Gen Z retirement planning: Simple steps to start saving

If you’re like many members of Gen Z, saving for retirement can feel like a challenge. In fact, only one in five is setting aside any money for retirement, according to the TIAA Institute.

The reality is if you’re juggling things like high rent and student debt while earning entry-level wages, you probably have minimal cash to spare. However, time is on your side. Here’s how to start saving for retirement early in your career, even if you’re on an extremely tight budget.

Why should Gen Z start saving for retirement early?

When you’re in your 20s, retirement can feel like a lifetime away. However, the earlier you start saving for retirement, the better. Thanks to the power of compound interest, even seemingly small contributions can grow exponentially over time.

Consider an example: Someone who saves just $100 per month starting at age 21 could accumulate over $239,000 by age 65, assuming a 6% rate of return. Pretty amazing, right?

However, if they waited until age 30 to start saving, they’d have to contribute nearly double that each month to reach the same amount by age 65.

Here’s the deal: As far as Gen Z retirement, the sooner you start, the better off you’ll be. By making small contributions today, you can significantly boost your savings in the long run.

Where should you put your retirement savings?

Where you save your money can be as important as how much you set aside. Different types of long-term savings options are available, including certificates of deposit (CDs) and tax-advantaged retirement accounts. All offer the ability to earn interest while keeping funds locked away—an added bonus if you’re tempted to spend your spare dollars—but ­the right choice will depend on your goals and financial situation.

CDs are typically a good fit if you’re saving for a tangible goal with a set budget, like a down payment on a condo or wedding expenses. CDs tend to offer highly competitive rates that are locked in for a set term, making them a solid way to save for targeted goals—as long as you don’t need immediate access to those funds.

But when it comes to the longer-term goal of retirement, tax-advantaged accounts are usually the way to go. They typically have more growth potential than regular savings accounts or CDs, and unlike traditional investment accounts, they offer tax perks designed to help your savings go even further.

One of the most common tax-advantaged retirement accounts is a 401(k), which many employers will offer as part of their benefits package. Companies often match up to a certain percentage of your contributions, though terms vary.

Individual retirement accounts (IRAs) are another popular choice. IRAs—both traditional and Roth options—are available to anyone with taxable income. 

4 easy ways to start saving for retirement today

Getting into the habit of saving for retirement now makes it easier to stay on track in the future. Here are four simple ways to start growing your retirement fund.

1. Make a budget

A solid budget is key to determining how much you can set aside for retirement each month without sacrificing your financial stability. There are many budgeting methods to choose from, but if you’re new to budgeting, the 50-20-30 rule could be a great place to start.

2. Open a tax-advantaged retirement account

If you have a full-time job, find out if your employer offers a 401(k). If not, consider opening an IRA instead. These accounts offer major tax benefits and are easy to set up, making them a good option, especially for freelancers and part-time workers.

3. Max out your employer match

Many companies will match a percentage of your contributions, essentially giving you free retirement money. If your job offers a 401(k) match, do your best to contribute enough to receive the full company contribution—it’s one of the easiest ways to supercharge your savings.

Companies have different terms for when they fully “vest” your retirement funds—giving you sole ownership of the amount of matched funds from your employer. Just make sure you’re aware of your company’s specific requirements, especially if you’re considering a job move.

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4. Automate your savings

Make saving effortless by setting up automatic transfers. Start by scheduling a fixed amount to go into your savings account each month—treating it like a non-negotiable bill. (Remember that compound interest example?) Most 401(k)s allow you to contribute a percentage of each paycheck. If you’re using an IRA, check with your bank to see if you can set up automatic transfers from your checking account. 

Small steps can add up—big time

For Gen Z, saving for retirement can seem tough, but getting into the saving habit early gives you a huge advantage. Even small steps—like sticking to a budget, opening a retirement account, and automating contributions—can put you on the path to financial security.

Start your savings journey today with a Discover^®short-term CD.

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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover, a division of Capital One, N.A., or its affiliates.