Many young adults avoid thinking about retirement during their 20s and 30s. However, lessons from Baby Boomers and Generation X show that retirement often does not go as planned.
Some older Americans saved for decades but faced market crashes just as they were about to retire. Others had to delay retirement due to inflation and rising medical costs.
Gen Z still has time to prepare differently. Here are five practical retirement contingency plans they can start now.
1. Develop a Skills-Based Side Hustle
Investments may seem stable for years but can suddenly drop by 30% due to global crises. Although markets usually recover, it can take months or years. To avoid relying solely on investments, Gen Z should learn high-income skills like coding, content creation, or freelance photography. These skills can provide extra income during economic downturns, preventing the need to withdraw retirement funds at a loss.
2. Plan for Alternative Living Arrangements
Retiring in expensive U.S. cities can be tough without a large savings cushion. To reduce financial stress, consider moving to lower-cost cities or countries with retirement or digital nomad visas. Researching downsizing options and alternative retirement locations early can provide more financial freedom later.
3. Embrace Semi-Retirement
Fully retiring may not be realistic due to long retirement spans and high costs for healthcare and housing. Semi-retirement, such as working part-time, seasonally, or taking mini-retirements, offers more control and financial stability. This approach helps maintain income even if markets are unstable.
4. Diversify Investments
No investment is risk-free. Stocks, bonds, and real estate can all lose value under certain conditions. Gen Z should avoid putting all their money in one type of asset. Working with a financial planner to create a diversified portfolio and multiple income streams can protect retirement funds from market fluctuations.
5. Eliminate High-Interest Debt Early
High-interest debt can undermine retirement savings, especially when full-time income stops. Paying off credit cards and avoiding lifestyle inflation in early adulthood frees up money for savings and investments. This strategy helps retire on one’s own terms without the burden of monthly debt payments.
Starting these plans early can help Gen Z build a more secure and flexible retirement future.
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