Challenges Facing Young Savers

Industry experts discuss how to address challenges facing young workers.

There is information everywhere for younger workers, from the workplace to social media to financial apps and artificial intelligence-backed assistants. But as Generation Z and Millennials manage through the highest interest rates and inflation in years, experts continue to try and break through the noise to emphasize the importance of early retirement planning. Many in these generations are listening, with workplace retirement saving showing improvement in recent data—though they still face challenges like student loan debt and rising living costs. 

Employers play a crucial role in fostering a savings culture and offering support for financial wellness amid the din of financial advice, according to retirement strategists. Starting to save early and understanding the long-term benefits of compound interest are key strategies for young people to secure their financial futures, but equally important is finding ways to reach them that are convenient, interactive and effective. 

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On Track, So Far 

Christopher Ceder, senior retirement strategist at Goldman Sachs Asset Management, says younger generations are more engaged with their finances than their older counterparts. Generally younger savers are putting away money earlier and at higher rates, with 60% of Gen Z and 70% of Millennials viewing retirement as a high priority. Additionally, 70% of Gen Z and 73% of Millennials feel fairly confident in their ability to save for retirement.  

“In contrast with my generation, Gen X, is in less positive shape,” Ceder says. “They didn’t take the immediate actions that they probably needed to make sure that their statements could really be on track. In many cases they’re trying to catch up.”  

He says that while the younger generation sees positive momentum with saving ahead, he’s also cautious. There are more challenges ahead that compete with young savers’ ability to pay for retirement, such as cost of education, child care, homebuying and inflation, which all have an impact on how they will be able to save. Additionally, participation rates in workplace savings plans have been an issue among younger generations. 

“The participation rates …. [are] not as high as the older generation,” Ceder says. “While there’s good progress for a portion of the younger generation. Getting that to be more widespread is one of the key challenges.” 

Talk About It 

Megan Warzinski, managing director of HB Retirement, says the biggest challenge for young savers has been making the decision whether to save into their retirement plan and save for the future, or to address more immediate needs, like student loan debt. To address this issue, Warzinski says employers should create a culture that motivates young employees to save early. 

“For someone just starting out, for a 22-year-old individual just entering the workplace, they’re not thinking about retirement and rightfully so,” she says. “But I think if we can create an environment where discussing savings and future is part of a company culture that really aids in combating against the desire to wait.” 

Employers should also keep considering ways to help employees pay off student loan debt, she says—with options available through provisions of the SECURE Act 2.0 of 2022 to other benefits programs aimed at helping people manage educational loans. 

 Warzinski also emphasized the role of education in financial planning, advocating for diverse content formats to suit different learning preferences, such as short video snippets and adviser consultations. Warzinski believes that combining technology with personal interaction is key, as financial decisions are significant and personal.  

“The challenges are reaching younger savers in the way that they want to be connected with,” she says, “The traditional means of holding a group meeting to talk to young savers may not be the best method. Now, it might be outreach through social media or through short videos or through articles. There’s a variety of ways that we need to be considered.” 

Social Media Overload 

Adam Johnstone, partner and financial planner at Cadence Financial Management, agrees that education through social media has significantly increased the financial literacy of younger savers. However, he warns against information overload from the internet. With so much content available to them, users are bound to see some posts that may conflict with recommendations that an adviser or workplace tool might be giving them.  

“When you feel like you’re being inundated with information and different opinions, it’s totally natural to feel overwhelmed by it all and simply throw your hands up,” he says. “Then [the participant] just makes no changes and kicks the can down the road.” 

Financial planning is a relationship business, according to Johnstone, and the key is to cultivate relationships with young savers and build trust. Therefore, even when they inevitably continue to see dissenting opinions across social media, young savers will have an adviser who cares about them and knows what their goals are.  

Ultimately, Johnstone’s main piece of advice to young savers, albeit apparent, is always to save more and save early. Given the time value of money and compound interest, he says, young people should take advantage of saving for retirement while time is still on their side. 

“I’ve always told people that none of my clients have ever complained about having too much money,” he says. “The more you can afford to save now, the better.” 

Participants’ Progress

Fresh research shows signs of progress for 401(k) savers, but challenges from lack of access to losing momentum due to job changes still need to further increase participant savings in the U.S.

Several recent surveys report that plan participants have made good progress with their savings over the past decade and are more confident about their retirement finances. However, other studies found that participants are struggling financially and worry that they won’t have sufficient funds saved for retirement.

Experts point to a number of “bets” that have paid off by retirement industry players—but to improve outcomes even further, more plan solutions and levers will need to be pulled. The results of those decisions will impact whether the progress in workplace retirement savings will continue apace over the next 10 years.

