Redefining retirement to the tune of $1.8 million in savings

Younger generations are realistic about the amount of money they will need to fund a comfortable retirement. However, many are falling short in saving enough each month to meet their objective.

“On average, our respondents estimate they need about $1.8 million in retirement savings,” according to a recent Capitalize survey. “However, the average monthly amount contributed to retirement accounts is only $448, which isn’t enough for most. A shortfall in retirement savings also may be why one-third of Gen Zers and millennials surveyed plan to work past their traditional retirement age or why more than half rely on cryptocurrencies to boost their nest egg.”

Capitalize asked a cross-section of workers about their retirement savings strategies. Here is what they said:

Enough may not be enough. Workers believe they need between $1.4 million and $2.1 million to retire comfortably. Baby boomers contribute the most to retirement accounts, averaging $535 monthly. Gen Zers average $310 per month, while millennials and Gen Xers fall somewhere in between.

Gaining financial wisdom. Half of Gen Zers and millennials turn to financial websites for advice, with 37 percent relying on retirement platforms for customized portfolio insights. Forty-five percent favor stocks, with 38 percent relying on preset investment objectives in 401(k) and 403(b) plans. Slightly less than one-third use pension plans that allow retirees to withdraw a portion of their income during their working years.

Building retirement IQ. Forty-five percent of Gen Zers and millennials perceive themselves as knowledgeable about stocks, and another 25 percent have knowledge about equities. About two-thirds express some understanding of employer-provided savings plans. Regardless of the retirement vehicle used, understanding the basics helps investors make wise decisions.

Lighting a retirement FIRE. An increasing number of worker want to gain financial independence and retire early (FIRE). Instead of investing 5 percent to 10 percent monthly for retirement, they often set aside 50 percent or more, which usually requires a significant lifestyle shift.

Many young investors are turning to cryptocurrencies in hopes of accelerating savings, with 56 percent of Gen Zers and 54 percent of millennials including them in their retirement strategy.

Maxing out, exploring new options. Only 10 percent of people maximize their retirement contributions. More than 20 percent of Gen Zers contribute the maximum amount to their retirement accounts, followed by millennials (10 percent) and Gen Xers (5 percent).

Last year, employees could contribute a maximum of $19,500 to their 401(k) plan. Employees who are 50 or older can contribute an extra $6,500 annually to catch up. Federal law caps the employer and employee’s total contribution at $58,000 or 100 percent of the employee’s annual earnings.

Retirement’s magic number. Baby boomers want to retire by age 66, and Gen Zers plan to stop working at 60. Millennials and Gen Xers agree that 61 is the right age. Because the average life expectancy today is slightly under 80, a 66-year-old baby boomer has around 13 years to spend retirement savings. The average lifespan is expected to increase to 86 by 2060, giving Gen Zers more time to enjoy retirement.

However, many don’t plan to sit in a rocking chair. One-third expect to work for another employer or start their own business after they reach retirement age. Just under 30 percent want to volunteer at retirement age, while an equal percentage say they want a part-time gig. One-third of millennials and Gen Zers plan to still work full-time when they reach retirement age, with 43 percent believing Social Security benefits will not be able to support them in retirement. Whether these work plans are implemented to avoid boredom or ensure financial security remains to be seen.

“Millions of Americans retire each year,” according to the survey report. “Behind them is a young and eager group of new workers anxious to make their mark on the world. Yet there appears to be a gap between the amount workers are tucking away for retirement vs. the amount they want available in their golden years.”