Introducing Generation Z to Retirement

Millennials are no longer the youngest generation in the workforce; now it’s time to get Generation Z focused on retirement.

Those in Gen Z face many of the same financial struggles as other working generations, especially when it comes to student loan debt and personal finance. A Betterment for Business survey on Millennials and Gen Zers found almost half (47%) of the two age cohorts are struggling with student loans, while 75% owe at least some credit card debt. Yet, even while retirement isn’t expected in the coming decades, saving at least a fraction of money is still encouraged, says Edward Gottfried, group product manager of Betterment for Business.

“A lot of financial habits for Gen Z are driven from the perception that retirement is far for them,” he explains. While Baby Boomers, Generation X, and even some Millennials experienced pensions and defined benefit (DB) plans, those in Gen Z are much likelier to save in a defined contribution (DC) plan, therefore contributing is even more vital, Gottfried adds. “Now that we’re seeing DC plans as the only savings vehicle for them, Gen Z are understanding what it means to save early,” he says.

In fact, those in Gen Z may soon surpass Millennials in savings—35% said they plan to start saving for retirement in their 20s, versus 12% of Millennials who said the same, according to a study by the Center for Generational Kinetics (CGK). Additionally, Gen Zers may be more realistic about what benefits they’ll obtain from the federal government during retirement. The CGK report mentions that one-quarter of Gen Zers surveyed expect to receive retirement money from the government, while one-third of Millennials anticipate the same. “Gen Zers are thinking about retirement and how their financial plan is performed,” Gottfried notes. “They feel the same financial uncertainty that those in other age cohorts are feeling.”

Managing enough savings for an emergency fund, allocating money for future purchases—whether a home or additional schooling—and paying everyday finances and bills, including health insurance, are all top of mind for Gen Zers. According to the Betterment for Business report, 88% are actively saving at least some of their money on a monthly basis, including into their retirement funds. Seventy-three percent are contributing at least 3% for their retirement savings, and 23% are saving more than 8%. “They’re thinking about the financial milestones in their life similar to other generations—having a family, purchasing a home and being prepared for situations that may impact them,” Gottfried says.

Since Gen Zers have similar concerns as other age cohorts, plan sponsors should continue the same practices that are successful for workers today, such as setting up automatic enrollment and automatic deferral increases. As a starting point, Gottfried recommends defaulting employees at 5% and communicating the significance of a 401(k) and other retirement or savings vehicles.

The Betterment for Business study found employees in younger workforces tend to dip into their retirement savings account—one in three said they had done so to pay off debt. “It’s important for plan sponsors to communicate that your retirement account is intended to be there for your savings,” he says, and to encourage Gen Z to build an emergency savings account so they have funds that are not coming out of retirement accounts.

One successful way to communicate with Gen Zers is through face-to-face contact, according to the CGK study. Fifty-three percent of the Gen Z workforce prefers in-person contact rather than online tools, including instant messaging or video conferencing. While personal contact is currently limited in the workforce and throughout the globe, employers can use social media to break down their content in the form of helpful tips and short videos.

Employers are also advised to monitor savings habits for their Gen Z female workforces. Akin to previous generations, female employees are more likely to be paid less, more likely to pause their work to raise or care for families, and often do not invest with the same confidence as men, according to the Betterment for Business study. Currently, 13% of Gen Z and Millennial women are not contributing to a retirement plan, compared with 7% of men.

Aside from paying workers equally, employers can target additional education and support efforts for women in the workplace. “To correct it, they will have to take intentional and proactive measures, like understanding their employee’s needs and helping them more conservatively manage longevity risk—to ensure women are taking full advantage of benefits and preparing properly for retirement,” the study says.