Fueled by the prevalence of defined contribution plans in today’s workplaces, the percentage of Generation Z households with DC plan accounts is more than three times that of similar-age Generation X households in 1989, according to new data published by the Investment Company Institute.
While younger workers are managing more student loan debt and have suffered from ballooning expenses more than prior generations, ICI found that the long-term financial outlook for this generation is promising, primarily due to DC plans offering automatic enrollment and attractive lineups of diversified investments.
Gen Z households in 2022 had two-and-a-half times more assets in their DC plans—adjusted for inflation—than Gen Xers had in 1989 at the same age. ICI stated that the story is similar for Millennial households when compared with the same age cohort in 1989.
Employees aged 18 to 25 had a median of $5,000 in DC plan assets in 2022, whereas the same age group in 1989 had an adjusted median of $1,729 in plan assets.
For employees aged 26 to 41 in 2022, median assets averaged $26,000, whereas the same age group in 1989 had adjusted median assets of $11,528.
Automatic enrollment has also played a role in boosting DC retirement account ownership, as more than half of DC accountholder households younger than 35 in 2023 reported that they had been automatically enrolled into their plans. Automatic features became commonplace for DC plans after the Pension Protection Act of 2006, which partly explains why balances were significantly lower in 1989. Of households aged 18 to 25 in 2022, 24% have a DC plan, while only 7% of the same group had a DC plan in 1989.
In addition, seven in 10 mutual fund account-holder households younger than 35 in 2023 reported that they purchased their first mutual fund through their employer-sponsored retirement plan.
ICI argued that defined contribution plans play a significant role in savings, as more than half of DC account owners younger than 35 said they probably would not save for retirement if not for their workplace plan. About 82% of DC savers agreed that the tax treatment of their retirement plans was a big incentive to contribute.
A recent 401(k) participant study conducted by Charles Schwab found that members of Gen Z are optimistic they will retire sooner than other generations, as the average age at which they expect to retire is 61 years old, whereas Millennials expect to retire at 64, members of Gen X expect to retire at 65 and Baby Boomers expect to retire at 68.
However, the Schwab survey revealed that Gen Z workers feel they face the most obstacles to saving for a comfortable retirement. These obstacles include inflation, keeping up with expenses, unexpected expenses, helping aging parents financially, saving and paying for children’s education, stock market volatility and paying off credit card debt.
Because some policymakers have questioned the public value of the tax deferral that retirement plans receive, survey respondents were asked whether the government should take away these tax incentives. ICI found that, overall, nearly nine in 10 respondents disagreed with proposals to remove or reduce tax incentives for retirement savings.
Respondents also largely disagreed with suggestions to allow the government to prevent individuals from making their own investment decisions in DC accounts, whether while working or in retirement.
As a whole, the majority of respondents expressed confidence that the 401(k) system and other DC plan accounts will help them in retirement, as 73% said they were either “somewhat” or “very” confident that 401(k) and other employer-sponsored plan accounts can help them meet their retirement goals.
The ICI report included responses from 2,035 Americans aged 18 and older and was conducted during November and December 2023.
FAQs
The youngest generation in the workforce has saved almost three times the amount Gen X households had saved in defined contribution plans at the same age, according to ICI data.
What percentage of Gen Z is saving for retirement? ›
However, this optimism seems out of step with how Gen Zers say they're saving for retirement. Gen Z is the most likely generation to say they are saving less money compared to last year at 17 percent, and that they didn't save for retirement this year or last year, at 29 percent, a Bankrate retirement survey found.
How much does the average Gen Z have in savings? ›
Generation Z's Savings Account Balances
Although Gen Z is the least likely of any generation to have $100 or less in a savings account, Gen Zers are still likely to have relatively low savings overall — 56% of Gen Z has $1,000 or less in savings.
Are Gen Zers aiming to retire early? ›
Many Gen Z Americans are prioritizing financial savviness, aiming for early retirement. Young Americans invest more than previous generations; two-thirds save for retirement early. Four Gen Zers said they're embracing FIRE principles like cutting spending and diversifying income.
