Meet Generation Z: A New Generation of Retirement Savers
Al Waller: Our retirement landscape is evolving due to population aging, increases in longevity, employer benefit trends, and looming reforms to Social Security. It is shifting so rapidly that many of the underlying assumptions about retirement differ across generations in the workforce.
Welcome back to ClearPath – Your Roadmap to Health & WealthSM. I’m your host, Al Waller. Joining me is Catherine Collinson, founding CEO and president of Transamerica Institute® and its Transamerica Center for Retirement Studies®. On this first episode of a 4-part series about the retirement outlook of four generations currently in the workforce, Catherine will be sharing survey findings about Generation Z from her team’s new research report Post-Pandemic Realities: The Retirement Outlook of Four Generations.
Before we get started, I want to remind our listeners that we would love to hear from you and get to know what topics you’d like to hear about. Please drop us a line at [email protected].
Catherine, let’s jump right in. Who is Generation Z? What is their retirement outlook?
Catherine Collinson: Generation Z, born between 1997 and 2012, is currently the youngest generation in the workforce. They began entering the workforce shortly before COVID-19 when unemployment rates were at historic lows, then skyrocketed at the onset of the pandemic, and have remained volatile ever since.
In the context of the evolving retirement landscape, Gen Z will have even greater access to 401(k)s and workplace retirement plans than their predecessors. However, they also face uncertainty about Social Security which may be quite different more than 40 years from now when they begin to retire.
Our survey interviewed Gen Z workers between the ages of 18 and 25 to find out about their health and financial wellbeing, employment and, of course, their retirement prospects.
Al Waller: I’m all ears. What did you learn?
Catherine Collinson: Gen Z workers have endured the worst of the tumultuous labor market. More than half of Gen Z workers (52%) experienced one or more negative employment impacts as a result of the pandemic ranging from layoffs and furloughs to reductions in hours and pay. Forty-two percent became unemployed at some point during the pandemic for various reasons.
These setbacks have negatively impacted their current situation, and they could have repercussions for their long-term retirement prospects.
Al Waller: The numbers are staggering. These types of setbacks are gut-wrenching for people of all ages, but they can be especially difficult for younger people. How are they holding up?
Catherine Collinson: Gen Z workers are stressed out. More than seven in 10 are concerned about their mental health (71%), six in 10 often feel anxious and depressed (61%), and 43% feel isolated and lonely.
Al Waller: On that note, for any listeners who may be experiencing persistent mental health struggles, it is important to seek professional care. The SAMHSA Helpline is available 24/7. Call or text 988 or visit www.samhsa.gov.
Catherine, back to the survey findings, what did you learn about Gen Z workers’ financial situation?
Catherine Collinson: Many Gen Z workers are struggling financially, despite their best efforts and strong work ethic. Almost six in 10 Generation Z workers (57%) have trouble making ends meet. Thirty percent currently have two or more jobs and 57% have a side hustle.
Their most-often cited financial priorities include paying off debt (50%), just getting by to cover basic living expenses (47%), and building emergency savings (38%). I’d also like to point out that a noteworthy one in five cite supporting their parents as a financial priority (21%).
Al Waller: With everything they have on their plates, I imagine that saving for retirement is not on their radar screen. When I was their age, I certainly wasn’t thinking about it.
Catherine Collinson: Al, you may find it surprising that Gen Z workers are indeed focused on their future retirement – and they are getting a major head start compared with older generations.
Despite their competing priorities, two-thirds of Gen Z workers (66%) are saving for retirement through a 401(k) or similar plans and/or outside the workplace – and they started saving at the unprecedented young age of 19 (median).
Among those participating in a 401(k) or similar plan, they are contributing 20 percent (median) of their annual pay.
Al Waller: Wow!! That’s incredible. What else did you learn about their savings habits?
Catherine Collinson: Gen Z may be doing a better job at saving for retirement than some of their more immediate needs.
Consider this… Gen Z workers have saved $29,000 (estimated median) in total household retirement accounts, but only $1,000 (median) in emergency savings, which won’t go too far in the event of an unexpected financial shock like a major car repair or getting laid off.
Without adequate emergency savings, an alarming percentage (28%) have dipped into their retirement savings by taking a hardship withdrawal or early withdrawal from a 401(k) or similar plan or IRA – and paying income and a potential 10% penalty – which is counterproductive.
Al Waller: What tips can you offer Gen Z workers that could help both their short-term finances and future retirement?
Catherine Collinson: I’ll start by sharing some words of wisdom for Gen Z workers.
You have a long time horizon to build and grow your retirement savings, especially if you can quickly recover from recent challenges. You will likely change employers many times throughout your careers and spend time in self-employment, so be diligent in managing your retirement savings, especially during transitions. Staying focused and resilient are key ingredients for your future success – and you’re already doing a great job at this.
Now, I’ll offer three specific tips …
- Safeguard your physical and mental health – and, if you don’t have health insurance through your parents or other sources, be sure to get it. It can help protect both your health and your finances, especially if you end up needing health care. Almost three in 10 Gen Z workers do not have health insurance (29%). Visit www.healthcare.gov or Transamerica Institute’s website to learn about your options.
- When seeking employment opportunities, learn about and consider your prospective employer’s benefit offerings including health insurance, retirement benefits, workplace wellness programs, and other benefits as part of a total compensation package. Some employers are now offering assistance with student loan payments. Be on the lookout.
- Create a budget that is aligned with your priorities and build emergency savings in addition to savings in your tax-advantaged retirement accounts such as a 401(k) or IRA. Get in the habit of consistently saving, knowing that you can save more in good times and less in leaner times. Just keep saving.
Al Waller: Thank you, Catherine, for your insights. I’ve learned a lot and I hope our listeners have, too. Where can people go to learn more?
Catherine Collinson: If you’re interested in reading the report that we’ve been discussing, Post-Pandemic Realities: The Retirement Outlook of Four Generations, please visit our website at www.transamericainstitute.org.
Al Waller: Listeners, stay tuned for future episodes in this four-part series about how different generations in the workforce are preparing for retirement. We’ll be discussing Millennials, Generation X, and Baby Boomers.
Until our next episode, stay safe, be well, and thanks for listening.
ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about retirement security and the intersections of health and financial well-being.
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ClearPath – Your Roadmap to Health & Wealth is produced by Transamerica Institute with assistance from WYPR.
The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.
