Savings

Young workers cast a wide net for retirement savings opportunities

While the 401(k) remains the primary retirement savings vehicle for workers today, Gen Z and Millennial workers are more likely to seek a wider range of resources, options and investment vehicles to financial wellness tools and tips.

According Schwab Retirement Plan Services Annual Survey of 401(k) Plan Participantsunlike older generations, other types of investments are likely to play a larger role in the long-term wealth plans of Gen Z and Millennial workers, including investing in cryptocurrency , real estate, annuities and small business.

More than 4 in 10 Gen Z and Millennial workers wish they could invest in annuities and cryptocurrency in their 401(k). More than a third want to be able to select ESG investments, and almost as many say they are interested in fractional shares. Additionally, more than 7 in 10 young workers say it’s important that their 401(k) investments reflect their personal values.

Similarly, about half of Gen Z (52%) and Millennial (48%) workers also use their HSAs to save for future healthcare costs in retirement, and more than half invest their HSAs in mutual funds and other types of investments.

These findings come as many Gen Z (38%) and Gen Y (27%) workers have changed employers in the past year and had the opportunity to take a fresh look at the how they save and invest.

“Today’s young workers start their financial journey from a different place than older generations when they started,” said Catherine Golladay, head of Schwab Workplace Financial Services. “The 401(k), while still their primary retirement savings tool, is no longer seen as their only path to retirement. They see an opportunity to achieve their financial goals through various assets that make them enthusiastic about investing and committed to their financial future.

In fact, only 37% of Gen Z workers say their first investing experience was through a 401(k), which is lower than millennials (54%), Gen X (61 %) and baby boomers (61%). Instead, many Gen Z workers first got involved in investing through mobile commerce (22%), cryptocurrency (11%), traditional brokerage accounts (10%) and health savings accounts (9%).

Well-being and advice

Younger generations are also 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 receptive to help from a finance professional to develop a plan and stay on track. In fact, Gen Z (83%) and Millennials (82%) need more personalized advice for their 401(k) than Gen X (79%) and Baby Boomers (67%). Schwab also found that younger workers prefer human advice over computer-generated advice, but are very likely to use both, while baby boomers are less likely to follow both human and computer-generated advice.

Unsurprisingly, Gen Z (24%) and Millennials (20%) are also more likely to use social media for financial advice than Gen X (14%) and Baby Boomers (2%) . Additionally, 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 Baby Boomers, respectively).

Similarly, nearly half of Gen Z and Millennials want help calculating how much money they need to save for retirement. Other areas of focus include receiving 401(k) investment advice, determining retirement age, and managing expenses.

“Even with an uncertain economic outlook, young workers have many reasons to be optimistic and this is reflected in their attitude towards saving and investing,” says Brian Bender, head of plan services retirement from Schwab. “Of course, time is on their side, but Gen Z and Gen Y employees also have access to a combination of investment choices, virtual education, tools and human guidance that generations previous ones weren’t at their age. The best news is that young workers are ready to take advantage of all these resources to help them achieve financial security.

Retirement expectations

When it comes to how much they think they’ll need in retirement, Gen Z respondents think they’ll need to save $1.4 million, while millennials estimate $1.8 million. All generations think their savings will last about the same amount of time. Gen Z and Baby Boomers say they have enough for 25, while Millennials and Gen X say 22. However, more than a quarter of Gen Z workers don’t know how much monthly income they will need to live comfortably in retirement. Gen Z and millennials also wanted to retire at a younger age than their older counterparts.

Schwab’s survey was conducted by Logica Research between April 4 and April 19, 2022, among 1,000 U.S. 401(k) plan participants, who were actively employed by companies with at least 25 employees and were between 21 and 70 years. To analyze how Gen Z compares to other generations, another 100 plan members between the ages of 21 and 25 completed the survey.