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Gen Z Committed to Retirement Investing

Industry Trends and Research

The number of Gen Z investors across the firm’s retirement platform nearly doubled from a year ago, according to Fidelity’s third quarter retirement analysis, reaching a record 1.4 million. 

And while it’s still early in their careers, Fidelity’s data suggests that Gen Zers (born between 1997-2012) are more inclined to invest in a 401(k) than Millennials were at the same age. According to the firm’s data, 15.8% of Gen Z workers are participating in a 401(k) and their average balance is $4,700. In contrast, when Millennials were the same age, their participation rate was 11.4% and their average balance was $2,000.

Among 401(k) and 403(b) plans, many Gen Z workers are automatically enrolled in their plan and defaulted into a target date fund. As a result, 86% of Gen Z workers are holding 100% of their savings in a TDF. Meanwhile, Gen Z retirement savers with an IRA were found to overwhelmingly utilize Roth IRAs for their savings, with contributions to Roth IRAs making up 95% of total contributions in the third quarter. 

“Over the past two years, we are seeing the next generation of investors rise up and get more engaged with their finances, leading to more than 4.7 million new retail accounts on Fidelity’s platform, and it’s encouraging to see so many young people planning for their future,” notes Kelly Lannan, Vice President, Young Investors at Fidelity Investments. “Gen Z and Millennials may get an undeserved rap that they are mainly ‘living in the now’ but we know from our Fidelity Spire app users that retirement is the number one long-term goal they are trying to reach.” 

The quarterly analysis of more than 30 million IRA, 401(k) and 403(b) retirement accounts also finds that, despite the significant swings in the stock market, the majority of retirement savers continued to take a long-term approach by maintaining their contribution levels and not making significant changes to their asset allocation. Fidelity notes that this is especially true among the Gen Z retirement investors on its platform. 

Workplace Retirement Accounts

Retirement savers continued to utilize workplace savings plans in the third quarter, as contributions to 401(k) and 403(b) plans reached record levels. The average 401(k) contribution rate reached a record 9.4% this quarter, marking the fifth consecutive quarter the overall 401(k) contribution rate has increased, according to the analysis. 

Additionally, more than 97% of 401(k) savers either maintained or increased their contribution rate in the third quarter. What’s more, while most 401(k) savers maintained their contribution rate, some individuals took steps to boost the amount their savings rate. Among the slightly more than 8% of 401(k) savers that increased their contribution rate, the average contribution increase was 3.7%.

Most retirement savers on the firm’s platform also did not make any changes to the asset allocation within their account and the percentage of outstanding 401(k) loans continues to trend downward. According to the firm’s data, the percentage of 401(k) savers that made a change to their asset allocation dropped for the third consecutive quarter, with only 5.1% of 401(k) savers making a change—the lowest percentage since the third quarter of 2019. Among Gen Z workers, the percentage dropped to 2.4%.

The percentage of workers with an outstanding loan from their 401(k) reached a record low 17.3% in the third quarter, which is a full percentage point lower than the third quarter of last year (18.7%). Fidelity also observes that the percentage of workers with an outstanding 401(k) loan has dropped in seven of the last eight quarters.

Average Balances

The one bit of less encouraging news from the analysis is that average account balances tapered off in third quarter, but average balances were still up double digits from a year ago. 

According to the firm’s data, the average 401(k) balance dipped to $126,100 in the third quarter, which was a 2% decrease from the second quarter, but an increase of 15% from a year ago. The average 403(b) account balance decreased to $110,800, down 6% from last quarter but up 13% higher than in the third quarter of 2020. The average IRA balance was $135,700, which was a slight increase from last quarter and a 15% increase from the third quarter of 2020.

Average Retirement Account Balances

 

Q3 2021

Q2 2021

Q3 2020

Q3 2011

IRA

$135,700

$134,900

$117,700

$66,300

401(k)

$126,100

$129,300

$109,600

$64,500

403(b)

$110,800

$113,300

$96,100

$50,100

“One of the most important retirement savings behaviors we highlight with customers is to keep a long-term approach and not make changes to a retirement savings strategy based on short-term market events,” says Kevin Barry, President of Workplace Investing at Fidelity Investments. “The stock market and economic landscape will shift many times throughout a lifetime, so taking a consistent approach, making steady contributions and maintaining your asset allocation are key to reaching your retirement savings goals.” 

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