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The Good News

Multiple plan participation and participant-behavior metrics have been improving over the past decade.

Vanguard’s How America Saves 2024, which provides results for Vanguard’s plans through 2023, notes that higher percentages of employees are now auto-enrolled and participating in their plans than a decade ago. They’re saving more, and they’re using professionally managed portfolios—dominated mostly by target date funds—more frequently:

Plan Feature (data for all size plans)

2014
2023
Auto-enrollment
36%
59%
Plan participation rate (participant-weighted)
77%
82%
Auto-enrollment default percentage 4% or more
39%
60%
Average deferral rate
6.8%
7.4%
Professionally managed allocations
45%
66%
Median account balance
$29,603
$35,286
Source: Vanguard’s How America Saves 2024

According to Mike Shamrell, vice president of workplace thought leadership, Fidelity's results show a similar trend. The company’s 401(k) plans’ overall participation rate has increased from 68% 10 years ago to 74% in 2023, and the number of plans with auto-enrollment has grown from 26% to 39%. Almost 40% of plans have a 5% or higher default savings rate, and 61% of participants have consolidated their savings in a target-date fund.

Fidelity calculates a retirement savings assessment to determine if the typical American household is on track to meet its estimated retirement spending needs. In 2015, the median score was 74% (a "fair" rating). It increased to 85% in 2017 ("good" rating) and pulled back to 78% ("fair") in the 2023 study.

Employees’ outlook on their retirement finances has improved, too. The 2024 Retirement Confidence Survey from the Employee Benefit Research Institute and Greenwald Research reported that in 2014, 72% of workers with a retirement plan (individual retirement account, defined contribution, or defined benefit) were either very confident or somewhat confident that they would have enough money to live comfortably throughout retirement. That percentage increased to 77% in the 2024 survey.

The Not So Good News

But it’s not all good news.

The 2024 WTW Global Benefits Attitudes Survey United States identified several problems. Among employees aged 50 and older, 56% were somewhat confident or very confident about their ability to live comfortably for the first 15 years of retirement versus 61% in 2013.

Meanwhile, fifty-six percent of employees reported saving less than 8% of their pay for retirement, and only 34% ranked as on track for retirement. Financial self-assessments were similarly negative, with 41% reporting they were “not on the right track with respect to my finances.”

“Despite the increase in programs’ utilization, we see that a greater share of employees are concerned about being able to retire,” says Jennifer DeMeo, managing director of integrated and global solutions with WTW. “More are saying they expect to have to work past age 70 or being concerned that they are not going to be able to live comfortably in retirement.”

Key Levers to Improving Participation

Experts highlight several factors that have improved plan metrics over the past decade.

Craig Copeland, EBRI's director of wealth benefits research, cites auto-enrollment and defaults into target-date funds as two key factors. He also points to participants’ increased awareness of the need to save for retirement.

“I certainly think there is a better understanding and more focus on saving for retirement,” he says. “If you went around 10 years ago, certainly 20 years ago, you did not see that same type of understanding and expectation that there is now that you have to be doing this and paying attention to it.”

DeMeo believes that sponsors' growing recognition of the need to change employees' financial behaviors and address their overall economic well-being is another lever that has helped participants. A decade ago, sponsors were more focused on increasing overall plan participation levels, she says. That focus has broadened with the understanding that employees “need to be able to manage their short-term needs to also save for retirement—the two are connected,” DeMeo explains.

Providing advice is another tool for improving participant outcomes, says Jane Greenfield, principal and head of consultant relations at Vanguard.

“Participants enrolled in advice tend to be more engaged and demonstrate stronger savings behaviors than their peers, including higher average savings rates,” she explains. “The percentage of plans offering managed account advice is at an all-time high, and more than three in four participants now have access to advice.”

Stumbling Blocks

Several problems could impede additional progress. EBRI surveys have found that non-participating employees often believe they lack sufficient funds for plan contributions. Other workers, particularly those at small employers, lack access to workplace plans.

WTW’s DeMeo points to the multiple demands on employees’ finances: “We see a growing number of people living paycheck to paycheck and concerned about short-term needs.”

Another stumbling block is job mobility. The typical American has nine jobs throughout their career, says Greenfield. In moving from one job to the next, they might move from a 401(k) where they had increased their deferral each year and maxed out their savings to a new plan with a 3% default rate.

Vanguard’s research found that these repeated slowdowns in savings caused by job changes can result in potentially having 35% less money saved at retirement.

Despite the challenges, it's been a good decade for participants overall, and Greenfield believes the outlook is encouraging.

“We can build on that strong foundation with increased personalization,” she says. “AI and other emerging technology can help deliver personalized experiences for participants that help them take the next best action.”

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