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Generation Z values ​​early retirement unrealistically

Many Gen Zers aged 18-24 are ignorant of lifelong wealth accumulation . Some of them have unrealistic expectations about their achievements as a result of investing.

Mark Hulbert, a MarketWatch columnist, studied a recent survey by MagnifyMoney. The study involved 2,050 US consumers.

Research results:

● 46% of Americans believe they will retire with loans

"Save and invest money for retirement if you have loans. Otherwise, you will lose the power of compound interest over time. Develop a budget that takes into account savings for retirement and paying off loans," MagnifyMoney senior director Ismat Mangla urges.

27% of millennials and Gen Z want to retire before age 50. Of these, 21% women and 15% men

● 43% of Americans fear the end of Social Security benefits

"It's important not to rely solely on Social Security for retirement income. See it as a possible bonus," warns Mangla.

● 22% fear losing their savings in a stock market crash

● 48% of Americans are ready to retire with less than $1 million in savings

● only 31% of Americans want to stop working completely after retirement - to lower the initial savings balance

● Americans dream of retiring in Florida, California and Texas, or moving to Costa Rica, Canada and New Zealand.

Chances of early retirement are extremely low

Mark Hulbert analyzed the financial situation and predicted the amount of retirement savings of a typical generation Z by the age of 50.

Hulbert created a hypothetical 25-year-old Gen Z and made the following assumptions:

● Earns the average salary for people of this age - according to the US Bureau of Labor Statistics.

● The annual salary increase is in line with the national average.

● The 401(k) is $26,000, the median for Generation Z.

● Contributes 15% of salary to 401(k) - the average for generation Z, according to the Transamerica Center for Retirement Studies. Plus, employers in the US charge an additional 3%.

● Invests 100% of 401(k) in the stock market.

● Stock returns will outperform inflation over the next 25 years by 6% year on year. This is the US average since 1793.

By age 50, this Gen Zer will have a portfolio worth about $607,000. If he uses the standard 4% rule to withdraw funds from his portfolio annually, his annual retirement income will be just over $24,000. That's about 40% of his annual income. last year before retirement. The amounts are expressed in current dollars.

However, even this sobering conclusion is too optimistic. Today's stock market is highly overvalued. An inflation-adjusted annual return of 6% is unlikely in the coming years. Each of the eight long-term indicators of market assessment suggests that stock returns in the coming years will be below the historical average.

Hulbert built an econometric model for each of the eight indicators and predicted the overall return of the S&P 500 over the next decade, adjusted for inflation at -5.4%. Even assuming zero inflation-adjusted stock returns in the coming years, a hypothetical retiree at age 50 would have to live on less than $11,000 a year. This is less than 20% of his annual income in the last "working" year.

And yet - the 4% rule applies to traditional pensioners from 65 years old. The chances of running out of money in retirement increase significantly as the number of retirement years increases.

Be Realistic

Hulbert's analysis points to the need to base long-term financial plans on realistic assumptions. Not just Millennials and Generation Z, but everyone else.

Many investors are unaware that their plans are unrealistic. And they refuse one of the main channels for obtaining a check on the feasibility of financial plans. According to MagnifyMoney, only 21% of respondents currently work with a financial advisor.

54% do not plan to do so. A dangerous level of overconfidence about retirement savings is common among investors .

Set a clear and achievable goal

Different retirement priorities call for different lifestyles. Make sure you are ready to do whatever it takes to have the perfect retirement. Early retirement usually requires a super frugal lifestyle and strict budgeting.

"Sit down and take a clear look at your finances and your goals. How much you need to save and invest to reach your retirement goal. Make sure you can sustain the lifestyle it will take to reach your goal," advises Mangla.

Start saving sooner and more often

Some people are focused only on paying off loans: "...the accumulation of funds for retirement can wait." Time is a valuable resource that can be made to work for you. Aggressive austerity measures are not appropriate when there are more pressing financial issues. But even small deposits and investments will affect the "magic of compound interest."

Use your time to your advantage

Early retirement can provide some benefits, such as being able to do what you love. But some pension benefits get better with age. Don't be in a hurry - there are benefits to waiting. Carefully plan the best retirement for your situation.

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