Think you know which generation is saving the most for retirement? The results of a GOBankingRates retirement survey reveal that Generation Z is on track with their retirement savings.
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Of those surveyed, 67% of people aged 18 to 24 cited fears of running out of money as their main retirement concern. The eldest of Gen Z who was in the next age group (25-34), also said running out of money was their biggest financial concern in retirement. To combat these fears, Generation Z is investing an average of 14% of their earnings towards retirement. Here’s how they’re saving for retirement.
Open and contribute to a 401 (k) plan.
One of the biggest assets in a Gen Zer’s retirement portfolio is their 401 (k) plan and / or IRA. Nearly 33% of Generation Z respondents (ages 18-24) have opened and set aside savings in these accounts.
Contributing to an employer-sponsored 401 (k) plan, especially if you work for an employer that offers a matching program, is strongly recommended for anyone planning to retire. Generation Z self-employed people can also create a 401 (k) Solo plan and use contributions in these plans to create wealth and reduce taxable income.
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Open and maximize an IRA
Generation Z without access to a 401 (k) plan can also save for retirement by opening an individual retirement account (IRA).
You can choose between a traditional IRA or a Roth IRA. Traditional IRAs are tax deferred. This means that you may be eligible for a tax deduction every year you contribute to the account. Earnings in a traditional IRA grow in tax deferral, but if you withdraw money from your account before the age of 59 and a half you could be hit with a 10% penalty and be subject to normal income taxes.
Gen Z who choose to open a Roth IRA can contribute a maximum of $ 6,000 to the under 50 account in 2022. Remember, with a Roth IRA you cannot contribute more than the maximum amount each year. You will also be subject to a 10% penalty if you withdraw your earnings before age 59 and a half, but there is no penalty for withdrawing the money you contributed.
Diversify investment portfolios
Most of the Gen Z surveyed by GOBankingRates already have a fairly diverse retirement portfolio. Some of these assets include real estate (31%), stocks (45%), bonds (18%) and cryptocurrencies (28%).
A diversified portfolio includes stocks, bonds, commodities and alternatives. If you are unsure where to start diversifying your portfolio and are unsure about buying individual stocks for the “right” investment, a good recommendation is to buy an index fund. This is an investment fund that follows a benchmark index, such as the S&P 500, and allows you to invest in all companies within this specific index.
The more you are able to diversify your portfolio, the more you will be able to achieve returns that match or exceed inflation and economic growth. Some portfolio assets, such as bonds, can also protect liquidity which may not be guaranteed maximum protection from inflation.
Create an emergency fund
Whether you are saving for retirement or need a nest egg for financial problems you are facing right now, it is a good idea to set aside at least six months of living expenses in an emergency fund. Gen Zs who keep this emergency fund in a savings account should ensure that the account has a high or respectable yield.
Having an emergency fund and replenishing it if you tap into the assistance fund will give you the peace of mind to overcome difficult times and remind you of the value it has in your life.
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Methodology: GOBankingRates surveyed 997 Americans aged 18 and over from across the country between August 9 and August 11, 2022, asking sixteen different questions: (1) How much money have you currently saved for retirement ?; (2) How much money do you think you need to retire ?; (3) Realistically, at what age do you want to retire ?; (4) At what age did you start saving for retirement ?; (5) What are you financially worried about retirement? (Select all relevant answers); (6) Do you plan to work in retirement ?; (7) What assets do you have in your retirement portfolio? (select all relevant ones); (8) How has current inflation affected your retirement plans ?; (9) How much of your pension do you plan to finance with Social Security ?; (10) How do you feel about the future of Social Security when you retire ?; (11) What percentage of your salary are you currently investing in retirement ?; (12) Are you planning to move after your retirement ?; (13) What is your ideal place to retire ?; (14) What government programs do you plan to use for your retirement? (select all relevant ones); (15) Do you have a retirement plan ?; and (16) How much do you think the average American saved at retirement? GOBankingRates used PureSpectrum’s survey platform to conduct the survey.
This article originally appeared on GOBankingRates.com: Which generation is saving the most for retirement? (You might be surprised)
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