It’s hard to save for retirement. Here’s what Gen Z and millennials can do instead

Americans on average believe they’ll need $1.46 million in savings to retire comfortably, according to a 2024 study from Northwestern Mutual. That might feel like a big number, but at the recommended annual withdrawal rate of 4%, that would provide about $58,000 per year in income, well below the current median income in the U.S.

“It seems like the amount of money that would be needed to retire in 30 years is absurd and unreachable,” said Cody Norris, a millennial worker. “How do we do real planning when it seems like the current trends will be unsustainable?”

Millennials in the Northwestern Mutual study had saved an average of $62,600; many are well behind that. To reach their target savings by retirement age, the average millennial would need to contribute between $500 and $1,000 per month to a retirement account — on top of the unprecedented student loan debt and housing prices our generation is navigating.

Plus, that savings plan only works if someone has access to a workplace account that allows that level of tax-advantaged savings. It also assumes a reliable stock market return over the next 30 years, a variable that’s become much less dependable since Americans started relying on our investment-based system of retirement planning.

Norris asked the question that’s on the minds of many American workers staring down an uncertain financial future: “Are we still saving what we can or saying f*** it?”

You might not get to choose whether you retire

Many folks, overwhelmed by the lack of nuance or sense of reality in typical retirement planning advice, would answer Norris’ question with the latter response. The increasing number doing work that doesn’t take a physical toll think: Maybe we’ll just work forever, so why bother saving now? That could be magical thinking.

“We don't always get to choose if we retire,” said financial planner Maura Madden. “People become disabled, people have circumstances that don't allow them to work…You don't always have the option [to work], so even if you don't save enough to fully retire, if you're saving, at least you've got something to fall back on.”

Investment-based retirement savings: the best we can do?

Before Congress enacted Section 401(k) of the Internal Revenue Code in 1978, American workers were generally not responsible for the bulk of their post-retirement income. Social Security in the mid-20th century replaced a higher portion of pre-retirement income, and many more Americans could rely on pensions because of stronger unions that fought for them. A pension, a defined-benefit plan, relies on employer rather than employee contributions. And it guarantees a worker a certain income after retirement.

Section 401(k) was never intended as a retirement-planning provision, but its mechanics allowed employers to shift the responsibility for retirement planning onto employees. By the time Gen X joined the workforce, saving through a 401(k) was being touted as clearly responsible financial planning; for millennials and Gen Z, it’s treated as a must-have.

Despite our cultural reliance on the 401(k) and subsequently spawned tax-advantaged retirement plans, this system has never paid off for most workers. Boomers — the youngest of whom are already over 60 years old — have an average of just $120,300 in retirement savings this year. They expect to need nearly $1 million to retire comfortably.

But few alternatives exist. Tax-advantaged retirement accounts are the most viable way to prepare for retirement in our current environment.

“To save the cash and make investments tends to be the simplest way to go,” said Madden.

Madden acknowledges alternatives, like building and selling a business or purchasing and renting out real estate, work for some individuals. But these routes aren’t reliable for the culture at large. And we’ve seen from the inflated housing market that our decades-long obsession with turning real estate into an investment has actually rendered that option obsolete for younger generations.

“That's great if you happen to buy a house cheaply 30 years ago,” said Madden, “but that ship’s sailed.”

Thinking broadly, a slate of policy changes could get American workers back on track for secure, comfortable retirements. Adjusting the income cap for Social Security taxes would better fund that program and help increase the payouts from public funds. Reinstating union protections could bolster workers’ ability to negotiate for employer-funded pensions. Enacting universal health care (and related supports like in-home care) would reduce the cost of living in old age. Policies that rein in the cost of housing would make saving more feasible during our working years.

Millennials and younger generations, in particular, can work toward the political and social change necessary to realize these policies and transform how Americans retire.

In the meantime, though, Madden guides her (mostly Gen X) clients toward retirement not with admonishments to tighten their belts and hit arbitrary savings targets, but with a new way to think about our relationship to work.

“It's about reframing that retirement isn't just before and after retirement,” she said. “It's more of a shifting process of your life and how you work.”

The advice millennials and Gen Z hear about retirement planning still imagines we’ll live like our grandparents did: 40 years of work followed by a couple of decades of not working. Most of us won’t and don’t need to follow that model. Many of Madden’s clients plan to work full-time into their 70s or transition into part-time work once they’re eligible to draw Social Security benefits.

“Instead of saying, ‘How much do you need to save right now,’ oftentimes we're playing with, ‘How long are you going to have to work?’” Madden said.

This shift in thinking isn’t fully satisfying — many people will continue to work full-time or part-time past retirement age purely out of financial desperation. But it might be just enough to relieve the millions of American workers who panic when they’re told how much they should have saved for retirement by now.