Generation Z (Gen Z) generally refers to the demographic cohort born between 1997 and 2012. Also known as the ‘Post-Millennial’ generation and follow the Millennial generation, Gen Zs are characterised as being technologically savvy and comfortable with the internet and social media.
Experts suggest that Gen-Zers are at an early stage of their life and so, don’t actively think about saving or investing for retirement planning. However, the rule of thumb for retirement planning is to start early, invest smartly and be consistent even if it’s decades away.
They suggest Gen Zs follow a few steps to establish a healthy financial future to accomplish their retirement goals.
Gen Zs are also seen as being more diverse, socially conscious, and politically aware compared to previous generations. However, Gen Zs are diverse and cannot be reduced to a single set of characteristics.
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How can GenZs plan for retirement? Here are 10 steps that can help them.
Rahul Jain, president and head, Nuvama Wealth and Vivek Jain, head- investments, Policybazaar.com, have suggested 10 approaches that can help Gen Zs to secure their financial health for the future.
5 steps by Rahul Jain, president and head, Nuvama Wealth;
Jain said Gen Z is one of the more fortunate generations to have been born in an era where all types of information are literally at their fingertips. “No wonder they have a greater understanding of the significance of retirement planning and access to tools that can expedite the process.”
However, he added that it would be incorrect to conclude that they are more likely than their predecessors to accumulate the desired retirement corpus and enjoy a happier retirement if they do not start early.
Retirement planning tips for Generation Z suggested by Jain:
1. Save more, YOLO is misleading: This wise counsel also applies to Generation Z, who are guided by the dictum – You Only Live Once (YOLO). A common complaint among young investors is that they lack the financial resources to invest. While their salaries are relatively higher than those of their parents, they also spend more. The majority of them are addicted to online shopping apps and fall for deceptive marketing offers, resulting in unnecessary overspending.
2. It is acceptable to begin small: Rather than waiting for a specific amount before beginning, it is preferable to begin with whatever savings one has. Consistent small contributions to a retirement portfolio should not be delayed due to their power. Remember that time is money, and young investors are fortunate to have ample time to build a nest egg for retirement.
3. Cancel the credit card and disable notifications: Credit cards with reward points and shopping app notifications are sufficient to induce frivolous spending. It is prudent to dispose of credit cards and disable notifications that constantly remind consumers of “never again” shopping deals. Rather, utilise debit cards.
4. Hire an advisor or financial planner: Investing is a relatively new concept for this age group, which is one of the reasons why young people are overwhelmed by it. Planning for retirement frequently requires lengthy, face-to-face conversations with a professional advisor/planner in order to fully comprehend what one needs post-retirement in order to implement a plan before it is too late. Similarly, one must develop a sound investment and insurance strategy to ensure a smooth transition to retirement.
5. Old or New tax regimes should not matter: The old tax regime incentivises individuals to save more through tax savings. There is concern that if individuals adopt the new regime, which is devoid of deductions and exemptions, they will have no incentive to save. They may end up spending more money. Regardless of the regime chosen, adequate provisions for savings and insurance must be made.
5 steps by Vivek Jain, head- investments, Policybazaar.com;
1. Sound health insurance: Sedentary lifestyles among Gen Z could make them prone to the early onset of lifestyle diseases. This is why investing in an adequate health insurance plan is essential as an unforeseen illness can drain all your savings due to exorbitant healthcare expenses. One should be mindful to opt for a high sum assured that can rescue them in case of a medical crisis effectively.
2. Term insurance: Another critical aspect of retirement planning includes buying a robust term insurance plan. Retirement cannot be planned without keeping one’s family in mind. A term plan financially supports one’s dependents in case the policyholder unexpectedly passes away.
Both Health & Term insurance plans will help Gen Z to be financially prepared against all the uncertain events and stand secure against the perils of death, disease and disability.
3. Investments: There’s a range of insurance-cum-investment products as well for those who want to diversify their portfolio. Since Gen Zers are more aware of how market-linked instruments work, they can go for ULIPs or unit-linked insurance plans. They come with a life insurance component, tax benefit and most importantly, allow you to split your funds into debt and equity as per your preference. So one stands to gain as high as 12-14% returns under optimistic market conditions.
4. Guaranteed Return Plans: Gen-Zers must put away their income in guaranteed return plans. Investing in such products provides fixed returns on investments over a certain period of time. These types of plans are generally considered least-risk investments, as the return on investment is not subject to market fluctuations. These plans are a better choice over traditional instruments like FD, as they offer lucrative returns ranging as high as 7.2 – 7.5%.
Those who have medium risk appetite can opt for Capital guarantee plans. Those who choose these plans essentially invest 50 to 60 per cent of the amount in guaranteed return plans for capital protection and secure returns, while the rest is invested in equity. Thus, the rate of return depends on the terms of the plan and the performance of the underlying assets.
5. Health + Wealth Creation Plans: Recently, there are new plans launched in the market that provide a combination of health insurance, wealth creation and life cover. Gen Z must either look at such options online or approach a financial advisor to guide and help them to adequately cover their financial risks as well as reap sufficient returns.
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