Some encouraging news about people saving for retirement:
A study by Vanguard Group found that “Automatic enrollment and the rise of target-date funds” are having a substantial and positive impact on retirement savers, in particular, on Millennials and Generation Z investors. They have seen a significant uptick in overall participation rate, which has increased from 62% in 2006 to 82% in 2021.
More employer plans are adopting automatic enrollment, a small nudge often credited to Nobel prize-winning economist Richard Thaler.
As of 2021, Generation Z’s participation rate was more than twice as high as similarly aged employees in 2006. Eligible employees deferred nearly 40% more in 2021 than in 2006.
In 2006, ~25% of participants ages 18 to 24 had zero equity exposure! By 2021, 97% of automatically enrolled Generation Z participants had an equity allocation between 41% and 99%.
Target-date funds in 4091k plans are improving age-appropriate equity allocations across for all generations, but as the charts nearby show, it is having the biggest impact on the youngest investors.
Source:
Generational changes in 401(k) behaviors
By Jeffrey W. Clark and Kevin D. Kukulka
Vanguard Group, April 2023
