Generation Z (Gen Z) generally refers to the demographic group born between 1997 and 2012. Also referred to as the ‘post-millennial’ generation and following the Millennial generation, Gen Z is characterized by being technologically savvy and comfortable with the internet and social media. ,
Experts suggest that Gen-Xers are at an early stage of their lives and hence, do not 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 you are decades away.
He suggests that Gen Z follow a few steps to establish a healthy financial future to meet their retirement goals.
Gen Z is also viewed as being more diverse, socially aware, and politically aware than previous generations. However, Gen Z 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.
Vivek Jain, Head-Investments, Policybazaar.com and Rahul Jain, President and Head, Nuwama Wealth suggest 10 approaches that can help Gen Z secure their financial health for the future.
5 Kadam Vivek Jain, Head – Investments, PolicyBazaar.com;
1. Good Health InsuranceSedentary lifestyle among Gen Z may make them prone to early onset of lifestyle diseases. This is the reason it is necessary to invest in an adequate health insurance plan as an unexpected illness can wipe out all your savings due to exorbitant healthcare expenses. One must be careful to select a high sum assured which can protect them effectively in case of a medical crisis.
2. Term Insurance: Another important aspect of retirement planning includes buying a sound term insurance plan. Retirement planning cannot be done without taking your family into consideration. A term plan financially supports one’s dependents in case the policyholder passes away unexpectedly.
Both health and term insurance plans will help Generation Z to be financially prepared against all uncertain eventualities and stand protected against the perils of death, illness and disability.
3. Investment: A range of insurance-cum-investment products are also on offer for those looking to diversify their portfolio. Since Gen Zers are more aware of how market linked instruments work, they may go for ULIPs or unit-linked insurance plans. They come with a life insurance component, tax benefits and most importantly, you can split your money into debt and equity as per your choice. So stands to gain as high as 12-14% returns under optimistic market conditions.
4. Guaranteed Return Plan: Gen-Xers should keep their income separate in a guaranteed return plan. Investment in such products provides assured return on investment over a specified period. These types of schemes are generally considered to be low-risk investments, as the return on investment is not subject to market fluctuations. These plans are a better option than traditional instruments like FDs as they offer attractive returns ranging from 7.2 – 7.5%.
Those who have moderate risk appetite can opt for capital guarantee schemes. People who opt for these schemes essentially invest 50 to 60 per cent of the amount in Guaranteed Return schemes for capital protection and safe returns, while the remaining is invested in equity. Thus, the rate of return depends on the terms of the scheme and the performance of the underlying assets.
5. Health + Wealth Creation Schemes: Recently, new plans have been launched in the market which offer a combination of health insurance, wealth creation and life insurance. Gen Z should either look for such options online or approach a financial advisor to ensure that they can adequately cover their financial risks as well as generate adequate returns.
5 Steps by Rahul Jain, President & Head, Nuwama Wealth;
Jain said that Gen Z is one of the more fortunate generations to be born in an era where all kinds of information is literally at their fingertips. “No wonder they have a greater understanding of the importance of retirement planning and access to tools that speed up the process.”
However, he added that it would be wrong to conclude that if they do not start early then their chances of accumulating the desired retirement corpus and enjoying a happy retirement are higher than their predecessors.
Retirement planning tips for Generation Z as suggested by Jain:
1. Save more, YOLO is deceptive: This wise advice also applies to Generation Z, who are guided by the principle – You only live once (YOLO). A common complaint among young investors is that they lack the financial resources to invest. While their salary is relatively higher than that of their parents, they also spend more. Most of them are addicted to online shopping apps and fall for deceptive marketing offers, resulting in unnecessary overspending.
2. Starting small is acceptable: Rather than waiting for a specific amount before starting, it is better to start with whatever savings one has. Frequent small contributions to a retirement portfolio shouldn’t be delayed because of their power. Remember that time is money, and young investors are lucky to have had enough time to build a nest egg for retirement.
3. Cancel Credit Card and Disable Notifications: Credit cards with reward points and shopping app notifications are enough to inspire frivolous spending. It is prudent to dispose of credit cards and disable notifications that constantly remind consumers of “never again” shopping deals. Instead, use a debit card.
4. Hire an advisor or financial plannerInvesting is a relatively new concept for this age group, which is one of the reasons why young people are obsessed with it. Planning for retirement often requires a long, one-on-one conversation with a professional advisor/planner to fully understand what is needed post-retirement in order to implement a plan before it is too late . Similarly, a solid investment and insurance strategy must be developed to ensure a smooth transition to retirement.
5. Should not make any difference to old or new tax regimes: The old tax regime encourages individuals to save more through tax savings. There is concern that if individuals switch to the new regime, which is devoid of deductions and exemptions, they will have no incentive to save. They can spend more money. Regardless of the regime chosen, adequate provisions should be made for savings and insurance.
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