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Overconfident Gen Z? Is our early retirement dreams built on shaky ground?

Early retirement planning by Gen Z

Gen Z is making impressive strides with retirement savings, boasting impressive numbers, which could grow substantially by their retirement. However, savings alone won’t secure their financial future. A recent Goldman Sachs survey reveals critical areas where Gen Z’s optimism might need a reality check.

Retirement Age Aspirations

While many Americans aim to retire between ages 62 and 65, 44% of Gen Z hopes to retire before 60. Early retirement, though appealing, requires navigating challenges like prolonged healthcare costs without employer insurance and penalties for early withdrawal from retirement accounts. Ensuring a sizable nest egg to last 40+ years in retirement demands a significant portion of current income be saved, making this goal difficult yet not impossible with careful planning.

Income Expectations in Retirement

Gen Z is notably optimistic about their retirement expenses, with over 75% believing they’ll need less than 70% of their pre-retirement income annually. This contrasts with the conventional guideline of needing 80% or more, especially for those planning an active lifestyle. Instead of relying on percentages, future retirees should estimate actual annual expenses based on their retirement vision to set a realistic savings target.

Reliance on Social Security

While some Social Security benefits will be available, it’s designed to replace only about 40% of pre-retirement income. Many Gen Z workers, however, expect to fund less than 40% of their retirement independently. This is risky unless they have substantial pensions, which are increasingly rare. Gen Z should anticipate covering 60-70% of retirement costs themselves, using tools like the Social Security benefit estimator to gauge the shortfall they must save for.

Adapting to Change

Even with a solid plan, flexibility is key. Job changes, economic fluctuations, and potential alterations in Social Security benefits mean retirement plans require annual reviews and adjustments. Staying adaptable and proactive will help Gen Z stay on track despite inevitable changes.

In essence, while Gen Z’s savings habits are commendable, a more tempered and strategic approach to retirement planning will ensure their financial security in the long run.

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