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Members of Generation Z began saving for retirement at a median age of 19—the youngest starting point of any generation before them.
Gen Z joined the workforce just before the Covid-19 pandemic hit, a time of uncertainty and economic turmoil across all generations. Despite this, Gen Z was determined to prioritize their retirement savings, according to a new report from the Transamerica Center for Retirement Studies.
The report is based on findings from the 22nd Annual Transamerica Retirement Survey, which was conducted in late 2021 when Covid-19 cases were still running rampant and many businesses were reluctant to return workers to the office.
The economic impacts of the pandemic forced 87% of Gen Zers to rethink their financial priorities, which pushed retirement planning to the top of the list for over one-third of these workers, according to the report.
Early on in the pandemic, members of Gen Z realized that there is no substitute for planning ahead. With more ways to educate themselves about financial health than ever before, Gen Z was able to take that knowledge and run with it, says Sarah George, a Gen Z financial planning associate based in San Francisco.
Pre-pandemic, only 7% of Gen Z reported having a retirement account, now participation rates have jumped to 59%. This sudden change of heart could be because Gen Z learned a thing or two about how difficult it is to be young during a recession from millennials, who have received the short end of the financial stick time and time again.
A decade ago, many millennials joined the workforce during the Great Recession, when recent graduates faced higher unemployment rates than older age groups. With piles of student loans, millennials settled for less desirable job offers just to pay the bills, including those with lower-than-expected salaries or that lacked access to an employer-sponsored retirement plan.
Even today, the impact of the recession lingers, as 61% of millennials have access to a 401(k) plan in their workplace, compared to 69% of Gen X and 63% of Baby Boomers. But Gen Z is determined to avoid this shortcoming—they have greater access to 401(k) plans and employer-funded retirement plans than any other generation, according to the report.
And while 76% of millennials contribute to their retirement plans versus 67% of Gen Z, the younger generation actually contributes more of their salary. Gen Z sets aside a median of 20% their income for retirement— well above the recommended 12-15%—compared to a median 15% contribution from millennials.
This could be because more members of Gen Z were living with their parents during the pandemic to save extra money and invest more towards their future, says George. Whereas millennials are more likely to live on their own.
In Gen Z’s short time in the workforce, they have already saved a median of $33,000 in their retirement accounts. Their drive to save comes from Gen Z’s belief that they will never retire– well, at least not in the way previous generations have. Over two-thirds, 68%, of Gen Z expect to work at least part-time after retiring to enhance their skills and maintain social relationships, according to the report.
That said, there is hope for Generation Z to retire comfortably. These workers have several decades to continue earning income and investing in their futureand the greater time horizon could allow their savings to grow exponentially.
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