Gen Z zooming past older generations in saving for retirement

A new survey from the Investment Company Institute reveals a striking trend in retirement savings, with Gen Z leading the charge in early financial planning.

The study indicates that Generation Z’s participation in defined-contribution retirement plans is three times' the participation of Gen Xers at the same age.

The ICI report found more than three-quarters of Americans under 35 are incentivized to save for retirement as a result of the favorable tax treatment of their DC plans. This generational shift is reflected in the rising number of younger households that not only own retirement accounts but also accumulate substantial assets within them.

According to ICI, 10% of households aged 18 to 25 held retirement assets in DC plans or individual retirement accounts in 1989, compared to 30% of households in that age bracket in 2022.

Similarly, 7% of young households had investments in DC plans in 1989, significantly less than the 24% of households in that age group with assets in DC plans almost a quarter-century later.

“The landscape of retirement planning is transforming," Sarah Holden, ICI’s senior director of retirement and investor research, said in a statement. "Younger generations are actively prioritizing retirement savings, with many attributing their participation to the tax benefits associated with their plans.”

The prevalence of 401(k)s and other defined-contribution retirement plans – which have overshadowed traditional defined-benefit pensions to become the norm in the private sector – has played a pivotal role in this uptick. Automatic enrollment has also been a significant factor, with more than half of the households under 35 saying they were enrolled by default into their retirement plans in 2023.

The study also emphasizes that Gen Zers are not just saving – they are investing. A significant 70% of mutual fund-owning households under 35 reported their first mutual fund purchase was through an employer-sponsored retirement plan.

Comparing asset accumulation across generations, the report highlights that Gen Z households in 2022 had 2½ times the inflation-adjusted assets in their DC plans that Gen X households did in 1989. Millennials show similar progress when compared with the same-age cohort in 1989.

“Our research underscores the importance of workplace retirement plans," Holden said. "They are a gateway to not just saving, but also investing for a significant portion of the workforce."