February 21, 2024



Gen Z is a little different. America’s youngest workers are far ahead of their peers when it comes to retirement savings. But how much of that is due to new 401(k) features, and how much is due to Zoomers themselves?

The numbers show a clear difference. In 2021, 62 percent of Gen Z workers (defined as those aged 18 to 24) are participating in a workplace retirement plan.This is said to be more than double the rate for the same age group in 2006 a recent study By wealth management giant Vanguard.

Gen Zers also save more. They’re putting off an average of 5.4 percent of their income through 2021, up from 4.8 percent for 18- to 24-year-olds in 2006, according to Vanguard. That might not sound like a huge difference, but it was the largest increase of any age group except millennials — the next oldest group — who also saw a 0.6 percent increase.

Perhaps because of this, Zoomers is extremely confident in its nest egg.according to a Northwestern Mutual Research, the youngest adults in the US expect to retire at an average of 59 years old. That’s much younger than the average adult’s expectation of 64, and much younger than baby boomers saying they expect to retire at 71. millennialsthe oldest of whom is 42 years old, their goal is slightly lower, with an estimated retirement age of 61.

What could explain all these differences? One answer is that more 401(k) plans today offer default settings, including auto-enrollment, auto-increasing contribution amounts, and auto-investment target-date funds. These traits allow young investors to develop good saving habits without a second thought, experts say.

“Their choice is not, ‘Should I learn about my 401(k) plan and decide when it’s convenient to participate?'” says Dave Stinnett, director of strategic retirement consulting at Vanguard. “Their choice is really … whether they want to opt out, and the data shows very few people opt out.”

But is that the only reason? Are there factors among Gen Z investors themselves that cause them to approach retirement planning differently? Do these young people, perhaps, deserve more credit?

Some wealth managers think so.André Jean-Pierre, Founder ace consultant In New York, where he estimates he has more than 80 Gen Z clients — and “as a whole,” he noticed a difference.

“I wouldn’t call them sophisticated investors, but they’re way ahead of millennials early in their careers,” Jean-Pierre said. “They have more exposure to the financial markets, whether it’s through the news or social media. They understand it better.”

The big difference with Gen Z, he says, is that they grew up with the internet.For better or worse, these investors are used to gleaning instant information from TikTok and Twitter from self-proclaimed experts, sometimes called “Financial influencer.” As a result, many of them start their jobs with basic (if flawed) financial knowledge.

“Before we just had to go to the library or read a book,” Jean-Pierre said. “They can get it online from ex-traders who have YouTube channels.”

Another factor that sets Zoomers apart from their elders is that the economy has been in turmoil for most of their lives.this Pew Research Center Define Generation Z as starting in 1997. This means that the oldest generation in this group lived through the dot-com bust of the early 2000s, the Great Recession of the late 2000s, the COVID-19 recession of 2020, and the historic inflation of the early 2020s.

Nicole Cope is a Senior Director at Wealth Advisors ally, a Detroit-based national investment bank. She thinks all this economic turmoil has left a deep impression on Gen Z.

“In their formative years, they lived through 2008 — they saw how it affected their family,” Cope said. “They may be too young to follow the conversation, but they do feel the pressure from the family.”

Cope thinks this could make Gen Z investors “more risk-averse,” but also thinks target-date funds can balance that out. These funds typically start with a riskier portfolio — for example, more stocks, less bonds — and gradually reduce risk over time as owners approach their “target date” for retirement. Since many 401(k)s automatically use target date funds, many Zoomers (no matter how cautious they are about the stock market) default to investing in it.

“The notion of having a target date fund for them that automatically puts them in a higher equity allocation that they might be willing to accept initially is a good thing for them in the long run,” Cope said . “It could reduce some of the headwinds they have to risk.”

The Vanguard data bears this out. The study found that 97% of Gen Z 401(k) planners own some stocks in 2021, up from just 75% of the same age group in 2006 — something Stinnett is “pleased” to see. a growth.

“I think the narrative that has been going on for years is that Gen Z … will get used to being cautious about investing in the stock market,” Stinnett said. “And these data show that’s not the case. They’re actually invested in stocks to a greater extent than younger investors used to be. And, I think it’s because they’re defaulted, they’re just wise not to change it.”

In addition, Cope believes there is another, more subtle difference that sets America’s youngest investors apart.

“It’s also a generation that’s been very vocal about climate change,” she said. “They were outspoken about the planet they inherited.”

It might not seem like retirement is relevant, but in Cope’s view, climate activism and long-term investing have something in common: preparing for what comes next.

“It affects them when they think about the future, because investing is actually preparing for the future,” Cope said. “One of the things about this generation is there’s a lot of worry about the future.”