How much do Gen Xers save for retirement? ›
Other recent studies have also found that Gen X is in dire shape for retirement, with the National Institute on Retirement Security finding earlier this year that the typical Gen X household with a private retirement plan has $40,000 in savings.
Which generation saves the most money? ›
Millennials took the lead with $9,299 saved, on average, in 2023. Generation Z followed closely behind with more than $6,000 saved, and Generation X came in third with $5,132 saved for the year. Baby boomers came in last with just over $4,000 saved.
What percentage of millennials have $100000 or more invested for retirement? ›
42.2% of millennials have no retirement savings while only 10.6% of millennials have at least $100,000 or more. 8. Summarize how the amount invested for retirement compares across the three age groups.
What are the top 3 categories that Gen Z spends its money on? ›
According to the 2023 Consumer Culture Report by 5WPR, Gen Z will “splurge” in three areas: electronics, health and wellness, and clothing and fashion.
What does Gen Z value most? ›
Authenticity is the most important value for Gen Z — even beyond future plans and being rich.
How much retirement savings should I have at 33? ›
Fast answer: Rule of thumb: Have 1x your annual income saved by age 30, 3x by 40, and so on. See chart below. The sooner you start saving for retirement, the longer you have to take advantage of the power of compound interest.
We're grappling with heightened loneliness, student loan debt, high living expenses, ongoing layoffs, a hyper-competitive job market and more. Most Gen Zers are juggling more than one job, while others have had little choice but to pursue the difficult path of entrepreneurship.
What is Gen Z life expectancy? ›
The members of Generation Z, the oldest of which are now in their 20s, on average are expected to live to 100 and beyond. Health technology may or may not eventually lift Gen Zers well past that. They could be the generation that collectively hits the biological ceiling.
What is considered old Gen Z? ›
Date and age range
Researchers and popular media have loosely used the mid-to-late 1990s as starting birth years and the early 2010s as ending birth years to define Generation Z. The Merriam-Webster Online Dictionary defines Generation Z as "the generation of people born in the late 1990s and early 2000s."
Are Gen Z saving more for retirement? ›
Gen Z makes bigger 401(k) gains than millennials, while Gen X tops boomers on key milestone, Fidelity says. The average 401(k) balance increased 15% from the previous quarter to $11,300 for Gen Z savers compared to an 11% increase to $59,800 for millennials.
Are millennials screwed for retirement? ›
About 38% of early millennials, those born in the 1980s, will have “inadequate” retirement income at age 70, according to projections from a 2022 Urban Institute study. By comparison, 28% to 30% of early and late boomers and 35% of early Gen Xers are projected to have inadequate income, according to the study.
Are baby boomers not saving enough for retirement? ›
Over half of boomers have less than $250,000 saved and plan to rely mostly on Social Security for income. An additional 14.6% have saved $500,000 or less, the Alliance study reported.
What percentage of Gen Z has a bank account? ›
72% of Gen Z has a checking account, while 57% has a savings account. Many of these existing accounts could have been created jointly with another adult. 9% of Gen Z is considered underbanked—along with a whopping 52% of millennials.
Does Gen Z save or spend money? ›
Gen Z spend most of their money on household bills and expenses, with 52.3% saying they spent the most money on these costs. 17.2% of Gen Z don't think they'll ever have enough money to buy their own home. The estimated average amount Gen Z spends on socializing is $166.75 per month, totaling $2,000 a year.
What is the projected retirement age for Gen Z? ›
And they may need every penny: 44% of Gen Z respondents expect to retire before 60, even as many of today's older workers plan to stay on the job longer to shore up their savings. Working baby boomers reported a target retirement age of between 65 and 69, according to the survey.
What percentage of the population has retirement savings? ›
Almost half of Americans don't have a dedicated retirement savings account, according to the Federal Reserve's 2022 Survey of Consumer Finances. The survey, which includes the latest government data, reveals only 54.4% of American families reported having dedicated retirement accounts such as a 401(k) or IRA.
