Millennials say they need $1.8M to retire (Gen Z, $1.4M) – both want more 401(k) options

A new study from Charles Schwab demonstrates that younger workers are ready to receive retirement advice from a range of sources and have a willingness to consider a variety of retirement savings tools as they look toward their futures.

Schwab’s 2022 “401(k) Participant Study – Gen Z/Millennial Focus” underlines how approaches to retirement can vary across generations with an emphasis on how younger workers are considering their retirement savings options. The study reveals some key differences that can help financial advisors and employers serve members of the Gen Z and millennial generations.

Among the findings was that 60% of Gen Z and 62% of millennials said they were very likely to follow human professional financial recommendations – in line with Gen X (60%) and much higher than boomers (39%). In addition, Gen Z and millennials are much more open to computer-generated recommendations with 42% of Gen Z and 40% of millennials saying they were very likely to consider that form of financial advice in comparison with just 31% of Gen X and 11% of boomers.

“Younger workers tell us they are very open to help from a variety of sources, especially human advice,” said Nathan Voris, director of investments, insights and consultant services at Schwab Retirement Plan Services.

Voris said a top interest among the younger generations is calculating how much money to save for retirement. Other prominent interests include help with 401(k) investments, estimating their retirement age, and managing their expenses, he said.

Related: Why 17% of employees don’t participate in 401(k) plans

“This is a clear opportunity for employers and advisors to educate younger workers about their options, get a sense of their priorities, and identify the areas where they need the most support,” Voris said. “Helping young employees achieve their financial goals can play a key role in loyalty and recruitment. For advisors, it can help build long-term trust early on.”

Younger generations are confident in their retirement futures as 94% of Gen Z and 93% of millennials believe they are very or somewhat likely to achieve their retirement goals. On average, Gen Z respondents believe they need to save $1.4 million for retirement while millennials believe they need to save $1.8 million. Top retirement obstacles in respondents’ minds included inflation, keeping up with monthly expenses, stock market volatility, unexpected expenses and saving and paying for children’s education.

Younger workers have been changing jobs at high rates with 38% of Gen Z and 27% of millennials changing employers in the previous 12 months – as compared to 13% of Gen X and 7% of boomers. The study examined the favored methods for saving and investing for retirement – outside of a 401(k) – among the generations. A savings account was the top choice across the generations. Of note, Gen Z and millennials were more likely to say they were saving and investing through cryptocurrency (31% and 35%, respectively) than either an IRA (30% and 29%) or a brokerage account (28% and 25%).

Younger generations are more open to financial wellness tools, including online tools to

help save for retirement, build an emergency savings fund, and manage debt, according to the study. Gen Z and millennials are more likely than both Gen X and boomers to say that they are open to working with a financial professional to develop a financial plan and to holding meetings with a financial advisor to confirm they are on track with their retirement planning.

Voris noted that more than 80% of Gen Z and millennial employees see a need for personalized advice for their 401(k).

“When you drill down into the specifics, you find some surprising elements of this broader trend,” Voris said. “Even at a young age, Gen Z and millennials are looking beyond the 401(k) and see that saving for health care expenses is a crucial part of a secure retirement. About half of Gen Z and Millennial workers are using Health Savings Accounts to save and invest for future health care costs.”

Voris said that younger workers show a desire for a broad range of choice and personalization within their 401(k), too.

“For example, nearly half say they would like crypto as a choice in their 401(k),” Voris said. “That’s not too surprising. But what is very surprising is that nearly half also say they would like an annuity option in their 401(k). That really shows younger workers want access to a full spectrum of investment choices in their plan.”