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Millennials and Gen Z have faced some financial hurdles as they’ve entered adulthood, but many are saving for retirement nonetheless — and recognize the importance of doing so. In addition, time is on the side of these younger adults, when it comes to reaching their retirement goals.
That said, retirement planning for these younger adults has been hampered by significant challenges, including employment shifts relating to the pandemic, historically high student debt, the rise of the gig economy, concerns about Social Security, and the prospect of living longer lives. Fortunately, there are a number of strategies Gen Z and Millennials can employ now to make the most of the years ahead, so they can retire with peace of mind.
Key Points
- Taken together, Millennials and Gen Z represent nearly 150 million individuals, ranging in age from about 13 to 44.
- The Millennial and Gen Z generations face specific challenges in order to save for retirement.
- These younger adults came of age at a time of rising college costs and student debt, as well as changes to full-time employment.
- Economically speaking, Millennials and Gen Z have also faced higher interest rates and historically high inflation.
- Despite these hurdles, Gen Z and Millennials’ retirement forecast is not all bad news, as many already participate in retirement plans — and time is on their side.
Who Are Millennials and Gen Z?
Millennials, also known as Gen Y, are the largest generation since the Baby Boomers, and number about 80 million. This cohort was born between 1981 and 1996, and are now between the ages of 29 and 44.
Gen Z refers to those born from about 1997 to 2012; they are roughly between ages 13 and 28. While Gen Z is smaller — about 71 million — they are the first generation to be raised as digital and social media natives. As such they’ve exerted a notable influence on businesses and brands worldwide.
What Might Retirement Look Like for Younger Adults?
When it comes to saving for retirement at different ages, Millennials and Gen Z have faced various financial challenges as they’ve started college and entered their prime working years. Many came of age during a period of escalating student loan debt, greater job uncertainty, concerns about Social Security’s solvency, and more.
When it comes to Millennials and retirement in particular, this group has seen a steeper cost of living since 2020[1], which has prevented many from taking steps toward marriage and home ownership.
Nonetheless, a 2024 study by the Transamerica Center for Retirement studies has found that 71% of Gen Z and 84% of Millennials are saving for retirement in a company-sponsored plan or an outside account[2] such as a traditional IRA.
But over half of respondents in each group also admitted they don’t have enough income to save for a secure retirement, and the amount of debt they carry is interfering with their ability to save.
Luckily, most members of the Millennial and Gen Z generations have years to adopt new habits and strategies in order to secure the future.
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5 Retirement Challenges Millennials and Gen Z Face
In order to take the reins of their retirement, younger adults would do well to understand how various economic and world events have impacted their financial lives thus far.
1. Student Loan Debt
Student debt continues to be a burden for many. Thanks to higher interest rates and the rising cost of higher education, tens of millions of Millennials and Gen Z have accrued steep student loan debts.
When looking at student loan debt by generation, Millennials represent nearly 40% of all student loan borrowers, and some 18.5 million have outstanding balances. The average amount they owed as of 2024 was $40,438.[3]
Gen Z represents the second-largest group of borrowers, at 28.2%. Of these, 13.1 million have outstanding debt. Members of Gen Z have the lowest balance on average: about $23,000 as of 2024. But with millions of this cohort still in college, their loan balances are growing faster than any other group: 6.72% compounded annually.[3]
For many younger adults, planning for a secure future will require a debt-management strategy as well.
2. The Gig Economy
In addition to contending with student loan payments, Millennials and Gen Z have been impacted by a shift from traditional employment models to a more flexible, less structured gig economy. The growth of digital platforms in the last 15 years has accelerated this change, allowing companies to hire freelance workers for shorter-term services in companies like Uber, Fiverr, Postmates, TaskRabbit, Airbnb and many others.
The expansion of the gig economy, however, has made it harder for some younger adults to earn and save in retirement plans such as an employer-sponsored 401(k). More than 54% of Millennials have less than $10,000 saved for retirement, according to a 2023 survey by GoBankingRates.[4]
That said, there are many retirement plan options for the self-employed, and gig workers can save as much or more in a SEP-IRA, for example, as in a 401(k).
3. Decline of Pensions and Rise of 401(k) Plans
The lack of retirement savings may be exacerbated by a broader trend in retirement planning in the last 25 years: the disappearance of pensions and the rise of worker-funded plans such as 401(k) and 403(b) plans.
