Nearly 40% of respondents said they had tapped their retirement savings in an emergency. (Photo: Shutterstock)

Members of Gen Z and millennials understand the value of building a retirement fund, but face conflicting financial concerns that prevent them from adequately preparing for retirement, according to a report released Wednesday by Betterment for Business, a 401(k) service provider.

By 2020, younger workers will comprise half the global workforce, Betterment noted in a statement.

With workers increasingly responsible for funding their own retirement, confusing financial advice and subpar plans have left many unprepared and unaware of how much they need to be saving.

Market Cube, a research panel company, conducted an online survey in the fourth quarter to which 1,001 adults living in the U.S. responded. Of these, 695 were millennials and 306 were Gen Zers.

Challenging Finances

The survey asked participants how they were doing with their finances. Seventy-seven percent of respondents said thinking about finances caused them stress.

This is not surprising given that both generations are weighed down by unprecedented debt: Three in four said they owed credit card debt, with one in three owing more than $5,000; and nearly half had student loan debt.

Betterment said those with high levels of debt may need to significantly reduce their current spending rates, or face substantial lifestyle changes in the future.

Still, 82% of millennials and 71% of Gen Zers in the survey said they did not feel too young to start saving for retirement.

About nine in 10 respondents overall reported that they actively saved some money every month, but a fifth said they saved less than $100 monthly in total, including in their retirement accounts.

“It’s clear that millennials and Gen Z want to save for retirement, but this goal can be deprioritized when they’re faced with student debt, medical bills, or other expenses that arise,” Edward Gottfried, director of product at Betterment for Business, said in the statement.

Employers are proactively trying to help, and employees are making the most of it, according to the survey.

Millennials and Gen Zers said they expected their employers to play a role. Indeed, 40% of respondents asserted that they would not work at a company that does not offer retirement benefits or accounts.

Seventy-two percent of survey participants said their employer offered a retirement savings plan, and 80% said their company matched contributions to their plan. Almost half of respondents reported that they contributed 5% or more monthly, and 75% maximized their company’s match.

Outside of retirement plans, 48% of younger workers said their employers offered other financial wellness benefits, such as access to a financial advisor, financial planning tools or student loan assistance.

The Road Ahead

Forty-four percent of respondents said they were planning to save less than $1 million for retirement, which is contrary to common advice that a minimum of $1 million is necessary, according to Betterment.

Thirty-eight percent of respondents said they had tapped their retirement savings to pay for an unexpected expense, such as a medical emergency, or to pay off student and credit card debt. And 23% reported that they had taken out money for travel and leisure activities.

Betterment pointed out that by doing this, savers were jeopardizing their ability to retire and losing out on compounding investment growth. In addition, early cash-outs of retirement savings (whether a 401(k) from a former employer or dipping into an IRA) often result in a 10% tax penalty on top of income taxes for the withdrawal.

“It is wonderful to see so many employers offering financial wellness benefits, retirement plans and matching contributions, but that alone isn’t enough,” Gottfried said.

“They should be doing more to educate young workers on things like how to best utilize these offerings, how much they should be saving, and the importance of not withdrawing money from funds early.”