How Gen Z and Millennials Can Get Ahead on Retirement

If you’re in your 20s or 30s, retirement might feel like a problem for “future you.” Something to figure out once you’ve paid off student loans, settled into your career, maybe even bought a house.

But here’s the truth: the longer you delay, the harder it becomes to catch up, and the more uncertain your future looks.

That future, unlike your parents’ or grandparents’, won’t include a guaranteed pension. Defined benefit plans, the kind that offered lifetime income post-retirement, were once the backbone of retirement security. But they’ve been phased out in most private-sector jobs, replaced by 401(k)s and IRAs. And this has shifted the burden of planning, contribution, and risk entirely onto you.

Why the shift in retirement planning?

The reason is simple. Pensions became too expensive for employers to sustain. People have started living longer, markets have become volatile, and the responsibility of managing a lifetime of retirement payouts has become too big a liability for corporations. Today, fewer than 15% of private-sector workers have access to a defined benefit pension plan. Compare that with over 50% of baby boomers who are projected to retire with one.

So no, you likely won’t have a safety net. But you do have something just as powerful: control. You control how soon you start. You control what you invest in and how seriously you take retirement planning starting now.

Additionally, you have the advantage to learn from those just ahead of you.

Learning from Generation X can be the perfect starting point. Think of people who are currently sandwiched between aging parents and looming retirement. Generation X retirement planning offers an entire playbook of lessons, not just on what to do, but also on what not to do.

And here’s the good news: Gen Z and Millennials still have time to follow what worked and flip the script where required. All they need to do is take deliberate, consistent, and informed action immediately.

The wake-up call Gen Z and millennials need from Gen X’s retirement struggles

The glaring retirement savings gap facing Generation X

The retirement readiness of Generation X doesn’t paint a very rosy picture. The numbers look scary, and that is preventing a sizable chunk of Gen X from retiring when they wish to. The report from the National Institute on Retirement Security (NIRS), for instance, states that the median retirement savings for Generation X households is barely $40,000. Now think of that in the context of people who are already in their late 40s to late 50s, with retirement looming on the horizon.

A 2023 survey by Schroders highlights the issue further. It revealed that Gen Xers believe they will need approximately $1,069,746 to retire comfortably. However, they expect to have only about $602,944 saved, leaving a substantial shortfall of $466,802.

This stark disparity points to a critical lesson: Waiting until your 40s to build a nest egg is too late. The compounding effect of early savings is a powerful tool that diminishes significantly with each passing year.

Why did Gen X struggle

The retirement savings shortfall among Gen Xers isn’t merely a result of individual choices but is also deeply rooted in structural shifts and economic challenges:

Transition from pensions to 401(k)s: Gen X was the first generation to experience the shift from defined benefit pension plans to defined contribution plans like 401(k)s. This transition placed the onus of retirement planning squarely on individuals, many of whom were ill-equipped to manage this responsibility.
Economic downturns: This generation faced multiple economic crises, including the dot-com bubble burst and the 2008 financial crisis. These events eroded savings and instilled a sense of financial insecurity, making consistent retirement contributions challenging.
Rising debt levels: The burden of student loans, mortgages, and other debts has been a significant barrier to saving for retirement. Balancing debt repayment with the need to save has been a persistent challenge for many Gen Xers.
Limited financial literacy: Many in this cohort lacked access to comprehensive financial education, leaving them unprepared to navigate the complexities of retirement planning and investment strategies

Why millennials and Gen Z must think differently

Millennials (born 1981–1996) and Gen Z (born 1997–2012) aren’t just younger versions of Generation X. They’ve inherited a completely different economic reality, and the way they approach retirement must reflect that.

