No pension, no problem: Goldman Sachs report shows how younger

Millennials and Gen Zers are famously on their own when it comes to retirement savings, with virtually no access to pensions, and muted expectations of being able to rely on Social Security. Ironically, that pessimism actually may be helping them.

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

Around 45% of Gen Xers said they’re behind schedule when it comes to saving for retirement. With the introduction of 401(k)s, that generation (and the youngest boomers) became the first to begin saving primarily on their own, which led to a dearth of savings; Goldman calls them the “401(k) experiment” generation. The report notes that some Gen Xers—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 caregiving needs.

Baby boomers, too, aren’t as confident about having saved enough for retirement as might be expected given the headlines about their unprecedented wealth. Currently aged 60 to 78, they also report retiring later than the generations before them, a trend previous research backs up. Some simply need to work longer for a paycheck, while others, buoyed by good health and longer life expectancy, want to stay in the workforce as long as possible.

“The 401(k) transition looms large for Gen X and working baby boomers, and many working Americans have taken a long time to adapt to the new retirement system—some too long,” Goldman’s report notes. “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 over 50% of so-called peak boomers—those reaching traditional retirement age—have accumulated $250,000 or less, meaning it’s likely they’ll burn through whatever assets they’ve accumulated and be dependent on Social Security. Women in that generation are faring worse than men, holding about 30% less in savings, and Hispanic and Black boomers hold far less wealth than white retirees.

‘Be mindful’

Younger generations, meanwhile, are under no illusion they can simply rely on outside contributions to bolster their retirements. So they’ve started saving on their own, and at a younger age than the generations before them: Gen Z, born between 1997 and 2012, has median retirement savings of $29,000, and 68% believe they’re on track, a far higher share than Gen X or boomers, according to Goldman.

That’s promising news. The report details what a substantial difference the first decade of savings can make in the total size of someone’s nest egg. Assuming a $50,000 starting salary with 2% wage increases each year, 5% contributions from both the employee and employer, and a 6% annual return, saving during the first 10 years of one’s career can lead to 67% higher savings compared with someone who waited longer to invest, per Goldman’s calculations.

Still, some perspective might be needed. The report found once again that a large share of Gen Z wants to retire early: 44% said they want to leave the workforce before age 60, and 14% said they plan to retire between 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.

“Gen Zers should be mindful that if they underprepare early in their career, it may be too difficult to catch up,” the report reads.

‘Financial vortex’

The oldest millennials, now approaching middle age, are facing a confluence of factors Goldman dubs the “financial vortex”: Combinations of student loan payments, credit card debt, childcare costs, home buying, and caring for elderly parents or family members are cutting into potential retirement savings. (Notably, Gen Z isn’t far behind.)

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

That’s impressive for a generation that has dealt with financial setback after financial setback, as well as increased costs for necessities like housing and childcare. Recent research from the Federal Reserve has found that millennials—at least the wealthiest ones—are making significant gains in wealth accumulation.

In a few respects, it has been easier for some of them: They’ve learned from older generations, but they’ve also had more and better options to save for retirement, such as automatic enrollment, Chris Ceder, a senior retirement strategist with Goldman Sachs Asset Management, told Fortune.

“These generations are being more proactive planning for their retirement and taking advantages of the resources available to them,” Ceder added.

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