Competing Priorities Pose Challenges to Gen Z, Millennial Workers Saving for Retirement

Because of plan design features like automatic enrollment, Gen Z and Millennial workers are saving more for retirement than Gen X and Baby Boomers were at the same age. 

However, for those in their twenties who are just entering the workforce, visualizing retirement and connecting with their future 65-year-old selves seems almost impossible.  

Saving for retirement is also not a priority for a lot of younger workers. Fidelity’s 2024 State of Retirement Planning study found that 57% of Millennials and 56% of Gen Z believe they will have a harder time saving for retirement than their parents due to the higher cost of living.  

Anne Lester, formerly a portfolio manager and head of retirement solutions at J.P. Morgan Asset Management, recently published her book “Your Best Financial Life: Save Smart Now for the Future You Want,” which touches on the concept of connecting oneself with their “future stranger.” 

“There’s a lot of brain research that shows that when we think about ourselves in the future, and that future is more than five years… [we] literally use the part of our brain that thinks about strangers, to think about ourselves in the future,” Lester says. “When you save money, it entails sacrifice and pain because you’re delaying gratification for stuff you want now, and oh, by the way, you’re giving that money away to a complete stranger.” 

For younger investors to start “acquainting with that future investor,” Lester suggests that they ask themselves questions like where they see themselves in living in the future, how they see themselves spending their time and what they want their lifestyle to look like. She says these questions might be difficult for someone in their twenties to answer, but she encourages people to give themselves permission to fantasize about what their future life might be.  

For Gen Z and Millennial workers who have access to a workplace retirement plan, Lester says they are already “more on track” to retire than Gen X and Boomers were at their age, and she attributes this to the success of automatic enrollment and auto-escalation.  

When auto-enrollment first started taking off about ten years ago, Lester says most plan sponsors were uncomfortable with escalating participants beyond a 3% contribution.  

“A lot of plan sponsors now are auto-escalating people up to 10% or more, which is the best thing to help people save for retirement because it just automates the whole thing,” Lester says. “It takes [the participant] out of the equation. That’s what is going to help Gen Z and Millennials retire, assuming [they] are lucky enough to work for an employer who offers a plan.” 

Save in Order 

In her book, Lester lays out a hierarchy in which investors should tackle their expenses while building their savings.  

“In my mind, the single most important thing you should be doing is building up an emergency savings fund before everything else,” she says.  

Lester says it is particularly advantageous when employers offer an emergency savings fund next to the 401(k) plan, because it eliminates the barriers and complexity that come along with someone trying to set up an account themselves.  

After building up emergency savings, Lester says it is important for young investors to contribute toward their employer’s match because it’s “free money.”  

Lester recommends that participants dealing with student debt save up at least three months’ worth of emergency savings before they start tackling their debt.  

“If you don’t have an emergency savings fund and something happens, you’re going to get into an even bigger debt mess and then … you will have to borrow a ton of money that you can’t afford to repay,” Lester says.  

Retirement plans that offer a benefit like the student loan matching provision, which is outlined in the SECURE 2.0 Act of 2022, are something that employees should take advantage of if available, Lester says.  

Lester emphasizes the importance of receiving the company match and saving early, as compounded returns are “really powerful.” She also says it is important for workers to understand a company’s retirement plan vesting schedule before they accept a job. 

For employers with high turnover rates, Lester says it makes sense to have a longer vesting schedule, as they are trying to retain people and offering a retirement plan can become very expensive. But from the employee’s perspective, it is in their best interest to capture that “free money” where they can.