Retirement Planning Hacks for Millennials and Gen Z

Retirement planning might seem far off when you’re in your 20s or 30s, but getting an early start can make a world of difference for your future. For Millennials and Gen Z, retirement planning can feel like a daunting task, especially with the rising costs of living, debt from student loans, and unpredictable job markets. But the key to securing a comfortable retirement is to start now, no matter how small the steps may seem.

Let’s break down some easy-to-follow strategies, focusing on key retirement savings options like 401(k)s, IRAs, and a few retirement hacks tailored to younger generations. You’ll see that planning for the future doesn’t have to be as complicated or scary as it sounds.

Understanding 401(k) Plans

One of the most popular retirement savings vehicles is the 401(k). If your employer offers a 401(k), you’re in luck! This is a tax-advantaged retirement account where contributions are typically deducted from your paycheck before taxes, reducing your taxable income in the short term. Some employers also offer a company match, which is essentially free money added to your retirement account when you contribute. That match alone is a major hack because not taking advantage of it is leaving free money on the table.

To maximize a 401(k), contribute enough to get the full employer match if possible. For example, if your employer matches 50% of your contributions up to 6% of your salary, aim to contribute at least 6%. Think of this match as an instant return on your investment—few things offer such a guaranteed boost!

And if you switch jobs, don’t forget about your old 401(k). Many people neglect or forget about these accounts. Consider rolling it over into an IRA (more on those later) or into your new employer’s 401(k) plan to keep your retirement savings growing.

What if You Don’t Have Access to a 401(k)?

If your job doesn’t offer a 401(k) plan, you can still save for retirement with other tax-advantaged accounts. The Individual Retirement Account (IRA) is one of the best alternatives.

Traditional vs. Roth IRAs

There are two main types of IRAs: Traditional and Roth. Both offer tax benefits but in different ways. Understanding the difference will help you decide which is better for you.

• Traditional IRA: Contributions are tax-deductible, which reduces your taxable income today. However, you’ll pay taxes when you withdraw the money in retirement. This can be beneficial if you expect to be in a lower tax bracket when you retire.
• Roth IRA: Contributions are made with after-tax dollars, meaning there’s no immediate tax break. However, when you retire and start making withdrawals, they’ll be tax-free. This is especially appealing to Millennials and Gen Z, who are likely in lower tax brackets today than they will be in retirement.

If you’re starting out with a modest income but expect to earn more later in life, a Roth IRA is usually the better choice because you lock in today’s lower tax rate.

How Much Should You Be Saving?

A common rule of thumb is to save 15% of your income for retirement. But if that feels like too much right now, start smaller. Even putting away 5-10% of your paycheck can add up over time. The earlier you start, the less you’ll need to save because compound interest will work in your favor.

For example, if you start saving $200 a month at age 25, with a 7% annual return, you’ll have over $500,000 saved by age 65. But if you wait until 35 to start saving the same amount, you’ll only have around $244,000. That’s the power of compound interest—the earlier you invest, the longer your money has to grow.

Automate Your Savings

One of the easiest hacks to build your retirement fund is automating your savings. By setting up automatic contributions, you won’t have to think about saving each month—it’ll happen without any effort on your part. Whether you’re contributing to a 401(k) or an IRA, automatic deposits help you stay consistent and avoid the temptation to spend that money elsewhere.

Side Hustles and Gig Work: A New Retirement Opportunity

Many Millennials and Gen Zers are part of the gig economy. While freelancing and side hustles offer flexibility, they don’t come with retirement benefits. But that doesn’t mean you can’t save for retirement. Self-employed individuals can set up a SEP IRA (Simplified Employee Pension), which allows for higher contribution limits than a traditional or Roth IRA. In 2024, you can contribute up to 25% of your earnings or $66,000 (whichever is less) into a SEP IRA. That’s a great way to sock away more money if you’re self-employed or juggling multiple side hustles.

Retirement Hurdles for Millennials and Gen Z

The financial realities facing these generations are very different from those their parents faced. Housing costs, student loan debt, and inflation can make saving for retirement seem nearly impossible at times. But even small contributions made consistently can make a significant impact.

One way to free up extra money for retirement savings is to prioritize paying off high-interest debt, like credit cards or personal loans. This can reduce the financial burden over time and free up cash to direct toward retirement.

Another strategy is to gradually increase your savings rate. If you start by saving 5% of your income, try to bump that up by 1% each year or with each raise. It’s a gradual way to grow your savings without feeling the pinch in your everyday budget.

Non-Retirement Investments

While 401(k)s and IRAs are excellent for tax-advantaged retirement savings, you can also invest in non-retirement accounts like a brokerage account. These accounts don’t offer the same tax benefits, but they do offer flexibility. You can use the funds for goals like buying a home or starting a business, and still have money working for you in the stock market.

Start Now, Reap the Benefits Later

The bottom line is that it’s never too early (or too late) to start planning for retirement. Millennials and Gen Z have the advantage of time, and by starting now—even with small amounts—they can leverage compound interest to secure a financially stable future.

Retirement planning doesn’t have to be intimidating. With a few smart strategies and a commitment to consistency, you can set yourself up for a comfortable retirement without sacrificing too much in the present. Take advantage of employer matches, contribute to an IRA, automate your savings, and don’t be afraid to start small—the important thing is that you start.