Gen Z struggles to associate retirement with the financial freedom they want due to rising living costs and a lack of reliable financial advice.

Unlike their parents, Gen Z is growing up with access to an abundance of financial knowledge, and while they desire independence, they struggle to associate retirement with financial freedom due to rising costs, lack of reliable financial advice and other priorities. These challenges make the path toward growing wealth difficult, according to a new report from the TIAA Institute.

From Gap Years to Golden Years: A look at Gen Z's current thinking about retirement reveals the leading reason Gen Z (ages 18-24) lack retirement savings is because they don't know where to begin (35%). As a result, only 20% of the Gen Z population is saving for retirement.

"The traditional path to retirement is simply not compelling to most in Gen Z. They want financial freedom now so they can take professional breaks, travel, and pay the bills," said Kourtney Gibson, TIAA's chief institutional client officer. "The TIAA Institute's findings underscore the need to help those currently early in their career prepare for the future with professional advice and planning that links financial basics and saving with freedom for fun. For many Gen Z individuals, employer-provided plans can be the first step to get them on the right path to financial security."

Retirement will look a lot different for Gen Z.

A growing number of Gen Z say they don't expect to ever retire – at least in the traditional sense. Major steps in Gen Z's financial future, from paying for school to paying a mortgage, are increasingly feeling out of reach, making retirement seem like a lower priority. In short, the traditional path to retirement isn't compelling to Gen Z.

"Only 1 in 5 Gen Z's are saving for retirement. The biggest reason being they simply "don't know where to start." As an industry we need to reimagine how we educate Gen Z on the importance of retirement savings, and how a secure retirement ultimately leads to financial freedom and flexibility," said Micky Onvural, chief marketing and communications officer at TIAA.

One prescriptive path from education to retirement is insufficient to accommodate the breadth of diversity of Gen Z's work-life scenarios. They demand choice.

Gen Z relies on parents, social influencers, for financial advice.

Parents are an overwhelmingly popular source of financial insight for 61% of Gen Z respondents. Further, 65% said they follow financial institutions, financial advisors, financial content creators (i.e., finfluencers) or personal contacts in finance on social media. One-third (33%) follow finfluencers to delve deeper into their financial education.

First-generation students, those who are the first in their immediate family (parents or guardians) to receive a formal secondary education, rely on parents at a lower rate than their counterparts for financial guidance and information and go to other sources at higher rates.

There are also countless platforms available to help Gen Z manage their money. This has led to a large divide in use across brands. There's no clear winner when it comes to money management.

As more Gen Z's enter the workforce, employers play a vital role in enabling their employees to get on a strong financial path through access to professional financial planning services and retirement plans.

Rising costs of living, inflation, pushes Gen Z to prioritize daily spending.

Today, more than half (51%) of the average Gen Z monthly budget is spent on housing. The drain on their income to cover daily expenses impacts their financial confidence and reduces their ability to save for the future or plan for retirement.

As Gen Z is impacted more by inflation than previous generations, they're forced to choose between "save now" or "spend now" mentalities. Thirty percent of Gen Z respondents say they prioritize saving, versus 20% who prioritize spending now, leaving the remaining 50% undecided about how best to manage their finances.

When asked what they're saving for most, 19% of Gen Z's said travel, followed closely by building up savings for living expenses like housing (17%) and transportation (18%). Only 9% are saving most for emergencies and retirement, respectively.

Despite pressures, Gen Z still wants to save.

Younger workers are charting new paths toward financial freedom as they work to balance priorities. More than half (52%) of Gen Z's use savings accounts to store their funds.

For respondents who reported that they are saving for retirement, 66% said they are saving through 401(k)s—the most common path. Notably, between the ages of 22 and 23, there was a 10% jump in Gen Z's saving for retirement, which aligns with when most are graduating college and getting their first full-time jobs, indicating that they're trying to start saving early in their careers.

While we know the role of employers in enabling Gen Z's to jump-start retirement savings is critical, many workers still don't have access to retirement plans through their employers. By increasing access to retirement plans, and implementing thoughtful solutions that understand Gen Z's mindset, retirement planning can be embraced by a generation that is redefining retirement readiness.

This report was developed in partnership with UTA's NextGen Practice (formerly JUV Consulting).

About the TIAA Institute

The TIAA Institute is a think-tank within TIAA, conducting cutting-edge research in the areas of financial literacy and wellness, longevity and lifetime income, plan design and behavioral finance in the context of retirement. The Institute seeks to understand the financial life journey of individuals and their opportunities by life stage including Young Adults, Parents, Caregivers, Retirees and Legacy Planning. The Institute also provides consulting services for higher education and the broader nonprofit sector on leadership development, organizational effectiveness, and workforce trends. For more information, visit www.tiaainstitute.org.

About TIAA

TIAA is a leading provider of secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions. It is the #1 not-for-profit retirement market provider1, shared $5.1 billion with participants in 2023, on top of the stated guarantees, and has $1.3 trillion in assets under management (as of 6/30/2024)2.

1. As of July 21, 2022. Based on data in PLANSPONSOR's 403(b) 2022 DC Recordkeeping Survey, combined 457 and 403(b) data.
2. As of June 30, 2024 assets under management across Nuveen Investments affiliates and TIAA investment management teams are $1,349 billion.

TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA), New York, NY.

©2024 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, New York, NY

Annuity Alliance is not affiliated with TIAA. This article is for informational and educational purposes only. It should not be used to make a buying decision. If you would like to speak with a financial professional at Annuity Alliance using the Contact Form.