Gen Z vs. Millennials: How Their Retirement Savings Plans Compare

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Gen Z and millennials are both still decades away from the traditional retirement age, but many members of these generations are already planning and saving for retirement.

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To get a closer look at how they are preparing for retirement, Schwab Retirement Plan Services surveyed 401(k) plan participants to see where young Americans are investing for the long term and how ready they feel for this phase of life.

Here’s a look at some of the key differences between these two generations when it comes to saving for retirement.

Gen Z Is More Likely To Keep Retirement Funds in a Savings Account

The Schwab survey asked participants where they are investing and saving for retirement outside of 401(k) plans, and 65% of Gen Z is putting money in a traditional savings account versus 56% of millennials. However, this may not be the best place to keep retirement funds.

“It’s a good idea to keep at least three to six months of essential living expenses easily accessible in something safe, low-risk and liquid, like a savings account,” said Nathan Voris, director of investments, insights and consultant services at Schwab Retirement Plan Services. “Beyond that, workers should prioritize tax-advantaged accounts to maximize savings growth over time.”

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Voris recommends contributing up to the annual contribution limit for a 401(k), if possible ($22,500 in 2023).

“At least contribute enough to get the full match amount if your employer offers one,” he said. “If you can afford to save more, explore whether you are eligible to contribute to an IRA or Health Savings Account.”

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Millennials Are More Likely To Keep Retirement Funds in an HSA

The survey found that 40% of millennials keep retirement funds in Health Savings Accounts (HSAs), compared to just 30% of Gen Z. This can be a smart place to keep funds to cover healthcare expenses in retirement, Voris said.

“For those who are eligible, HSAs can be a great way to save for future medical costs, which can be a significant and underestimated cost later in life,” he said. “HSA funds can also be used for other expenses in retirement, making them a great supplement to other retirement income from your 401(k) and Social Security.”

There are also tax benefits to contributing to an HSA.

“Contributions are tax-deductible, investment earnings grow tax-free and withdrawals for qualified medical expenses are also tax-free at any time,” Voris said. “It’s impressive that even at a young age, Gen Z and millennials are looking beyond the 401(k) and seeing that saving for healthcare expenses is a crucial part of a secure retirement.”

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Millennials Are (Slightly) More Likely To Be Investing in Crypto for Retirement

About one-third of millennials (35%) and Gen Z (31%) view investing in crypto as a viable way to grow their savings for retirement.

“Millennials want a range of investment choices to reach their retirement goals,” Voris said. “It’s notable that millennials are as interested in guaranteed income as they are in crypto, with 45% saying they wish they could invest in guaranteed income products like annuities inside their 401(k). They also continue to be interested in more traditional investments like stocks and bonds.”

Gen Zers More Confident They Will Reach Retirement Goals

According to the survey, more of Gen Z believes they are very likely to reach their retirement goals than millennials (56% versus 54%). But is this really the case?

Voris believes that both generations are on the right track: “Younger workers are optimistic about achieving financial security and hope to retire early. That optimism is well placed for both Gen Z and millennials because they are engaged with their finances and they have time on their side.”

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He notes that achieving retirement goals may be more likely if you are open to receiving professional guidance, which many members of these generations are.

“More than 80% of Gen Z and millennial employees see a need for personalized advice for their 401(k), especially human advice, in areas like calculating how much money they should save for retirement, estimating their retirement age and managing their expenses,” Voris said. “We’re hopeful that this openness to professional guidance will help younger workers stay on track to reach their goals.”

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About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 
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