What they’re up against

Fewer pensions: As discussed above, most Millennials and Gen Z workers have never seen a defined benefit pension plan in a job offer.
Crippling student loan burdens: For Millennials and Gen Z, student debt is a structural hurdle. The average federal student loan debt is $37,853. To earn a bachelor’s degree alone, students at nonprofit institutions borrow around $33,910, and those attending for-profit institutions carry as much as $40,970. Many borrowers spend close to 20 years repaying their loans. You may think of these as fringe cases, but they’re the norm.
Rising healthcare costs: Out-of-pocket expenses are only climbing. Fidelity estimates a retired couple today needs $315,000 just to cover healthcare, and Gen Z is likely to need more due to rising premiums and longer lifespans
Uncertain Social Security timelines: According to the 2024 Annual Report of the Social Security Board of Trustees, the Old-Age and Survivors Insurance (OASI) Trust Fund is projected to be depleted in 2033. Gen Z and Millennials can’t afford to rely on it as their primary source of income.

But there is a silver lining

While that’s a tough foundation to build on, the upside is that millennials and Gen Z also have tools, access, and awareness that no generation before them had. Here’s what can work in their favor:

Early exposure to fintech: Whether it’s investing apps, digital wallets, or smart budgeting tools, this generation was introduced to financial technology in their teens and twenties. They practically live on fintech platforms.
Flexible work models: Freelancing, gig work, and remote careers are now mainstream. This mobility offers the chance to structure income around savings goals. While it also creates retirement planning challenges (e.g., no employer 401k), it gives the freedom to craft tailored financial strategies.
Rising financial literacy: This generation has access to money podcasts, financial influencers, and FIRE blogs. Awareness doesn’t always translate into action but is a powerful head start.
Access to elite investing tools: In the past, access to fractional shares, algorithm-driven portfolios, or global ETFs was limited to institutional investors or the ultra-wealthy. Today, anyone with a smartphone can invest $5 across global markets. Platforms and fintech startups have democratized investing.

So, while Gen X had more stability, millennials and Gen Z have more agility. The old strategy of working 30 years, getting a pension, and retiring at 60 doesn’t apply. But that doesn’t mean these generations are disadvantaged. It means the rules have changed.

This is where next generation investing brings in a practical framework to build wealth in today’s economy. It involves understanding your tools, leveraging them consistently, and avoiding the missteps of those who came before.

Next generation investing for young professionals to win early

1. Start investing, even if it’s just $20

Compounding is the most powerful force in personal finance. The earlier you start, the more you benefit, even if you start small.

For example, investing $200/month starting at age 25 (with 7% returns) gives you around $525,000 by age 65. Start at 35, and you only have $245,000.

Thanks to micro-investing apps and no-fee brokerages, anyone can start with as little as $5–$10 per week.

2. Embrace automation and dollar-cost averaging

If you’re waiting to “feel ready” before investing, you’ll likely wait too long. The market won’t give you perfect timing but volatility. That’s why the best investors remove emotion from the equation altogether.

Automation is your friend. Set up recurring transfers that funnel money into your investment accounts every month or even every week. Choose a consistent date. Lock it in. Then walk away.

This is called dollar-cost averaging. It means you’re buying into the market at regular intervals regardless of price. Sometimes you’ll buy high, other times low, but over time, you smooth out the highs and lows. You avoid the temptation to “wait for the dip.” You stay in the game.

And here’s the subtle benefit no one talks about: automated investing turns your wealth-building into a habit. One, you don’t have to overthink, second-guess, or constantly adjust. It frees up your energy to focus on earning, learning, or living while your money quietly goes to work.

3. Diversify like a pro (even if you’re a beginner)

Let’s be honest, scrolling through Reddit or Twitter may tempt you into chasing meme stocks or crypto moonshots. But smart investing is less about excitement and more about balance.

Diversification is your safety net.

You don’t need 20 years of experience to build a well-balanced portfolio. You need clarity.

Here’s a basic breakdown that works for many younger investors:

60–80% equities: This includes both domestic and international stocks. The higher your equity allocation, the more growth potential, but also the more volatility. It’s ideal for long-term horizons.
10–20% bonds or bond ETFs: These offer stability and help cushion your portfolio during downturns.
5–10% alternative assets: Think real estate investment trusts (REITs), commodities like gold, or even a small crypto position if you’re comfortable with high risk.

