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.
How many Gen Z are saving for retirement? ›
The research shows 68% of survey respondents believe their savings are on track or ahead of schedule. 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.
How much does the average Gen Z have in a savings account? ›
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.
Is Gen Z struggling financially? ›
“Gen Z consumers have seen their finances significantly impacted by the pandemic and its aftermath, even more so than the challenges faced by millennials as a result of the Global Financial Crisis,” Michele Raneri, vice president and head of U.S. research and consulting at TransUnion concluded.
Are Gen Z good at saving money? ›
Generation Z might be the youngest group of spenders, but they may actually be the best ones at saving. You see, Gen-Z — those born between 1995 and 2012 — are in middle school, high school, college, and even a couple years into the workforce.
Which generation saves the most? ›
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.
Can I retire at 62 with $400,000 in 401k? ›
Retiring at 62 on $400,000
This plan can work … sort of. At age 62, with $400,000 in a 401(k) account, you can generate a livable income depending on how you structure your portfolio and where you choose to live. Livable does not mean comfortable, however.
How many people have over $1 million in their 401k? ›
The amount of retirement millionaires continues to grow, too: As of March 2024, the number of 401(k) accounts with balances of at least $1 million rose to 885,138, up nearly 12%, from year-end 2023, and nearly 30% year over year.
Is 100k in 401k by 30 good? ›
Financial Samurai 401k Savings Guideline
From the results, the average 30 year old should have between $100,000 – $350,000 saved up in their 401k, depending on company match and investment performance. If you're looking for a realistic goal, then focus on the Middle column all down the chart.
What do Gen Z spend the most money on? ›
46% of Gen Z spent more on fashion than anything else in 2022 (5WPR) Gen Z was the only generation to have clothing and fashion as their top spending category. 30% of Gen Z spent more on beauty and personal care than anything else, far more than any other generation.
Average Net Worth for Gen Z
According to the Federal Reserve, individuals under the age of 35 have a median net worth of around $39,000. While this figure includes a few younger millennials, this reflects mostly Gen Z adults.
How many Gen Z live paycheck to paycheck? ›
Only the oldest Generation Z members have joined the workforce, and nearly two-thirds (65.5%) of them live paycheck to paycheck. A total of 64.44% of Gen Zers struggle with high monthly bills. Low income poses a problem for 57.78% of them, and unexpected emergencies derail nearly half (48.89%) of Gen Z budgets.
What does Gen Z struggle with the most? ›
Gen-Z Faces Financial Challenges, Stress, Anxiety And An Uncertain Future.
What will the lifespan of Gen Z be? ›
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 the average retirement age for Gen Z? ›
Meanwhile, millennials expect to retire around 64 while the average Gen Zer says, perhaps a tad too optimistically, 60. The good news is, as the Vanguard report shows, employees of every generation are saving a lot more than they used to.
What percent of Gen Z is investing? ›
Despite their early start, Gen Zers, not surprisingly, had the smallest percentage of investors, at 45%, compared with 54% of millennials (born from 1981 to 1996), 58% of Generation X (1965 to 1980), and 63% of baby boomers.
What are the stats for Gen Z and finances? ›
Many Gen Zers are focused on staying afloat, making traditional financial milestones feel irrelevant. Over half (56%) of Gen Zers said they don't have enough savings to cover three months of expenses, per an August 2023 Bank of America 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.
