A quarter of Generation Z plans to retire before age 55, according to findings from the Goldman Sachs Asset Management 2021 Retirement Survey & Insights Report. The report covers the current state of retirement planning for retired and working individuals. Roughly 25% of Gen Z respondents surveyed said they plan to leave the workforce and retire early. This positions Gen Z as the next generation to join the FIRE (Financial Independence Retire Early) Movement.
How can Gen Z start planning to join FIRE? GOBankingRates spoke with Lauren Anastasio, Director of Financial Advice and CFP at personal finance app Stash, to learn which money moves to start making now.
What Is the FIRE Movement?
The premise behind FIRE is more than saving as much money as you can now to retire early. Anastasio said this movement is about financial independence.
“Gen Zers have had a bit of a leg-up on millennials when it comes to saving and making savvy financial moves in their early career,” said Anastasio.
Some areas where Gen Z has financial leverage over previous generations include benefitting from a more desirable job market and the opportunity to skip burdensome student loan payments over the last two years.
The COVID-19 pandemic also came with financial silver linings for many Gen Zers. Research from Bank of America’s Better Money Habits survey revealed that 70% of Gen Z focused on savings during the pandemic. Among those polled, 70% was able to add to their savings in the past year and 26% contributed to a retirement account or invested in the market.
How To Be Successful With FIRE
There are a few components that have the biggest impact on achieving FIRE for Gen Z. Focus on the following three financial behaviors.
Control Your Expenses
Anastasio said one of the best things you can do while you’re young is avoid lifestyle inflation. This is also known as lifestyle creep. It is when you allow your lifestyle to become expensive as you earn more during your career. You might decide to rent your own place instead of living with roommates or trade in a modest car to lease a luxury vehicle.
Lifestyle creep looks different for everyone, but it is a common phenomenon. Try to control your expenses to save as much as you can, especially when you receive a raise.
“A good rule of thumb is to try and target saving at least 50% of each pay increase you receive during your career,” said Anastasio.
Don’t Overlook Tax-Efficient Account Options
Now is the time to leverage any 401(k)s, IRAs and HSAs when they become available to you. These account options should not be overlooked as they will make a huge impact when growing your savings over time.
“Using tax-efficient accounts allows your money to continue to grow and compound without paying taxes each year,” said Anastasio. “Some accounts, like a pre-tax 401(k) or traditional IRA are tax-deferred and ROTH accounts grow tax-free, so be sure to take advantage of these accounts while you’re creating your FIRE plans.”
Keep Developing Financial Knowledge
Gen Z did more than put away savings during the COVID-19 pandemic. Key findings from the Bank of America survey reveal that nearly 70% of respondents were influenced by the pandemic to change their financial priorities. Gen Zers surveyed were able to build a solid financial foundation with 29% mapping out their financial goals, 19% opting to lead a more frugal lifestyle and 33% prioritizing saving for the future.
Moreover, Gen Zers are also increasing their overall financial literacy. Only 33% of Gen Zers surveyed said they learned about finances in school (K-12 and/or college). Of the Gen Zers surveyed, 75% learned about finances at home or from family, while 39% were self-taught.
Results from the survey reveal that most Gen Zers are knowledgeable about basic financial concepts. This includes saving (85%), managing money (82%) and budgeting (77%). Only one-third of Gen Z would rate their financial knowledge as low.
While many Gen Zers don’t know everything about topics critical for a more secure financial future, like buying a home or saving for retirement, they plan to keep developing their financial knowledge. A notable highlight from the Goldman Sachs Asset Management survey states that younger workers may need to plan with more realistic assumptions regarding their pre-retirement income.
The continuation of financial literacy plays a key role in how Gen Z reaches financial success. Continuing to prioritize learning about finances, and looking for new ways to manage finances, are keys to reaching FIRE.
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About the Author
Heather Taylor is a senior finance writer for GOBankingRates. She is also the head writer and brand mascot enthusiast for PopIcon, Advertising Week’s blog dedicated to brand mascots. She has been published on HelloGiggles, Business Insider, The Story Exchange, Brit + Co, Thrive Global, and more media outlets.