The beauty of this model? It’s adaptable. You can tweak the percentages based on your goals and risk tolerance. But the principle remains the same: don’t put all your eggs in one basket.

And don’t forget to rebalance. Markets shift. So should your portfolio. Once a year, take a look and adjust your allocations. That small step keeps your risk profile in check without overreacting to every headline.

4. Think beyond the 401(k)

Yes, 401(k)s are valuable, especially when your employer offers a match. That match? It’s free money. And not taking it is like leaving part of your paycheck on the table.

But your retirement strategy shouldn’t stop there.

The smartest investors build a stack of accounts, each serving a different purpose and tax benefit.

Start with:

Roth IRAs: You contribute post-tax income, but your money grows tax-free and withdrawals in retirement are tax-free too. It’s a win-win for young investors who expect to be in a higher tax bracket later.
Health Savings Accounts (HSAs): If paired with a high-deductible health plan, HSAs offer a triple advantage of tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. It’s one of the most tax-efficient accounts available.
Taxable brokerage accounts: These don’t come with tax perks, but they offer flexibility. No age restrictions, no penalties for withdrawals. Ideal for goals before retirement, like travel, real estate, or even early retirement plans.

Millennials and Gen Z often overlook the power of tax-efficient investing. They focus on returns but ignore how much of that return they’ll actually keep. That’s a mistake.

By spreading your investments across different account types, you will create both financial freedom and tax flexibility in the future.

How millennials and Gen Z can come up with a retirement plan in 20s or 30s

Step 1: Know your target

Estimate how much you need in retirement.

A common recommendation is to aim to save 25x your annual expenses by retirement. So, if you plan to spend $60,000/year post-retirement, you’ll need $1.5mn.

That gives you a working target.

Step 2: Divide your goals into buckets

Think of your savings as three separate time horizons

Short-term (0–5 years): This is your emergency fund, health insurance, or that unexpected car repair. Keep it liquid.
Mid-term (5–15 years): House down payment, wedding, kids’ education. You want moderate growth with lower risk.
Long-term (15+ years): This is your retirement engine that will include 401(k), IRA, or real estate. Lock it away and let it grow.

When your money has a clear purpose, you’re less likely to tap into long-term investments to solve short-term problems.

Step 3: Check in every quarter (not every day)

You don’t need to micromanage your portfolio. But you do need to check in, deliberately and regularly.

Once every three months, review:

Are your balances growing?
Are you contributing enough?
Is your employer matching your 401(k)?
Do you need to rebalance?

If your income has changed, update your contributions. If your goals have shifted, tweak your buckets.

Quarterly check-ins help you stay on track without spiraling into analysis paralysis.

Top retirement myths that millennials and Gen Z should be wary of

Myth 1: I’ll save more when I earn more
Truth: Most people increase lifestyle costs with income. Start now with what you have.

Myth 2: Social Security will cover it
Truth: For Millennials and Gen Z, Social Security will likely cover less than 30% of retirement needs.

Myth 3: Real estate is my retirement plan
Truth: Real estate can be part of your plan, but without liquidity and diversification, it’s risky as a sole investment strategy.

If Generation X taught us anything, it’s this: retirement planning doesn’t just “fall into place.”

For Millennials and Gen Z, the good news is that the tools, access, and knowledge are already within reach. But waiting too long or trying to “time the market” is a gamble you can’t afford.

Use the advantage of time. Automate your savings. Lean into next generation investing. Prioritize long-term well-being over short-term gratification.

You don’t need to be perfect. You just need to start today. It may also be worthwhile to trust the expertise of a financial advisor who can tailor a financial plan based on your risk appetite and financial goals.

Consider our free advisor match tool that can match you with 2 to 3 seasoned financial advisors that can make retirement planning easy for you.