Your retirement should be a time of relaxation and enjoyment, not financial struggle. Unfortunately, for some generations like boomers and Gen X, this may not be the case. A recent report from Morningstar suggests that younger generations, such as Gen Z and millennials, are in better financial shape as they approach retirement.
According to Morningstar’s Model of U.S. Retirement Outcomes report, 45% of American households are projected to run out of money in retirement. However, only 37% of Gen Z and 44% of millennials are facing retirement fund shortfalls, compared to 47% of Gen X and 52% of baby boomers.
If you belong to the Gen X or baby boomer generation and feel that you are not on track for retirement, it’s not too late to make changes. Here are some tips from Goldman Sachs’ Retirement Survey and Insights Report that can help you emulate the financial habits of younger generations:
Start Saving in a 401(k) or IRA Immediately
Contributing to a 401(k) or individual retirement account (IRA) as early and as regularly as possible is essential. Setting up automatic deposits and investments from your paycheck can help your money grow without much effort on your part. Some employers offer a match on your contributions, so it’s wise to contribute enough to get the full match. Saving at least 15% of your income for retirement is a good rule of thumb.
The IRS sets the 401(k) contribution limit for tax-year 2024 at $23,000, with an additional catch-up contribution of $7,500 for those aged 50 and older. The maximum IRA contribution is $7,000, with an additional $1,000 catch-up contribution for those 50 and older.
Build an Emergency Savings Fund
If you don’t already have an emergency savings fund, it’s crucial to prioritize building one as soon as possible. This fund can prevent you from going into debt or dipping into your retirement savings in case of a financial emergency. Start by saving at least $1,000 and then work towards increasing your savings over time. Setting up automatic deposits from your checking account to your savings account can help your savings grow effortlessly. Consider putting your liquid cash in a high-yield savings account to earn more interest.
Why Are Gen Z and Millennials Better Prepared for Retirement?
One reason why younger generations may be better prepared for retirement is that Gen X and baby boomers experienced a shift away from company-provided pensions. This shift has given them less time to build up self-funded retirement accounts compared to their younger counterparts.
In conclusion, it’s never too late to start saving for retirement and building a secure financial future. By following the financial habits of younger generations and implementing these tips, boomers and Gen Xers can improve their retirement outlook and enjoy a more financially stable future.
