Gen Z and the Future of Retirement
Gen Z is coming of age and entering the workforce.
New Capital's NextGen program is designed to work with your younger generations. Let us know if we can helpfully engage with your family's Gen Z members.
Gen Z are the newest members entering the workforce, and for the first time we included them as part of our annual retirement survey, Read on Retirement. Most of their careers have been set against a backdrop of a pandemic, market volatility and geopolitical unrest. Despite this, they’re optimistic about saving for retirement, and connect it to their overall well-being.
They will need guidance along the way, but when it comes to retirement, Gen Z is off to a strong start. Below are a few high-level findings from the survey that explore Gen Z’s strengths as well as opportunities for plan sponsors to help them reach their goals.
You can see the full report here.
Focusing on saving
One of the most notable insights that came out of the survey is that Gen Z says they are putting away 14% of their income for retirement, which can be a large percentage for anyone, especially someone who just started working. Even more encouraging is that 54% said that they are invested in a target date fund, and 20% plan to do so, more than any other generation. There may be reasons for this, since their parents, likely Gen X and Boomers, experienced several financial crises and recessions during their careers. These parents also likely don’t have pensions and can’t rely totally on Social Security. Gen Z may be encouraged to save early and often in order to create their own security.
While this level of saving is great news for Gen Z’s long-term financial health, there is a caveat: 72% of Gen Z participants said they would save less for retirement if faced with other big-ticket goals. That said, education for this younger cohort will be important, so that saving for retirement will seem like less of a far off, abstract goal and instead one that will serve them well in the long run.
Gen Z is looking for guidance, and an employer is considered a trusted source. 80% say they trust their employer to help them determine how their savings should be invested. What form that guidance comes in is to be determined, since Gen Z are true digital natives, so more traditional forms of communications may not resonate as much.
A passion for ESG
Out of all the groups surveyed, Gen Z was the most interested in ESG options. 47% of all Gen Z participants said that having ESG offered to them is very important, compared to 38% of Millennials. 76% of Gen Z participants say they are more likely than other generations to increase participation in their plan if it offered dedicated investment strategies.
Notably, Gen Z participants say they would, on average, allocate 20% of their retirement savings to dedicated sustainable investments, compared to just 10% of all participants. There’s an emerging focus on sustainable investments, as they are seen as a way to manage risk and generate returns. It’s a long-term view for long-term savings.
An opportunity for retirement income
Retirement is far off for Gen Z, so they aren’t giving too much thought about how to fund it. That said, the survey found that they didn’t have a lot of education about income solutions. Target date funds were once a new concept – and are likely still new to participants just joining the workforce --so young savers may just need to understand the idea of retirement income in order to adopt it. Notably, 72% of Gen Z participants believe they would be more successful generating retirement income if they used products specifically designed for it.
The bottom line
Despite the turbulence that has colored Gen Z’s nascent working years, they are the most optimistic when it comes to saving for retirement, more than other generations.
There’s a long runway until Gen Z reaches retirement, but they are invested in their future security. Plan sponsors are in a unique position to educate these young savers along the way, and to offer them the tools they need and want.