Gen Z households with Defined Contribution plans are outpacing earlier generations on the path to retirement saving, according to a new report issued today by the Investment Company Institute (ICI).
ICI’s research report “American Views on Defined Contribution Plan Saving, 2023” and accompanying blog “Retirement Prospects for Younger Americans Actually Look Bright” finds that more than three-quarters of Americans younger than 35 indicate that the tax treatment of their DC retirement plan is a driving incentive to contribute. That’s a particularly interesting and timely finding, given the recent firestorm of controversy around the Alicia Munnell-Andrew Biggs proposal the advocates for removing the tax incentives for workplace retirement plans and using the money to extend Social Security’s solvency.
More than half of DC account owners younger than 35 said they probably wouldn’t save for retirement if not for their workplace plan.
“Our research found that younger households are more likely to prioritize saving for retirement, have retirement accounts, and have more in those accounts, compared with similar-age households in 1989,” said Sarah Holden, ICI Senior Director of Retirement and Investor Research.
Rising Shares of Households Aged 18 to 25 Have Retirement Assets
Percentage of households aged 18 to 25
The research found Gen Z households have nearly three times more assets in their DC plan accounts (adjusted for inflation) than Gen X households did at the same age (in 1989).
“Thanks to the prevalence of 401(k)s and other DC retirement plans in the workplace, as well as the growing adoption of automatic enrollment in and automatic investing through these plans, the long-term financial outlook for Gen Z is promising,” Holden said.
In addition to looking at Gen Z, the ICI study surveyed all age groups. One key finding was that DC retirement plans are empowering workers of all ages. The survey results find that DC account owners value the ease and discipline of saving paycheck by paycheck, as well as the investing opportunity that these plans represent.
Gen Z all about saving
The ICI study is not the only one recent research to find Gen Z is focused on saving and values workplace retirement plans.
A new study from The Standard released on Feb. 1 focused on what Gen Z wants from employee benefits—and from employers—shows this generation is all about practicality and preparing for the future.
To wit:
• 93% of respondents said a retirement savings plan is important to them.
• 79% rank their top financial goal as saving.
• 55% value auto-enrollment in a 401(k)-type plan.
While not a new economic aspiration, Gen Z’s strong interest in saving opens avenues for innovation that could help employers recruit and keep talent from this age group.
One opportunity lies in the level of personal financial help Gen Z wants from employers. This age group expects the companies they work for to step into roles historically occupied by banks and credit unions. Seventy-three percent of Gen Z members consider emergency savings accounts a “very or extremely valuable” benefit. Almost a third say they’d value emergency loans from employers.
But members of Gen Z aren’t looking for employers to do everything. Rather, they want a mentor to offer solutions they can use to strengthen their financial lives. This age group’s desire for help improving their financial literacy is an example. Over a third view financial education as a valuable employee benefit.
The Standard’s study also shows Gen Z holds benefits and retirement plan providers to a higher standard when it comes to addressing societal challenges. Sixty-one percent say a commitment to social issues is very important in their decision to buy or enroll in a benefits provider’s products or services. Nearly half say the same thing about retirement plan providers (48%). Gen Z sets a lower bar for banks (31%), credit card companies (19%) and clothing or fashion brands (15%).
By expecting more from benefits and retirement plan providers, Gen Z may be signaling they trust them to do more. In essence, members of this generation may perceive providers to be the good guys.
The higher standard for benefits and retirement plan providers, coupled with Gen Z’s desire that employers help them improve their personal finances, points to potential rewards. Carriers that seize the opportunity to partner with this cohort on financial security will foster this generation’s affinity, leading to greater product uptake and persistence. Employers working with these carriers will also gain by attracting and retaining Gen Z talent.
SEE ALSO:
• Gen Z Facing Obstacles to Retirement: Schwab Study
• Gen Z 401(k) Balances Spike in Past Year, Fidelity Data Shows
• Almost Half of Employees Stressed About Retirement Savings
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.