Generation Z—the youngest generation in the workforce—may also be the most interesting regarding retirement and preparing for it.
Studies reveal a mix—cacophony?—of behaviors and attitudes among its members that suggest it is a group that may be receptive to a range of approaches in working to enhance their retirement readiness.
Saving Rate
In an August 2023 survey, 45% of Gen Z told Bankrate that they were right on track, slightly ahead, or significantly ahead of their retirement savings goals.
Still, Empower, in its August 2023 analysis of 5.3 million active retirement plan participants found that Gen Z is the only generation for which saving for retirement is not the top financial goal. They further found that members of Gen Z were saving 43% less than those belonging to the Baby Boom generation, and more than one-third of Gen Z members were not maximizing their use of the employer match of their retirement plan contributions.
Balancing Act
Members of Gen Z are no different from any of their counterparts in facing a variety of challenges and needing to balance a variety of priorities.
Emergencies. Betterment at Work, in its September 2023 study of 1,000 employees, found that fewer members of Gen Z tapped into their emergency funds than those who belong to Gen X and the Millennials. Those generations stood at 46%, 49%, and 53%, respectively.
Student Debt. But while Gen Z may be less prone to tap into emergency funds, it also is on the front lines in dealing with student loan debt. A strong majority of the members of Gen Z that Betterment at Work queried—81%—said student debt created anxiety for them; in fact, no generation showed as much concern in that study. And a majority almost as strong—71%—said they think that employers should help them pay it off. So it’s no surprise that Empower reports more Gen Z members consider paying off debt to be a high priority than prioritizing saving for retirement.
Inflation. Like other generations, Gen Z has been affected by inflation. Intuit reports that in a study Qualtrics conducted on their behalf earlier this year that 20% of the members of Gen Z in the study who have a retirement account said they reduced their contributions to their accounts because of inflation. Further, 22% said they either can’t afford to contribute to a retirement account or don’t have one at all.
Retirement Timing vs. Savings. Expectations regarding the timing of retirement vs. actual saving is a vivid illustration of the balance Gen Z must strike.
McKinsey cites a report in Axios that in late 2021, 43% of Gen Z workers plan to retire before they are 65 years old; McKinsey also notes that in May 2023 Intuit found that a majority of Gen Z members consider themselves to be part of the financially independent, retire early (FIRE) movement, and almost half of those Gen Z members think it likely that they will retire early. But Intuit found in the same study that 32% of Gen Z members had saved nothing for retirement, something Intuit said demonstrates “a misalignment” between their expectations regarding retirement timing and their financial realities.
When Changing Jobs. Robert Kaplan, Director of Technical Education at the American Retirement Association, told ASPPA Connect he has found that there is “a lot of confusion” among members of Gen Z surrounding what to do with retirement plan funds when leaving a job, since most small accounts are transferred via online enrollment in an IRA run by a big-name company.
Room for Optimism
There are a variety of signs that there is room for optimism regarding the ultimate readiness of the members of Gen Z to be able to finance their retirement.
Acceptance of Auto Features. Kaplan says that members of that generation have indicated to him a general acceptance of automated plan features such as auto enrollment and auto escalation, and “very little pushback.”
Employer Match. Kaplan says he also has found that Gen Z has been listening to their parents regarding “maximizing the match,” suggesting that more members of that generation may grasp the importance of the employer match than the one-third of Empower respondents who said they are not maximizing their contributions to meet the employer match.
Valuing Financial Benefits. Members of Gen Z, more than any other generation Bankrate studied, would be enticed to jump ship and accept a job with another employer that offered better financial benefits than the one for which they were working. A hefty 70% of Gen Z respondents said so, while 67% of Millennials, 57% of Gen Xers and 46% of Baby Boomers would.
Assessment of Where They Stand. Bankrate found that members of Gen Z were the least likely of any generation in the workforce to say they’re behind in saving for retirement. In their August 2023 survey of 2,527 U.S. adults, a majority of workers who belong to the Baby Boom generation and Gen X say they are behind, and almost half of the Millennials expressed such gloom. But just 42% of Gen Z workers had that concern—meaning that a majority do not.
Not only that, almost one-quarter of the Gen Z workers in their study said they were ahead of the game in saving for retirement.
The Long Game. While Gen Z may be saving less than older generations—at least partly explained by their newness and consequent overall position in the workforce—Principal also points out that because of their youth, they have more opportunity to save for retirement than their older counterparts. Kiplinger’s Seychelle Thomas adds that not only do members of Gen have lots of time ahead of them, compounding interest in their accounts as well as growing wages bode well for them too.
And Bankrate suggests that the fact that the youngest members of Gen Z having almost half a century left to save for retirement helps make it “reasonable to be optimistic” about the prospects for recovering from the effects of inflation.
Action Steps
Kaplan suggests that it could be especially worthwhile to emphasize with new savers that the most important thing at the outset is simply to save. And, he says, it should be emphasized with them that they should concentrate on saving before they worry about investment options—and that adjusting investments could be better left to a point at which assets have been built up.