In 2000, about 50% of private-sector workers had access to a pension plan[5], a benefit that provides retirement income for life, and sometimes health benefits as well. In 2024, however, only 19% of private-sector employees had a pension. (Government workers generally still get a pension.)
Defined-contribution plans, like 401(k) plans, have largely replaced pensions for most workers today. While these employer-sponsored plans are typically tax deferred, and offer a potential tax break when you contribute to them, they don’t offer the security of lifetime pension income.
Again, this reality will impact Gen Z and Millennials’ retirement, and it adds to the necessity of planning ahead for a steady income.
4. Social Security Funding
In addition to the above, Millennials and Gen Z have been facing growing concerns about the viability of the Social Security system, and questions about whether future retirees will get their full benefits.
The Social Security system is funded by employer and employee contributions, which are withheld from workers’ paychecks. However, there are demographic changes that are partly impacting the solvency of Social Security. People are living longer, and these additional outflows have been putting a strain on the Social Security Trust Funds (the main pool of assets).[6]
In addition, the government itself has borrowed from the Trust Funds by issuing debt securities to itself, which act as intergovernmental IOUs, in effect.
While many policymakers believe that Congress will support the changes necessary to fix the system (e.g., increasing payroll taxes or repaying the borrowed funds), these issues have yet to be resolved. And the message from the Social Security Administration to current workers is not fully reassuring: Benefits will exist, but as of 2035 they might be only 78% of what a worker would have gotten before.
Therefore, Millennials and Gen Z may be in the position of having to cover more of their retirement income with savings.
5. Longevity
The other big factor that will impact Gen Z and Millennials’ retirement is longevity. Thanks to advances in health care and technology, millions of people are already living longer, healthier lives.
In 2022, the number of Americans ages 65 and older was 58 million. By 2025, the number of people 65 and up is projected to reach 82 million by 2050, according to the Population Reference Bureau.
While no one can predict one’s actual lifespan, Millennials and Gen Z will have to factor in the need to save more, to cover potentially much longer lives. This is especially important for women, who live about five years longer than men on average. The average lifespan at birth is 74.8 years for men, 80.2 years for women, according to the Centers for Disease Control.
Another factor that Millennials and Gen Z may face in the coming years is the cost of caregiving for older loved ones. Some 37% of workers today are caring for, or have cared for a relative or friend (separate from parenting roles), according to the Transamerica study.
Taken as a whole, longevity factors are likely to have a bigger impact on these younger adults than on previous generations.
Tips to Help Build a Secure Retirement
Fortunately, Millennials and Gen Z represent the youngest adults — with many years ahead to work, save, and strategize about their retirement years. These tips will help.
Investing Strategies
When it comes to retirement planning, having a solid investment strategy can help by adding potential increases to one’s savings.
Obviously there are countless types of investments to consider. For those who are interested in active investing, learning about stock market basics is key.
Next, it’s important to think about how your asset allocation can change by age. The younger you are, the more time you have to take on risk — and potential growth — while still having enough runway to recover in the event of a downturn.
That said, DIY investing is not for everyone, and in that case younger investors have other options that are less hands-on.
- Target-date funds. These funds are so-called because they’re designed to help investors reach their target retirement date by using a combination of professional managers and sophisticated algorithms to guide each fund’s investing strategy.
Most target funds, sometimes called lifecycle funds, have names that include a date: e.g. ABC Retirement Fund 2045.
The fund’s portfolio starts out with a more aggressive asset allocation, or mix of assets, and adjusts over the years to become more conservative. By starting out with a more aggressive, equity-based allocation and gradually becoming focused on less risky investments over time, the fund’s portfolio may be able to deliver returns while minimizing risk.
- Robo advisors. A robo advisor doesn’t mean turning over your assets to a robot, nor is it a human advisor. Rather these accounts offer investors pre-set portfolio options, similar to target-date funds.
While robo accounts are also designed to be hands-off, the mix of assets (a.k.a. the asset allocation) doesn’t adjust over time as it does with a target-date fund. That said, robo advisors can be cheaper because these portfolios are constructed with low-cost exchange-traded funds (ETFs).
Reducing Debt
The true challenge facing many younger adults today is that so many have the need to balance debt repayment with saving. While there are no easy answers when juggling competing financial priorities, the reality is that having a clear-cut debt repayment plan can only help support retirement savings.
