No pension, no problem: Goldman Sachs report shows how younger generations are increasingly more prepared for retirement than boomers

Millennials and Generation Z are known to be on their own when it comes to retirement savings, with virtually no access to pensions and little expectation of being able to rely on Social Security. Ironically, that pessimism may actually be helping them.

That’s according to a new report from Goldman Sachs Asset Management, which surveyed more than 5,200 working and retired people across generations. The report, which examined various obstacles to saving for retirement among baby boomers, Generation X, millennials and Generation Z, found that younger generations were much more confident in their ability to achieve their goals.

About 45% of Gen Xers said they are behind when it comes to saving for retirement. With the introduction of 401(k) plans, that generation (and younger boomers) became the first to start saving primarily on their own, leading to a savings shortage; Goldman calls them the “401(k) experiment” generation. The report notes that some members of Generation X (the oldest will turn 60 next year) are retiring earlier than expected, not because they have the funds but because of their health or family care needs.

Baby boomers are also not as sure they have saved enough for retirement as might be expected, given headlines about their unprecedented wealth. They are currently between 60 and 78 years old and also report retiring later than previous generations, a trend supported by previous research. Some simply need to work longer to earn a paycheck, while others, encouraged by good health and longer life expectancy, want to stay in the workforce as long as possible.

“The transition to the 401(k) plan looms large for Generation from Goldman. “Many may lack coherent strategies for how much to save, how to invest and when they can afford to retire.”

A different report recently noted how more than 50% of so-called peak boomers (those reaching traditional retirement age) have accumulated $250,000 or less, meaning they are likely to burn through any assets they have accumulated and rely on. Social Security. Women of that generation fare worse than men, having about 30% less savings, and Hispanic and black boomers own much less wealth than white retirees.

‘Consider’

Meanwhile, younger generations are under no illusions that they can simply rely on outside contributions to bolster their retirements. So they started saving on their own, and at an earlier age than previous generations: Generation Z, born between 1997 and 2012, has an average retirement savings of $29,000, and 68% believe they’re on the right track. , a much higher figure. participation than Generation X or boomers, according to Goldman.

That’s promising news. The report details the substantial difference the first decade of savings can make to the overall size of a person’s savings. Assuming a starting salary of $50,000 with 2% salary increases each year, 5% contributions from both employee and employer, and a 6% annual return, saving during the first 10 years of your career can result in 67% greater savings compared to someone who waited longer to invest, according to Goldman calculations.

Still, some perspective might be necessary. The report once again found that a large proportion of Generation Z want to retire early: 44% said they want to leave the workforce before age 60, and 14% said they plan to retire between ages 65 and 69. But that’s a goal that could prove difficult in today’s economy, particularly given increases in life expectancy that could extend retirement periods by a decade or more.

“Members of Generation Z should be aware that if they do not prepare sufficiently early in their career, it can be very difficult for them to catch up,” the report reads.

‘Financial vortex’

Older millennials, now approaching middle age, face a confluence of factors that Goldman calls the “financial vortex”: the combinations of student loan payments, credit card debt, childcare costs , home buying and caring for elderly parents or relatives are affecting potential retirement savings. (Gen Z, in particular, is not far behind.)

Still, millennials remain the generation most confident in their ability to retire: 69% said they are on track or ahead with their savings, and 43% are very confident they will reach their goal, compared to the 25% of Generation X. and 22% of working boomers.

This is impressive for a generation that has had to deal with one financial setback after another, as well as increased costs for necessities like housing and child care. Recent research from the Federal Reserve has found that millennials (at least the wealthiest ones) are making significant strides in wealth accumulation.

In some ways, it’s been easier for some of them: They’ve learned from previous generations, but they’ve also had more and better options for saving for retirement, like automatic enrollment, Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management , said Fortune.

“These generations are being more proactive in planning their retirement and taking advantage of the resources they have at their disposal,” Ceder added.

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