When it comes to retirement savings, there’s some good news and bad news. Let’s start with the good.
Younger workers are saving more for retirement than earlier generations. That might sound surprising, given the financial burdens of student debt, rising rents and the overall cost of living. But younger workers grew up when employer-sponsored, defined-contribution retirement savings plans, such as 401(k)s, became more widespread and better designed.
The latest Vanguard Retirement Outlook reported nearly half of Gen Z workers (aged 24 to 28) project to be financially ready for retirement. That means they are on track to maintain their current lifestyles when they finally say goodbye to work.
In sharp contrast, only 40% of baby boomers between age 61 and 65 are prepared for retirement. The big reason for the improvement among younger employees isn’t thrift or luck — it’s access. Workplace plans cover more younger workers, making it easier to start saving early and regularly.
Workers who save through an employer plan are twice as likely to reach their retirement goals as those who can’t. Innovations like automatic enrollment, automatic increases in contributions and easy-to-use investment options (like target-date funds) make a difference. According to Vanguard, the typical worker participating in a workplace retirement plan in 2022 had $83,000 in non-housing wealth — about 1⅓ times their annual income. Without a plan, the median worker had just $13,000, or 0.4 times their income.
Problem is, nearly half the private sector workforce, including many contract workers and small business employees, don’t enjoy access. Yes, they can fund an IRA or a SEP account (simplified employee pension). Yet without a simple, automatic way to save, they must navigate it alone. Vanguard calculations suggested universal access to a workplace plans could more than double the share of Gen Z workers on track for retirement to 94%. For millennials, the comparable figure is an increase of 29 percentage points to 71%.
For plan participants, small adjustments matter for long-term financial health. Saving a bit more, spending a bit less and delaying taking Social Security benefits for, say, two years boosts lifetime income (assuming health and circumstances allow for waiting to file for Social Security).
The good news: Access works. The bad news is too many workers still lack access. The challenge isn’t just saving more but making sure everyone has the tools and opportunity to build a financially secure retirement.
