid taxes on (your net income). Once you’ve funded the account, your earnings can grow tax-free.

Roth IRAs also have yearly contribution limits, meaning you can only put in $6,000. However, like a traditional IRA, if you’re 50 or older, you can contribute up to $7,000.

When you’re 59 ½, you can access this money without paying a penalty. Unlike a traditional IRA where you are required to begin taking money out of your account by age 70 ½  (or age 72 if your 70th birthday is July 1, 2019 or later), you can keep adding to your Roth IRA for as long as you like. (There are limits based on income, and tax filing status, which you can read more about here.)

50-30-20 budget

If you already have a retirement account, including an IRA or an employer-sponsored 401(k), see if you can increase or even reach the maximum contribution limit on those accounts. One way to prioritize saving is to make a budget that includes room for spending, saving, and investing. Consider using the 50-30-20 budget, which allocates 50% for necessary expenses, 30% for non-essential costs, and 20% for saving and investing.

In addition to having a retirement account, investing in a brokerage account can help you build savings. Investing tends to help protect your money from the effects of inflation. ​​While all investing involves risk, investing your money can help you  stay ahead of inflation.

Remember to follow the Stash Way, our philosophy for investing, which includes investing small amounts of money regularly in a diversified portfolio.

author

Written by

Claire Grant

Claire is a content writer for Stash.

“Retirement Portfolio” is an IRA (Traditional or Roth) and is a non-discretionary managed account. Stash does not monitor whether a customer is eligible for a particular type of IRA, or a tax deduction, or if a reduced contribution limit applies to a customer. These are based on a customer’s individual circumstances. You should consult with a tax advisor.
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