For many investors, retirement planning represents the bulk or even the total amount of their investment activity. As of 2020, there were approximately 60 million active 401(k) members, in addition to former employees and retirees. 1 But while millions of adults in the United States are contributing to retirement, views on retirement investment and everything that comes with it are far from uniform.
Investopedia conducted an online survey of 4,000 American adults to quantify Americans' generational understanding of financial literacy, from Baby Boomers to Generation Z. Below, we review some of the key findings from this survey regarding retirement investment and planning. .
KEY FINDINGS
A small majority of American adults expect to retire, with Generation Z being the most optimistic about early retirement.
Two-thirds of Gen X millennials and adults are planning to retire, as are 42% of Gen Z.
The younger generation believes that cryptocurrencies will feature prominently in their retirement support.
Americans across generations are uncertain about their understanding of retirement planning and need more guidance.
Financial technology (fintech) is making retirement planning easier with robo-advisers, changes in insurance, mobile trading platforms and more. 2
Young people expect early retirement
One of the key findings of the study is that most adults in every generation expect to be able to retire. Among adults aged 18 to 25 representing generation Z, 57% and 62% of millennials believe they will retire at some point. About two-thirds of Gen Xers are either planning to retire or have already retired early (since Gen X includes adults aged 42-57). And the vast majority of baby boomers are either already retired or about to retire. Young people expect to stop working at an earlier age (57 for Generation Z, 61 for millennials), while boomers who have not yet retired predict that they will, on average, hang their hats at 68. Depending on your point of view, the data above may or may not be encouraging. This majority, especially in the youngest generation, are thin. However, they paint a rosier picture of Americans' views on retirement than the 2021 data from the Natixis Global Retirement Index. This research report found that a majority of American adults predicted they would have to keep working longer than expected, with a significant minority of 40% saying it would "take a miracle" to be financially secure in retirement. 3 Natixis data may reflect heightened financial planning anxiety caused by the earlier stages of the COVID-19 pandemic; however, other evidence suggests that close and recent retirees may not have changed their plans much due to the pandemic. four
Many have made retirement planning a priority
Because most adults expect to retire someday, a significant portion of every generation has taken steps towards that goal by starting to plan for retirement now. About two-thirds of Gen X and millennial adults surveyed said they plan to retire, and just over half of Gen Xers did the same.
Perhaps unsurprisingly, Generation Z adults furthest from retirement age have the lowest percentage in this area. However, 42% of Gen Zers surveyed said they were already planning to retire, even in their teens and early 20s.
Retirement plans by generation
Generations are divided when it comes to how survey participants expect to support their pensions. Older generations, Generation X and Baby Boomers in general plan to support themselves with Social Security benefits, followed by 401(k) and retirement plans. The younger generation predicts that 401(k)s will be the main source of retirement income, but they also expect Social Security to play an important role. A surprisingly large minority of millennials and Gen Z adults expect crypto investments to be important into retirement as well. The generational skew in these data tends to be in line with the harsh realities of social security in the future. As planned, Social Security and Medicare will face a long-term funding gap as a result of skyrocketing costs as most of the population live longer to retirement age. Officials predict that some funds will be depleted by the mid-2030s. 5 Vpol
it is not clear that young people may feel that social assistance is by no means available by the time they reach retirement age, and survey results suggest that younger generations expect to prioritize other types of support instead.
The youngest adults are increasingly looking at investing in cryptocurrencies as a viable means of planning for retirement. A little over a decade since the launch of Bitcoin, interest in cryptocurrencies has skyrocketed, and by some estimates, one in ten people now invest in digital tokens. 6
With the growing interest in cryptocurrencies, more investors are also including tokens in their retirement plans. However, the significant volatility of digital currencies, regulatory uncertainty, and the lack of a proven track record as investment vehicles can make cryptocurrencies a dangerous place to look for long-term profits. Another factor influencing retirement planning is the influx of financial technology (fintech) companies specializing in the field. According to economists Julie Agnew and Olivia S. Mitchell, robo-advisers, new life insurance pricing initiatives, and technology designed to drive asset decumulation at retirement are all among the ways the fintech industry is already undermining retirement. 2
Lack of education, anxiety overshadow the optimism of many
An Investopedia poll found that American adults are unsure about their understanding of retirement planning. After digital currencies and investments, retirement was the third most misunderstood concept, with more than a quarter of those surveyed indicating that they had only a rudimentary understanding.
However, as above, the data diverge when broken down by generation. Nearly half of millennials and 40% of Gen Xers said they were well versed in retirement planning. Generation Z feels the least informed about retirement, which is perhaps to be expected given that there are at least four decades left before the standard retirement age for members of this group.
Retirement tops the list of financial worries
Not only do Americans feel ignorant about retirement planning, they worry about it. Retirement was cited as the top personal finance issue for about a sixth of those surveyed. Generation X, closest to retirement age, is particularly concerned. They have also witnessed dramatic economic developments over the course of their retirement savings, including the Great Recession of 2007-2009 and, more recently, the economic uncertainty associated with the COVID-19 pandemic.
In contrast, only 1 in 10 Gen Zers cited retirement as a top issue. Again, this may be because retirement is the furthest away for this group. It could also reflect a sense of optimism — as noted above, Generation Z expected to stop working at age 57, well before the standard retirement age. As the earning and saving potential of Generation Z members increases over time, it is possible that their overall attitudes towards retirement may also change. Americans need more advice on retirement planning
In times of economic uncertainty, challenging geopolitics at home and abroad, and the lingering effects of a devastating pandemic, retirement may not be the most immediate priority for some American adults. Concerns about future seismic shifts, including the economic impacts of climate change, depleted social security funds and continued wealth inequality, may also worry investors considering retirement planning.
However, there are reasons to be optimistic about the prospects for retirement. A significant percentage of adults think and engage in long-term planning. Fintech developments such as robotic advisors and mobile trading apps could make the retirement savings process easier than ever before. And great resources are available for those who feel insecure or overwhelmed by the prospect of retirement planning.
Methodology
The 2022 Investopedia Financial Literacy Survey quantifies American adults' generational understanding of their own financial literacy. The survey was conducted from January 27, 2022 to February 7, 2022 using an online self-administered questionnaire to 4,000 American adults, 1,000 of each of the following generations: Generation Z (ages 18-25). , Millennials (26-41), Generation X (42-57) and Baby Boomers (58-76). Quotas and data weighting were used to ensure representation of race/ethnicity, gender, region, and income but among the general number and in each generation.