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Gen Z outpaces millennials in 401(k) savings growth

Gen Z outpaces millennials in 401(k) savings growth

"Gen Z Savings"

Recent findings show that Generation Z (Gen Z) is outpacing millennials in their 401(k) retirement savings growth. In the first quarter of 2021, Gen Z’s average 401(k) balance rose by 15%, reaching $11,300, compared to millennials whose balance increased by only 11%, standing at approximately $27,500. This discrepancy suggests Gen Z’s proactive approach to retirement savings and stresses the importance of early investment.

Interestingly, Gen Z demonstrated resilience during the economic impact of the pandemic, adapting their saving behaviors effectively. Caution is necessary in interpreting these findings as disparities in age, income levels, and employment status between generations can significantly alter these averages.

For context, millennials saw their 401(k) balances surge by an average of 11%, resulting in an average balance of $59,800. When considering all age groups, an average increase by 6% was found, leading to an updated average balance of $125,900.

Older generations, such as Generation X (Gen X) and Baby Boomers increased their retirement balances less significantly, with average balances of $178,500 and $241,200 respectively. Yet, younger investors are known to invest more aggressively aligning with the traditional investment behaviors.

Millennials and Gen Z continue this trend, starting their investment strategies at a substantially younger age.

Gen Z’s remarkable 401(k) savings growth

This change could be due to higher financial literacy, easy access to investment platforms, and a diversified approach to risk-taking. Regardless of the numerical differences, when you factor in the age of the investors and potential growth time, younger generations present a promising future.

While millennials target a financial goal between $1 million-$2 million, Gen Z generally aims for a lower bracket ranging from $500,000-$1 million. Personal circumstances, aspirations, and background heavily influence these goals, along with relative cost of living and current economic climate. Despite these disparities, both generations prioritize financial security, setting progressive targets for their savings.

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Moreover, Gen X recently achieved a significant milestone by surpassing Baby Boomers with an average balance of $543,400 for individuals maintaining the same 401(k) accounts for over a decade. The data highlights the effect of long-term investments and the power of compound interest. In contrast, Baby Boomers, once known for their financial mastery, now lag behind their successors.

Lastly, the report revealed an increase in the number of 401(k) millionaires, reaching 485,000 in the first quarter, a 15% increase from the last quarter and a 43% increase year over year. This was followed by a substantial rise in the second quarter, reaching 500,000, a 3% increase from the previous quarter and a 50% increase year over year. These trends demonstrate the power of disciplined saving habits, long-term investment and resilience against market volatility.

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