The New Age Nest Egg: Gen Z Gives Retirement Lessons

  • AUTHOR: editor
  • POSTED ON: June 2, 2023

Who knew Gen Z could be setting standards for retirement plans? Yes, you heard it right; nowadays, twenty-year-olds, specifically Generation Z, are taking steps to save for retirement. These individuals were born between 1997 and 2012 and are already thinking ahead. They understand the importance of starting early to build a successful retirement plan, and they’re trying to do just that.

One significant advantage Generation Z has is the power of compounding. By starting young, they can benefit from the compounding effect over a period of 40 years or more. It’s worth noting that the oldest members of Generation Z will turn 26 in 2023.

Employer-Sponsored Plans

As per the 22nd annual retirement survey by Transamerica Center for Retirement Studies, about 67% of Generation Z workers are already saving for retirement through employer-sponsored plans or outside of the workplace. The median age for Generation Z individuals saving for retirement is 19, which shows their dedication and forward-thinking mindset.

It’s impressive to see how Generation Z’s retirement savings are growing. In the first quarter of 2023, the average balances in their 401(k) accounts increased by 17%, thanks to employer and employee contributions. According to a recent Fidelity retirement analysis, this growth rate is the highest among all age groups.

Additionally, their 401(k) account balances rose by 34% compared to the first quarter of 2022, making them the generation with the most significant account growth over the past year. Furthermore, there was a notable 25% surge in Generation Z’s IRA accounts during the first quarter of 2023 in comparison to the preceding year.

The Role of Mentors in Gen Z Retirement Planning

But what’s really fascinating is the role of mentors in this process. Many Generation Z individuals attribute their early saving and investing habits to family members or friends who guided and encouraged them.

For example, Kim Trattner, a 2022 401(k) Champion®, credits her co-worker’s mother for setting her on the path to saving for retirement. She has now made it her goal to be that guiding influence for others. This highlights the importance of mentorship in shaping the financial habits of young adults.

FINRA Investor Education Foundation and the CFA Institute’s recent report titled “Gen Z and Investing: Social Media, Crypto, FOMO, and Family” reveals that Generation Z investors are more likely to have parents who are already investing or have parents who discuss investing with them.

In fact, 79% of Generation Z investors reported having parents who talked about investing, compared to 46% of non-investors. Overall, 56% of Generation Z members between 18 and 25 own some investments.

When it comes to financial education, Generation Z investors primarily rely on social media, internet searches, parents, family, and friends. Among these sources, they trust their parents/family the most, followed by financial professionals and internet searches/websites.

Goals, Priorities & Risk-Taking Behaviours

Interestingly, Generation Z investors have specific financial goals in mind. They prioritize having enough money for travel/vacation, saving for unexpected expenses, and being able to retire comfortably.

However, they also recognize the challenges they face, with the cost of living and inflation being the top concerns. In fact, 44% of Generation Z investors believe their economic circumstances are more challenging than those of previous generations.

There are contrasting reasons for this risk-taking behavior. Almost half (48%) of Generation Z investors believe they have more knowledge about investing than their parents, and 33% feel extremely or very confident in their ability to make investing decisions.

Additionally, 50% of Generation Z investors admit to making investments due to the fear of missing out (FOMO). The Securities and Exchange Commission’s site addresses the FOMO phenomenon in an article titled “Say ‘NO GO to FOMO'” by Lori Schock, the SEC’s Office of Investor Education and Advocacy director.

The report emphasizes that not every investment opportunity is suitable for everyone and advises sticking to a long-term plan rather than making investment decisions driven by FOMO.

Committing to Persistent Saving

It’s crucial for Generation Z individuals who believe they have saved enough for retirement to keep saving. It’s never wise to find yourself wishing you had saved more money when you reach retirement, and your paycheck stops coming in.

Having solid financial knowledge is crucial for any investor, including Generation Z. It is vital to understand their investment decisions and provide them with the educational tools necessary to prepare for those decisions.

Gerri Walsh, the President of the FINRA Foundation, emphasizes this point in a statement related to the “Gen Z and Investing” report. The FINRA Foundation oversees the brokerage industry and offers free resources for investors, covering topics such as investing basics and personal finance.

Wrapping Up!

So, there you have it! Gen Z is taking their retirement savings seriously, starting early, and learning from mentors and family members. They are proactive in their financial planning, recognizing the significance of saving and investing for a comfortable future.

By embracing the right tools and staying focused on their goals, they are setting an example for others to follow. As long as Generation Z continues to save and invest while balancing risk, they have the potential to become role models for younger and older generations alike.


Updated June 2, 2023
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