Fortunately, there are a number of smart get-out-debt strategies to consider.
- Use automation. One powerful anti-debt tactic is to use automatic payments to keep your repayment plan on track (and minimize late fees).
- Lower your rate. It helps to get your interest rate as low as possible, either by negotiating or by doing a balance transfer — or trying debt consolidation. This strategy can lower your monthly payments, may lower the amount you’ll owe ultimately, and could simplify the repayment process as well.
- One debt at a time. There are two options here. With both, you pay off one debt while you make minimum payments on other debts. Once the first debt is gone, apply that payment to the next one, and so on.
- The first strategy is the snowball method. You pay off smaller debts first, and work your way up to bigger balances.
- The second is the avalanche method. This approach focuses on paying down higher-interest debt first.
- Getting a grip on debt can build confidence and momentum, and eventually free up cash for additional savings.
Maximizing Savings
Perhaps the most important step younger adults can take toward a secure retirement is saving money in an actual retirement plan. While it’s true that putting money in a savings account may seem simpler, these offer very little growth and no tax advantages.
By contrast, saving and investing with a traditional or Roth IRA account, or a workplace account like a 401(k) plan, can help your savings increase over time. And depending on the type of account you choose, you can reap tax benefits.
- A traditional IRA is tax deferred, meaning the money you contribute (deposit) each year can be deducted from your taxable income, potentially lowering your tax bill. You pay taxes when you withdraw the money in retirement, though.
- A Roth IRA is an after-tax account. This means the money you contribute each year is not tax deductible. But eligible withdrawals are tax free.
The rules governing IRAs are quite specific, so be sure to learn the terms. For example, the total you can contribute (deposit) in an IRA is $7,000 for tax year 2025, or $8,000 if you’re 50 and older.
- There are many different types of workplace accounts, including a 403(b) plan or 457(b), which are similar to 401(k)s, a SEP or SIMPLE IRA, and others. These accounts typically come in two flavors: tax deferred and after tax, like a Roth.
Unlike IRA accounts, however, the annual limits for employer accounts are much higher. With a 401(k), you can save up to $23,500 per year for tax year 2025. People 50 and older can contribute an additional $7,500 in 2025. An additional “super catch-up” limit of $11,250 applies to individuals ages 60 to 63.
If your job offers a retirement account, this is often the best way to maximize your savings.
Again, all retirement accounts are subject to government and tax regulations, so it’s important to understand the terms when choosing a retirement account.
Alternative Retirement Options
When thinking about retirement, Millennials and Gen Z also have alternatives beyond simply retiring. Thanks to advances in medicine and technology, it may be possible to work longer (and save more).
Retirement itself could be reinvented, as people develop ways to be productive and enjoy life in the decades after traditional 21st-century “retirement age.”
In addition, there is a trend toward communal or shared living, with mixed ages, that could offer alternatives to long-term care and nursing home facilities.
One thing is certain, as Millennials and Gen Z think about their retirement, they will likely bring their own innovations, as generations have in the past.
The Takeaway
While Millennials and Gen Z have faced certain challenges when it comes to building up their retirement savings, they have some advantages as well. The majority of these younger adults are already saving in retirement accounts. And while some are concerned about how much they can save — time is on their side.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
What age should Millennials and Gen Z start saving for retirement?
Anyone with earned income can start saving for retirement at any age using an IRA account. Otherwise, the general rule of thumb is: the sooner you start saving the better, because time tends to help money to increase.
How much will Millennials need to retire?
There are various formulas for deciding how much you need to retire. One target is to aim for 10 times your income by age 67, which is the current age when you can get your full benefits from Social Security.
Will Social Security be gone for Millennials?
That’s highly unlikely. Social Security has been in place for 90 years, and it will continue to exist for future generations. That said, the formulas used to calculate benefit amounts may change, and it’s possible that people will get a lower benefit amount, given current trends.
Article Sources
- Federal Reserve Bank of St. Louis. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.
- Transamerica Institute. The Multigenerational Workforce: Life, Work, & Retirement.
- Education Data Initiative. Student Loan Debt by Generation.
- Nasdaq. Most Millennials Have Less Than $100K in Retirement Savings: Should You Be Concerned?.
- Economic Policy Institute. Retirement made riskier.
- Social Security Administration. What young workers should know about Social Security and saving.
Photo Credit: iStock/MDV Edwards
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