Born from 1997 to 2012, Generation Zers have often been called the most ethnically diverse generation who have grown up entirely with modern technology. But as they begin to enter the workforce, what impact will they have on the retirement industry and what expectations do they bring to the table? 
As a backdrop, consider that the average Gen Zer got their first smartphone just before their 12th birthday, they communicate primarily through social media and texts, and they spend as much time on their phones as older generations do watching television.
To dive deeper into the topic, Cogent Syndicated’s 2023 DC Participant Planscape study contains the firm’s first dedicated retirement research on Gen Z. What are some of the biggest takeaways?
Tinkerers
For one, Gen Zers are tinkerers, according to the study. As new college graduates who are settling into new careers, Gen Z participants are beginning to learn the mechanics of retirement plans. “Half of Gen Zers have been busy tinkering with their contribution levels as they adjust to other first-time financial responsibilities such as rent, car payments and budgeting for nights out with friends,” writes Sonia Davis, Senior Product Director at Cogent Syndicated.
For instance, over the past 12 months, nearly 4 in 10 (37%) Gen Zers have increased their employer-sponsored retirement plan (ESRP) deferral rates, compared with less than a third (29%) of Millennials, while 16% have decreased their respective contribution levels—double the 8% figure that Millennials cite.
Meanwhile, overall mean deferral rates are at 7.5% of salary, or $2,700 annually among Gen Zers, which is a higher percentage rate than the 6% cited by Millennials and Gen Xers, whose mean contributions are $3,900 and $4,000, respectively, the report shows. “Even so, extra guidance and education could benefit Gen Z participants to ensure they are maximizing their full savings potential, as many retirees often wish they started saving more earlier,” says Davis.
For purposes of the research, the firm defines Gen Z as ages 26 and younger. Gen Z represents more than one-tenth of current and former retirement plan participants ages 18 and older who are either actively contributing at least 1% to a current plan and/or have $5,000 or more in at least one former plan.
Risk-Takers
While Gen Zers are young and full of energy, the study isn’t necessarily referring to bungee jumping or skydiving. According to the firm’s latest research, even after the collapse of the cryptocurrency markets, nearly half (49%) of Gen Zers still have money invested in digital assets—in sharp contrast to Millennials (38%) and Gen Xers (19%). Another 30% of Gen Zers indicated that they are not currently invested in digital assets but are likely to start using them.
And while others may be turning away from ESG investing amid a contentious political debate, enthusiasm for ESG investing within employer-sponsored retirement plans is strongest among Gen Zers (37%).
Optimistic Yet Underprepared
Similarly, Gen Zers, alongside Millennials, report more optimistic outlooks about the U.S. economy and global markets. However, this generation is least equipped to tackle the unexpected, hence the boomerang phenomenon some empty nesters inevitably face, explains Davis.
At the aggregate level, 1 in 10 participants (10%)—most visibly Gen Zers (14%)—does not have any money set aside for emergency expenses, underscoring the need for emergency savings account (ESA) mechanisms in the market, the study suggests.
Perhaps even more surprising is that estimated retirement savings goals are lowest among this cohort. According to the firm’s research, the overall mean goal is $946,000 across all types of accounts (ESRPs, IRAs, taxable brokerage accounts, bank accounts and other vehicles), ranging from a low of $498,000 among Gen Zers to a high of $1.2 million among second-wave Boomers and $957,000 among Millennials.
By average, ESRP goals are just $285,000 among Gen Zers, nearly half the $522,000 figure second-wave Boomers cite and considerably trailing the $453,000 figure Millennials cite, the study shows.
“These dramatic differences in retirement savings estimates showcase how much Gen Zers could benefit from provider education, particularly on how much is required to live comfortably in retirement,” emphasizes Davis.
Advice and Communication
While overall robo-advisor use is supposedly starting to taper, Gen Zers report the greatest adoption at 90%, according to the firm’s research. As one might expect, this cohort is more at ease with different styles of accessing retirement planning advice and support.
In fact, nearly 3 in 10 Gen Zers prefer working with plan advisors via text (29% vs. 21% of Millennials), and assuming employer availability, nearly 4 in 10 Gen Zers (39%) are interested in fee-based retirement planning advice from a financial advisor.
And while most participants are logging into provider websites simply to check account balances, more than a fifth of Gen Zers are prompted via email and mobile app notifications. Consequently, Davis suggests that cross-selling opportunities are promising within this new cohort, as many Gen Zers are open to product marketing via texts (33% vs. 24% of Millennials) and social media (29% vs. 19% of Millennials).
“First impressions aside, what I find most exciting about Gen Zers is that they offer providers a fresh start in educating and engaging the next generation of retirement savers,” the Cogent executive says in a concluding observation.
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