Gen Z and Millennials Are the Most Confident Generations About Retirement Savings: Should They Be?
Despite repeated reports that Social Security will no longer be able to pay out in full by 2033, the 2026 State of Retirement Planning study held by Fidelity Investments has found that younger generations are far more confident about saving for their retirement years than older generations.
Specifically, 75% of Gen Z (those born 1997-2012) and 78% of millennials (the group born 1981-96) are confident they will be able to retire both when and how they want. Those percentages reflect a markedly different outlook from older Gen X Americans (63%) and even the baby boomer generation (68%) that has already begun to retire.
This raises the obvious question: Should these younger generations be so confident about their retirement savings?
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The Confidence Gap
Alex Barba, founder of Lifeforce Financial, said, “The short answer: The confidence is understandable, but some of it rests on assumptions that don’t survive with actual retirement.”
Barba noted that some optimism is warranted, thanks to younger generations taking advantage of automatic enrollment in workplace savings plans, diversifying beyond 401(k)s and having access to better financial literacy tools than their parents and grandparents.
However, there is a “confidence gap” wherein studies like that of Fidelity Investments “measure savings behavior and intent, not outcomes.
“What I see at the other end of that (retirement savings) journey is that even people who ‘did everything right’ often hit surprises that no retirement calculator anticipated,” Barba said. “Healthcare costs are the biggest one. Medicare doesn't cover everything, and long-term care can erase decades of savings in a few years. People in their 30s and 40s consistently underestimate this.”
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'One of the Largest Financial Myths'
Ali Zane, personal finance trainer and CEO of iMax Credit Repair Firm, agreed that younger generations have a “disconnect between confidence and facts” when it comes to retirement savings.
“The confidence Gen Z and millennials have in their retirement savings is one of the largest financial myths I have come across,” Zane said. “For the majority of 30-year-olds, it is estimated that they will have around $35,000 saved for retirement. The median 40-year-old will have around $60,000, and a median 50-year-old will have around $110,000 saved for retirement. This is a significant gap from $500,000 to $1.2 million -- which is estimated as what is to be needed for a comfortable retirement.”
Zane added that this disparity between confidence and reality has led to a “dangerous complacency” among younger generations, one in which generalized financial literacy blinds Gen Z and millennials to the undeniable mathematics of retirement.
“The majority of Gen Z workers will be financially supported for 20 years during their retirement (whereas the average retirement is 25-30 years), after which their retirement savings will be depleted. … This situation is paradoxically the result of the self-fulfilling belief that their retirement will not go this way, despite the fact that this is the data, and experiences, that point to the result described," Zane said.
More Savings Needed
Both Zane and Barba insisted that younger generations need to be saving more, and to financially prepare for expensive crises throughout their retirement years.
Zane went so far as to recommend that Gen Z and millennial workers need to make retirement savings contributions of at least 15% to 20% of their annual gross income (rather than the 3% to 5% norm). He also suggested putting off retirement until at least the age of 68 (rather than 65).
Barba said, “The confidence gap isn't about savings rate. It's about the difference between what people think retirement will look like and what it actually costs when they get there.”
Preparing (and saving) for the worst may be the only way younger generations can ensure a safe and confident retirement in their golden years.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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