Generations X and Y are doing a good job saving for retirement—better than their baby boomer parents—but the youth of Gen Z are still naïve about what it takes to retire, according to new survey findings released by TD Ameritrade on Tuesday.
Fully 59% of Gen X and 56% of Gen Y are making regular, automatic contributions toward their retirement goals compared with 46% of nonretired baby boomers, according to more than 4,000 participants in two online surveys by Head Research for TD Ameritrade.
Further, when it comes to getting a jump on setting aside a nest egg, younger generations are eager to get started, the surveys show. On average, both Gen X and Gen Y started saving for retirement in their mid to late 20s, nearly a decade earlier than baby boomers, who started saving at age 35.
As for the 13- to 22-year-olds of Generation Z, it remains to be seen whether having grown up in households hit by severe recession will taint them with a sense of doom and gloom or drive them to be better. More than half of Gen Z, or 56%, understand the importance of saving money, but conversations with their parents have been about saving in general or saving for college rather than preparing for retirement. Not surprisingly, considering their age, just 8% of Gen Z reported they are currently saving money for their golden years.
“For even the most sophisticated investor, retirement planning can be a tough concept to grasp,” said Carrie Braxdale, managing director of investor services at TD Ameritrade, in a statement. “Gen X and Y have accepted the reality of the past few years, and rather than being discouraged, they are using what they’ve witnessed to their advantage by saving earlier and regularly. The hope is that tomorrow’s investors, Gen Z, follow suit as they near retirement.”
In fact, the TD findings show, many Gen Z savers have a very different outlook on retirement saving strategies and timing when compared with their parents:
- Just 35% of Gen Z respondents believe they will not be able to count on Social Security when they retire, and that they should save money for themselves, compared with 61% of parents.
- 39% of Gen Z respondents believe they will have an inheritance, so don’t need to worry about saving for retirement, compared with 16% of parents who believed the same for their Gen Z children.
- 43% of Gen Z respondents believe that “you can never start saving too early for retirement,” compared with 71% of parents.
“The good news is that Gen Z is starting off with a good understanding of the importance of saving,” Braxdale said. “But that doesn’t mean they should wait to become more educated on proper long-term savings habits. We encourage parents to talk to kids specifically about retirement savings to ensure they understand the importance of getting a head start and taking advantage of the power of compounding.”
Read Advisors’ Mistakes on Social Security Advice Hurt Widows at AdvisorOne.