While the 401k remains the top retirement savings vehicle for today’s workers, younger workers are increasingly relying on other types of investments as well, according to the latest annual nationwide survey of 401k plan participants from Schwab Retirement Plan Services.
In addition to contributing to their 401k, the study shows Gen Z and Millennial workers are more likely to also invest in cryptocurrency, real estate, annuities, and small businesses, unlike older generations.
“They see an opportunity to reach their financial goals through diverse assets that are making them excited about investing and engaged in their financial futures.”
Catherine Golladay, Schwab Workplace Financial Services
“Younger workers today are beginning their financial journey from a different place than older generations did when they began,” said Catherine Golladay, Head of Schwab Workplace Financial Services. “They are questioning traditional approaches to both work and retirement as they have changed jobs and reconsidered priorities during the pandemic. The 401k, while still their primary retirement savings tool, is no longer viewed as their only path to retirement. They see an opportunity to reach their financial goals through diverse assets that are making them excited about investing and engaged in their financial futures.”
Only 37% of Gen Z workers say their first investing experience was through a 401k, a lower proportion than Millennials (54%), Gen X (61%) and Boomers (61%). Instead, many Gen Z workers first got involved in investing through mobile trading (22%), cryptocurrency (11%), traditional brokerage accounts (10%) and health savings accounts (9%).
In the past year, many Gen Z (38%) and Millennial (27%) workers changed employers and they have had the opportunity to take a fresh look at how they are saving and investing.
Young workers say they want a wider range of investment options and vehicles. More than 4 in 10 Gen Z and Millennial workers wish they could invest in annuities and cryptocurrency in their 401k. More than a third wish they could select ESG investments, and nearly as many say they’re interested in fractional shares. More than 7 in 10 younger workers say it’s important that their 401k investments reflect their personal values.
About half of all employees (48%) who are offered a health savings account (HSA) by their employer are using it, primarily to pay current healthcare expenses. About half of Gen Z (52%) and Millennial (48%) workers are also using their HSAs to save for future healthcare costs in retirement, and more than half are investing their HSAs in mutual funds and other types of investments.
“All workers want to feel heard, and it makes a powerful statement when an employer can demonstrate that their benefits reflect what employees want,” Golladay said. “The odds are that younger hires are already exploring their next job or will be soon. Employers seeking to retain talent must consider the saving and investing preferences of young workers as they evaluate their benefit programs.”
Young workers want earlier retirement
Rising costs and market volatility continue to cause concern for all workers, but Gen Z and Millennial workers are more likely than older workers to cite unexpected expenses, education costs, and supporting family members as obstacles to saving for retirement.
Still, younger workers are staying optimistic and intend to retire early into an active lifestyle that includes enjoying life, travel, and spending time with family. Gen Z wants to retire at 60 and Millennials at 62, compared to 64 and 67 for Gen X and Boomers. More than 90% of younger workers say they are very or somewhat likely to achieve their retirement savings goals.
Gen Z thinks they need to save $1.4 million for retirement while Millennials estimate $1.8 million, and all generations think their savings will last about the same amount of time. Gen Z and Boomers estimate having enough for 25 years, while Millennials and Gen X say 22 years. However, more than a quarter of Gen Z workers don’t know how much they will need in monthly income to live comfortably in retirement.
Casting a wide net for advice
Younger generations are more open to financial wellness tools, including online tools to help save for retirement, build an emergency savings fund, and manage debt. They are also open to help from a financial professional to develop a plan and stay on track.
“Gen Z and Millennial employees also have access to a combination of investment choices, virtual education, tools, and human advice that previous generations did not have at their age.”
Brian Bender, Schwab Retirement Plan Services
In fact, Gen Z (83%) and Millennials (82%) see more need for personalized advice for their 401(k) than Gen X (79%) and Boomers (67%). Younger workers prefer human over computer-generated advice but are very likely to utilize both, while Boomers are less likely to follow both human and computer-generated advice.
Gen Z (24%) and Millennials (20%) are more likely to use social media for financial advice than Gen X (14%) and Boomers (2%). More than a third seek advice from family and friends (40% and 35% for Gen Z and Millennials versus 24% and 16% for Gen X and Boomers). Nearly half of Gen Z and Millennials want help calculating how much money they need to save for retirement. Other areas of interest include receiving 401(k) investment advice, determining retirement age, and managing expenses.
“Even with an uncertain economic outlook, young workers have a lot of reasons to be optimistic and that’s reflected in their attitudes towards saving and investing,” said Brian Bender, Head of Schwab Retirement Plan Services. “Of course, time is on their side, but Gen Z and Millennial employees also have access to a combination of investment choices, virtual education, tools, and human advice that previous generations did not have at their age. The best news is that younger workers are open to leveraging all these resources to help them achieve financial security.”
Detailed results of the survey can be found here.
SEE ALSO:
• Surprising Percentage of Millennials Counting on Crypto for Retirement
• $1 Million for Retirement? It’s Not Enough
• Millennials Shake Up Vision of Retirement
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.
