In fact, the younger generation may be more prepared to retire than their older cohorts. Nearly half of Gen Z workers (aged 24-28) are projected to maintain their current standard of living in retirement, slightly ahead of the 40% projected for baby boomers (aged 61-65) approaching retirement, according to a new study from investment management firm Vanguard. Millennials were also slightly ahead of the older generation (aged 29-44), with 42% on track for retirement. Gen X fell slightly behind at 41% (aged 45-60). 

Vanguard based its findings on data from the 2022 Survey of Consumer Finances, using roughly 2,700 working U.S. households to estimate how each generation was on track for retirement and whether their retirement incomes would be enough to maintain their lifestyle without exceeding their spending needs. 

The financial readiness of Gen Z could come as a shock to older generations who may believe they are “doom spending” or making discretionary purchases, rather than necessary ones they’ll need to reach adult milestones. While soaring inflation, high living costs and stagnant salaries are dragging baby boomers out of retirement, young savers may be taking those headwinds as a financial lesson. 

Automatic payments and DC plans are helping Gen Z save 

Part of the financial preparedness is due to expanded Defined Contribution (DC) plans offered by employers. For younger generations, the plans could make saving easier and more effective through features such as auto-enrollment, automatic escalation, and investing in target-date funds. In addition, a separate Vanguard study found that DC plan participation and eligibility rates are at all-time highs, which could help workers build financial security over time. 

What’s more, the study pointed out that if all workers had access to a DC plan—such as 401(k) 403(b)s, about 6 in 10 Americans would be on track for retirement. More than 100 million Americans have access to these plans, holding more than $12 trillion in assets. 

But access to retirement funds isn’t universal. A separate analysis found 42% [roughly 40 million] of workers do not have access to these plans, with access gaps concentrated in lower-wage and part-time jobs.

However, despite the younger cohort funneling money into their 401(k)s, the future of any further progress depends on their overall financial wellness. Even with their success in saving, many younger generations are grappling with debt repayments—from student loans, auto loans, and mounting credit card debt. 

“Supporting overall financial wellness with effective planning tools is key to helping the next generation achieve lasting retirement security,” said Nicky Zhang, a Vanguard investment strategist and co-author of the research paper.

Baby boomers may hold most of the nation’s wealth but aren’t ready to fully retire

Though Gen Z may be facing debt-repayment struggles, baby boomers, even with holding over half of the nation’s wealth, are not ready to stop the 9-to-5 to retire comfortably. While the wealthiest 30% of boomers are generally on track, others may fall short. 

For example, the median boomer is projected to need to replace about a third of their pre-retirement income through private and employer retirement savings, facing a shortfall of roughly $9,000 (or a quarter of their expenses).  

To cope, boomers may need to consider options like tapping home equity, reducing spending, or working two additional years, the study found.