Gen Z’s Priorities: Vacation over Retirement
A recent study by JPMorgan Asset Management has uncovered a surprising trend among Gen Zers aged 18 to 29: nearly half of them prioritize saving for a vacation rather than for retirement. This is the highest percentage of any age cohort, according to the report.
Paying off student loans and building emergency funds are also far more important to Gen Zers than saving for their future golden years. The study suggests that limited understanding of the benefits of starting early, especially compounding, and more immediate financial pressures may be contributing to this trend. Alyson Frost, head of retirement insights at JPMorgan Asset Management, notes that ‘debt feels urgent, and retirement can seem distant, making it easier to defer saving.’
A Problem that Runs Deep
Before we shame these younger workers, it’s essential to recognize that this problem runs deep across all ages. A majority of those surveyed aren’t contributing as much as they should to their employer-provided retirement plans, and they know they should be doing more. When forced to make trade-offs between retirement savings and other goals, more than half of workers of all ages put building emergency savings over saving for retirement.
Roughly 3 in 10 place a higher priority on paying off education debt or general debt, while a similar share save for vacations more than for their golden years. And 1 in 10 say higher living expenses have led to reduced retirement contributions — or none at all. This reflects both an intention gap and real-world constraints, as higher prices and inflation create a ‘budget squeeze’ effect that is spilling over from day-to-day spending into retirement behavior.
Retirement Account Leakage Remains High
Not investing in your retirement account is troubling, but withdrawing money from it is potentially worse. ‘Plan leakage remains high: 1 in 4 have taken a loan and/or early withdrawal, with another 19% planning to do so,’ Frost said. The primary reason people are tapping their retirement savings is to cover unexpected expenses, followed by a home purchase, reducing credit card debt, helping a family member, and healthcare costs.
The million-dollar calculation
When you ask someone how much they think they need to have saved in order to retire comfortably, inevitably, they guess and say at least $1 million. So it’s not shocking that the researchers detected a notable lack of saving know-how. More than half do not know how much they need to save each year to retire securely or how to estimate the future value of their retirement savings at their current contribution rates.
And nearly two-thirds of those who do save, up from roughly half a decade ago, wish they could ‘push an easy button’ and fully delegate planning and investing to a financial professional. So, how are these retirement savers choosing how much to contribute to their retirement plans? One-quarter say they contribute as much as they can afford, while 22% contribute what their employer will match. Another 17% believe they are contributing the legal maximum. Only a fraction, 11%, base contributions on how much they believe they need to save, and 10% rely on their starting contribution rate, plus any automatic escalation that may have occurred.
Guidelines for Retirement Savings
Here’s a suggestion for getting ahead on the ‘How much do I need?’ question. Plan to have socked away at least 1 times your salary by the time you hit age 30, 3 times by 40, 6 times by 50, 8 times by 60, and 10 times by 67. Retirement is personal, of course, and what you will wind up needing is going to depend on a range of factors, from your age at retirement and your health to inflation.
