Gen Z has it tough, and the future is anything but guaranteed for them.
A recent study from wealth manager Rathbones made headlines for all the wrong reasons when it claimed that today’s 25-year-olds would need £3.1 million to retire comfortably by 65. The number caused widespread disbelief, frustration, and even panic. Social media filled up with comments from young people saying they might as well give up on saving altogether because there’s no way they’ll ever hit that target.
It’s easy to see why the reaction was so strong. After all, £3.1 million sounds completely out of reach for most people. However, what the headlines missed is how that figure was calculated and what “comfortably” actually means in this context. Once you dig a little deeper, the reality isn’t nearly as bleak. It comes down to inflation, lifestyle assumptions, and investment returns, not some expectation that every 25-year-old should literally save millions in cash.
Retirement planning is undeniably tougher today, but it’s not hopeless. Understanding how the system works, how compound growth functions, and what the real numbers look like over time changes everything. Before writing off your future or assuming the worst, it’s worth looking past the headline because the truth is, that £3.1 million figure isn’t quite what it seems.
That’s in future money, not today’s money.
The £3.1 million figure accounts for 65 years of inflation at 2% annually. In today’s terms, that’s actually equivalent to £1.4 million, which is what someone retiring now needs. The number looks terrifying because it’s showing you what money will be worth in 40 years’ time. It’s like someone in 1985 being told they’d need £300,000 to retire, when that seemed impossible on their wages. Inflation makes future numbers look massive, but it also means your future salary will be proportionally higher too.
You only need to save £1,600 a month, not millions upfront.
To hit that £3.1 million target, a 25-year-old needs to save roughly £1,600 per month, assuming their contributions increase by 2% annually and the pension pot grows at 5% per year. That’s about £19,200 a year. Yes, that’s a lot of money, but it’s not the impossible mountain the headline suggests. Compound interest and decades of growth do the heavy lifting. You’re not personally earning £3.1 million, you’re letting time and investment returns build it for you.
Your employer contributions massively reduce what you personally pay.
That £1,600 monthly figure includes employer contributions. Under auto-enrolment, employers must contribute at least 3% of your salary. On a decent wage, that could be £300-500 a month that you’re not personally finding. So your actual out-of-pocket contribution might be closer to £1,100-1,300 monthly, especially as your salary increases over time. Your employer is effectively giving you free money towards that target.
Tax relief means you get a 20-25% boost automatically.
Pension contributions get tax relief at your marginal rate. If you’re a basic rate taxpayer, every £80 you put in becomes £100 in your pension. Higher rate taxpayers get even more relief. This means a chunk of that monthly saving is basically the government topping up your pension for you. Without this benefit, you’d need to save nearly £3,000 per month in a regular savings account to hit the same target.
Your salary will increase substantially over 40 years.
The calculation assumes your contributions increase by 2% annually as your pay rises. A 25-year-old earning £30,000 now will likely be earning significantly more by their 40s and 50s. That £1,600 monthly contribution that seems impossible now will feel much more manageable when you’re earning £50,000 or £60,000 in 15 years. The percentage of your income going to pensions stays roughly the same, but the actual amount grows with your career.
Investment growth does most of the work for you.
The calculation assumes 5% annual growth, which is conservative for long-term pension investments. Over 40 years, compound growth is incredibly powerful. You might personally contribute around £800,000 over your working life, but investment returns could add over £2 million more. You’re not saving £3.1 million yourself, the market is doing most of the heavy lifting through decades of compound returns.
You’ve got 40 years to get there, not five.
Starting at 25 gives you four decades to build this pot. That’s a massive advantage that older generations didn’t always have. Gen X are facing retirement with inadequate pensions because many didn’t start saving until their 30s or 40s. Starting young means your money has decades to grow and compound. Even small contributions in your 20s will be worth considerably more than larger contributions started in your 40s.
The state pension will still exist and help.
The £3.1 million target excludes state pension entitlements, which currently provide around £11,500 per year. While there’s uncertainty about the triple lock’s future, some form of state pension will likely exist. This additional income reduces the amount you need from your private pension to maintain a comfortable lifestyle. The state pension isn’t going to cover everything, but it’s not nothing either.
A “comfortable” retirement is quite luxurious by most standards.
The PLSA’s definition of “comfortable” includes two foreign holidays a year, multiple UK breaks, regular meals out, a newer car replaced every five years, and money to help family members. It’s not a basic lifestyle. If you’re willing to accept a “moderate” lifestyle instead, you only need £2.2 million. For a “minimum” lifestyle, it’s £947,700. These are still big numbers, but they’re significantly more achievable if you’re realistic about your retirement expectations.
Lots of Gen Zers are already doing better than previous generations.
Despite the doom and gloom, some research shows Gen Z is actually contributing to retirement accounts earlier than millennials did, and may even be better prepared than Gen X. Auto-enrolment has helped establish good habits from the start of people’s careers. Younger workers are also more financially aware and have better access to investment information and apps. The generation that’s supposedly doomed is actually showing signs of being more financially savvy than their predecessors.
