Gen Z Outpaces Previous Generations in Retirement Savings

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.