A 2025 study by Payroll Integrations found that nearly half (46%) of Gen Z workers have already raided their retirement accounts. Compare that to just 31% of millennials, who have had more time in the workforce to tap retirement savings (but mostly haven’t).
Beyond triggering tax bills and penalties, raiding your retirement accounts also cripples your money’s ability to compound over time.
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“A 22-year-old investor that saves $10,000 annually at 8% returns would have nearly $2.8 million at age 62,” explains financial advisor Chris Nemes of Nemes Rush Family Wealth Management. “If they withdraw all their retirement funds in their twenties and restart saving $10,000 per year at age 32, their balance at age 62 would be around $1.2 million.”
Here’s why committing this massive retirement no-no could hurt Gen Z’s chances of enjoying their golden years.
Why Are Younger Workers Raiding Retirement Funds?
According to the study, 37% of all workers who tapped their retirement funds did so to cover emergency expenses. Another 19% did so for housing-related costs.
While some younger workers raided their retirement savings for these reasons (25% and 17% respectively), they disproportionately did so for another reason: To pay off debt. Forty-two percent of Gen Z workers used retirement money to pay off debts, compared to 6% of millennials, 17% of Gen X and 0% of boomers.
Natalia Brown, chief consumer affairs officer at National Debt Relief, said this tracks with the deepening debt load they’re seeing for younger adults.
“Our data at National Debt Relief shows that about one-third of Gen Zers already feel financially ‘underwater,'” Brown noted.
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What Should Workers Do Differently?
Between taxes, penalties, lost contributions, and lost compounded returns, workers should avoid raiding their retirement accounts at nearly all costs. But with younger workers struggling under debt, many don’t know what to do instead.
“If you have credit card debt, try transferring it to a credit card with a 0% promotional rate,” proposes financial planner Brian Harrison of SAVVI Financial. That can buy you 12 to 18 months without interest payments, to pay off your balance.
Even as you funnel money toward paying down debts, put a little money toward an emergency fund from each paycheck. Life throws plenty of curveballs, and you need cash ready for the next one that comes your way.
Harrison also notes that you should keep contributing enough money toward your workplace retirement account to get the full matching contribution (if any).
“If an employer matches contributions 50 or 100%, that’s an immediate return higher than the interest rate on the debt,” he stated.
If saving money for retirement, emergencies and debt paydown leaves you strapped, you might also need to approach the problem from the other direction: Earning more money.
“Up your income by pursuing a raise, starting a side hustle or selling things you no longer use,” urges Bobbi Rebell, financial planner with CardRates.com.
Spending less while working more may not sound like fun — but it beats running out of money in retirement.
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This article originally appeared on GOBankingRates.com: The Retirement No-No Gen Zers Are Doing More Than Boomers and Other Generations
