A recent Bank of America survey found that only 1 in 5 members of Generation Z, those born between 1997 and 2012, are contributing to a retirement account. This hesitancy to invest may be driven by fear, as many young adults feel financially vulnerable. It is crucial for young people to participate in the market to achieve their investment or asset goals in the long term. However, starting to save for retirement can be challenging for those who are just beginning their careers and may not have a strong financial education.
Winnie Sun, co-founder of Sun Group Wealth Partners, explains that young professionals should take advantage of Roth accounts for long-term investment goals like retirement. With a Roth account, you contribute post-tax dollars, meaning you won’t owe additional taxes when you withdraw the money in retirement. This is a better option for those who expect to be in a higher tax bracket in the future. Sun recommends taking advantage of any matching contributions offered by your employer if they provide a Roth 401(k), as it’s essentially “free money.”
In the absence of a Roth 401(k) from your employer, consider opening a Roth IRA, which allows you to contribute up to $7,000 if you’re under 50 and $8,000 if you’re 50 and older in 2024. The Roth IRA also doubles as both short-term and long-term savings accounts, as you can withdraw any contributions penalty-free in case of an emergency. However, you cannot withdraw your earnings without penalty before age 59½. Sun stresses the importance of treating your Roth IRA as long-term savings and not dipping into it unless necessary.
Once you’ve set up a Roth IRA, it’s essential to actually invest the money you’ve contributed. Seek out a financial advisor or online resources to help you make informed investment decisions that align with your financial goals. Sun compares the process to meeting with a nutritionist before entering a college dining hall – having expert guidance can lead to better decisions for your financial health in the long run. By taking control of your investments and making informed choices, you can set yourself up for a more secure financial future.
Starting to save for retirement early is crucial for young adults, as it allows for ample time to build up savings and benefit from compounding interest. By taking advantage of Roth accounts and investing wisely, Gen Z can set themselves on a path towards financial security in the future. It’s important to prioritize saving for retirement, even amidst other financial obligations, and to seek out professional guidance to make the most effective investment decisions. By following these steps and staying committed to long-term financial planning, young adults can work towards achieving their retirement goals.
