A new report reveals positive momentum by Gen Z and Millennials in seizing the initiative early to get their savings on track.

According to Goldman Sachs Asset Management’s (GSAM) “Diving Deeper into the Financial Vortex: The Generational Divide,” Gen Z and Millennials are off to a good start, but they apparently are already feeling the effects of competing financial priorities and may need some help with retirement planning assumptions.

The report, which is a supplement to the firm’s annual retirement report, evaluates the challenges faced by each working generation as a way to better recognize the macro changes happening across Social Security, longevity, caregiving, education costs and views on retirement that are all impacting how people save and prepare for their retirement.

Based on a comprehensive survey of more than 5,000 individuals, the results highlight the progress plan sponsors have made to encourage Americans to save early in diversified portfolios through automated, cost-effective solutions, including automatic enrollment, automatic escalation, and default professional asset allocation strategies. By taking advantage of these and other innovations, younger generations are able to take more proactive steps to help better manage their finances, the report suggests. And they appear to be doing just that:

• 67% of Millennials and 60% of Gen Z have a personalized plan for retirement.
• 69% of Millennials and 68% of Gen Z report savings on-track or ahead of schedule.

That said, the 401(k) transition looms large for Gen X and working Baby Boomers, as many have taken a longer time to adapt to the new retirement system. As a result, 45% of Gen X and working Baby Boomers report their savings are behind schedule, and the same percentages do not have personalized retirement plans. This means many may lack coherent strategies for how much to save, how to invest, and when they can afford to retire, GSAM notes.

Consequently, the next plan innovations should focus on helping people stay on track and navigate the many competing financial challenges that threaten to derail progress, the report emphasizes.

“Studying retirement savings across generations brings into focus valuable insight into the changing macro-dynamics Americans face,” said Greg Wilson, Head of Retirement at Goldman Sachs Asset Management. “With the journey growing increasingly personal, our industry must innovate solutions that better meet savers where they are. Enhanced education and advice that can help them create personalized plans should be integral to everyone’s retirement plan design.”

Unexpected Events

GSAM’s report further shows many people can be blindsided by serious and unanticipated changes in life priorities, such as decreased or no retirement saving during time off from the workforce for caregiving of children or older family members, or job losses.

“The challenges brought by the financial vortex can shift and grow in difficulty as we age,” added Wilson. “To keep our retirement savings on course, we must anticipate these challenges and factor them into carefully and thoughtfully designed financial plans.”

The shift in competing financial priorities is most notable when reviewed across generations, as displayed in the chart below. Baby Boomers consistently report the lowest impact of competing priorities, while Millennials and Gen Z report the highest impact. As such, many Gen Zers need to balance the impact of immediate priorities such as student loans, rent, and credit card debt, to name a few. Given the potential impact on retirement savings, plan sponsors may want to consider the benefits of emergency savings and student loan matching plan features, GSAM’s report suggests.

“The path to retirement is challenging for each generation, but with better financial education, initiative-taking measures and strategic planning, we can all navigate these hurdles successfully,” stated Chris Ceder, Senior Retirement Strategist at Goldman Sachs Asset Management.

The 30-page report further provides an overview of key priorities and attributes for each working generation.

Generation Z

• Off to a good start, with median retirement savings of $29,000, 68% of our respondents believe savings are on-track or ahead of schedule. The first 10 years of saving is attributed to 41% of total retirement savings; early saving can result in 68% higher savings than people who start saving 10 years into their careers.
• They are confident and proactive, with 60% reporting that they already have a personalized financial plan, particularly for other financial goals, such as buying homes and cars, and saving for vacation.
• Planning assumptions may be aggressive, as 44% expect to retire before 60; 75% plan to retire with less than 70% of their working income; and 61% expect to fund less than 50% of retirement with personal savings, versus Social Security or pensions.
• Emergency savings are the most-wanted plan enhancement, reported by 37% of Gen Z respondents, with 36% seeking professional financial planning and advice services, and retirement strategy education third at 28%.

Millennials

• They are in the heart of their professional lives trying to balance their personal and career responsibilities, and are most impacted by the financial vortex among all generations, as student loans, education costs, home buying, and caring for children and parents can take a heavy toll on retirement savings.
• At the same time, however, Millennials are the most likely of the generations to report their retirement savings are on track or ahead of schedule (69%) and only 28% believe they are behind schedule.
• They are most likely to have a personalized financial plan (67%) and are most likely to manage their own retirement savings, at 52%, while 25% manage themselves but periodically seek advice, and 11% pay a financial advisor.
• As plan sponsors consider new plan features to support employees, the top features desired by Millennials include emergency savings (44%); professional financial planning and advice (35%); and retirement strategy education and insights (31%).

Generation X

• This generation is the first to rely primarily on their own individual savings through 401(k)-like plans.
• They are beginning to face the challenges of early retirement, as some are beginning to enter earlier than expected, chiefly due to poor health or family issues.
• About half of Gen Xers report not having a personalized plan for retirement, which is counterintuitive when 67% of Millennials report they do have a plan.
• Highlighting the range of challenges they face, the top retirement planning features desired by Gen Xers include professional financial planning and advice services (38%); emergency savings (37%); and guaranteed income (35%).

Working Baby Boomers

• Retiring later than prior retirees, with most targeting between age 65 to 69 (vs. 60-64), many still feel unprepared, with only half reporting they are on schedule.
• With limited time to save and invest their way past these challenges, many rely on reducing their spending to mitigate these risks, which may impede their quality of life.
• Half (51%) believe part-time work will be important to their retirement income strategy.
• Their top concern is future healthcare costs (taking the place of inflation), which may also drive future spending uncertainty.
• Guaranteed income is still the most desired feature for those nearing retirement to help them retire successfully.

“Plan design innovations implemented over the past 20 years have helped to improve retirement savings for millions of people,” emphasized Ceder. “When plan sponsors and advisors design the next wave of solutions to meet the evolving needs of employees, it is important that they consider how emergency savings, financial education, personalized planning technology/managed accounts, and guaranteed income fit in.”

The findings are based on a July 2023 survey conducted by Goldman Sachs Asset Management and Qualtrics Experience Management of 5,261 U.S. individuals, including 3,673 working Americans (age 21 to 75) and 1,588 retirees (age 50-75).

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