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Retirement Planning > Retirement Investing

Younger Investors Venture Beyond 401(k)s: Schwab

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What You Need to Know

  • Younger workers are more likely to embrace cryptocurrency, real estate, annuities and small businesses than their older counterparts.
  • They still see their 401(k) accounts as their primary retirement savings tool, but see opportunities elsewhere.
  • However, more than a quarter of Gen Z workers aren't sure how much they'll need to make monthly to retire comfortably.

While the 401(k) remains the top retirement savings vehicle for today’s workers overall, millennial and Generation Z workers are more likely than older generations also to invest in cryptocurrency, real estate, annuities and small businesses, Schwab Workplace Financial Services reported this week.

“Younger workers today are beginning their financial journey from a different place than older generations did when they began,” Catherine Golladay, head of Schwab Workplace Financial Services, said in a statement. “They are questioning traditional approaches to both work and retirement as they have changed jobs and reconsidered priorities during the pandemic.”

Golladay noted that the younger generations still use the 401(k) as their primary retirement savings tool, but they see an opportunity to reach their financial goals through diverse assets that are making them excited about investing and engaged in their financial futures.

Consider Gen Z workers. Only 37% said their initial investing experience was through a 401(k), compared with 54% of millennials and 61% each of Gen Xers and baby boomers.

Instead, many Gen Z workers first got involved in investing through mobile trading, cryptocurrency, traditional brokerage accounts and health savings accounts.

Logica Research conducted an online survey in April among 1,000 U.S. 401(k) participants 21 to 70 years old who were actively employed by companies with at least 25 workers.

Younger Workers Want More Choices

According to the survey, 38% of Gen Z and 27% of millennial workers changed employers in the past year, which gave them the opportunity to take a fresh look at how they were saving and investing. Young workers said they wanted a wider range of investment options and vehicles.

Around 40% of Gen Zers and millennials said they wished they could invest in annuities and cryptocurrency in their 401(k). More than a third said they wished they could select ESG investments, and nearly as many said they were interested in fractional shares.

A majority of younger workers said it was important that their 401(k) investments reflect their personal values.

The survey found that 48% of all employees who were offered a health savings account by their employer were using it, primarily to pay current health care expenses. About half of Gen Z and millennial workers were also using their HSAs to save for future health care costs in retirement, and more than half were investing their HSAs in mutual funds and other types of investments.

“The odds are that younger hires are already exploring their next job or will be soon,” Golladay said. “Employers seeking to retain talent must consider the saving and investing preferences of young workers as they evaluate their benefit programs.”

Retirement Expectations

Rising costs and market volatility continue to concern all workers, but Gen Z and millennial workers are likelier than older ones to cite unexpected expenses, education costs, and supporting family members as obstacles to saving for retirement, according to the survey.

Still, they remain optimistic and intend to retire early into an active lifestyle that includes enjoying life, traveling and spending time with family. Gen Zers want to retire at 60 and millennials at 62, compared with 64 and 67 for Gen Xers and boomers.

Nine in 10 survey respondents said they were very or somewhat likely to achieve their retirement savings goals. Gen Zers estimated that they will need to save $1.4 million for retirement, while millennials put their estimate at $1.8 million.

All generations expected their savings to last about the same amount of time. Gen Zers and boomers estimated having enough for 25 years, while millennials and Gen Xers said 22 years.

However, more than a quarter of Gen Z workers did not know how much they will need in monthly income to live comfortably in retirement.

Young Workers Cast Wide Net for Advice

Younger workers in the survey expressed more openness to financial wellness tools, including online tools to help save for retirement, build an emergency savings fund and manage debt. They are also open to help from a financial professional to develop a plan and stay on track.

In fact, 83% of Gen Zers and 82% of millennials expressed a need for personalized advice for their 401(k), compared with 79% of Gen Xers and 67% of boomers. Younger workers prefer human over computer-generated advice, but are quite likely to use both, while boomers are less likely to follow both human and computer-generated advice.

Gen Zers and millennials are more likely than their older counterparts to use social media for financial advice and to seek advice from family and friends. Nearly half of Gen Zers and millennials said they want help with calculating how much money they need to save for retirement.

Other areas of interest include receiving 401(k) investment advice, determining retirement age and managing expenses.

“Even with an uncertain economic outlook, young workers have a lot of reasons to be optimistic and that’s reflected in their attitudes towards saving and investing,” Brian Bender, head of Schwab Retirement Plan Services, said in the statement.

“Of course, time is on their side, but Gen Z and Millennial employees also have access to a combination of investment choices, virtual education, tools, and human advice that previous generations did not have at their age.”


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