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Nearly half of Gen Z adults say they don’t expect to receive a dime from their Social Security benefits in 2023, according to a survey by the National Association of Retirement Plans. If Gen Z isn’t counting on Social Security benefits, how much should they save for retirement?
Additionally, 64% of Gen Z respondents were more likely than Baby Boomers and older generations to say they have or plan to have retirement accounts or savings as a source of retirement income beyond Social Security benefits.
About 74% of Gen Zers are concerned that Social Security will run out of money during their lifetime.
Will Social Security run out?
Social Security never actually runs out of money. As long as workers pay their FICA taxes, retirees will always have access to benefits. Most importantly, the Social Security Administration’s 2023 Trustee Report clarifies that:
“The Old Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits through 2033, one year earlier than reported last year. At that time, the fund’s reserves will be depleted and continuing program revenues will be sufficient to pay 77 percent of scheduled benefits.”
While there is still time for lawmakers to act and address the funding gap, young Americans are taking the problem into their own hands.
“There’s this idea that the government isn’t going to take care of you in retirement, so you have to figure it out yourself,” Lillian Chang, a 23-year-old product marketing manager at a Bay Area tech company, told CNBC’s “Make It.” “If you’re young and you’re living off Social Security, I think that’s really dangerous.”
Chan opened her first retirement account when she was 20. Now, at 24, she has six figures in three retirement accounts, and she’s not alone in making saving and retirement a priority.
How much do Gen Zers need to save?
According to Northwestern Mutual’s 2024 Planning and Progress Study, the average Gen Z starts saving at age 22 and plans to retire at age 60, while Baby Boomers and older generations start saving at age 37 and plan to retire at age 72. When it comes to saving for retirement, most Gen Z adults believe the “magic number” they’ll need to retire is $1.63 million, compared to the average across all generations of about $1.46 million.
If a 27-year-old Gen Z adult has already saved $22,800 for retirement, the average retirement savings for this generation based on a Northwestern Mutual survey, Motley Fool calculates that saving just $324 a month over 40 years would amount to $1,502,531. Assuming they withdraw 4% annually from their investment portfolio, that could generate $60,101 in annual income in retirement.
But what if you were starting with $0 at that same age and wanted to reach $1.61 million, the difference between Gen Z’s retirement goal and their current savings? The Motley Fool calculated that, assuming an average annual return of 8% on a diversified portfolio made up mostly of stocks, you’d need to save $518 per month over the next 40 years to have $1.61 million by age 67.
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