Why Gen Z Is Saving More for Retirement Than Previous Generations

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Members of Gen Z are saving for retirement at much higher rates than young workers did in 2006, according to a new study from Vanguard.

In 2006, 30% of employees ages 18 to 24 participated in their company’s 401(k) plan, versus 62% in 2021, the study found. The reason for the uptick is a 2006 law that paved the way for the widespread adoption of auto-enrollment in retirement plans. Under this plan design, workers are automatically enrolled into their company retirement plan and must opt-out if they don’t want to participate. 

In 2006, 11% of plans in Vanguard’s study sample offered automatic enrollment. That share rose to 50% of plans 15 years later. In plans with voluntary enrollment in 2021, only about 1 in 4 Gen Z employees participated, versus nearly 90% in plans with automatic enrollment, the study found.

“Retirement savings is very much a long game,” said Dave Stinnett, head of strategic retirement consulting at Vanguard. Getting an early start leads to better outcomes down the road.

Not only are the youngest workers participating in their plans in higher numbers, but they’re also more likely to hold an appropriate investment mix than they did in 2006, the report found. That’s because of the widespread adoption of target-date funds as the default option in 401(k) plans. These funds peg their investments to investors’ projected retirement year, and they automatically adjust to become more conservative over time. 

Since young people have decades until retirement, they can afford to have a high allocation—as much as about 90% of their portfolio—to stock.

Write to Elizabeth O’Brien at [email protected]