How Younger Americans Are Preparing Better for Retirement

Younger generations get a lot of financial flack. From avocado toast ruining the chase at home ownership, to different approaches to life, work, and entertainment, there are a lot of generational differences in how Americans spend their money.

But when it comes to retirement savings, younger generations might have a leg up.

Retirement Plans Matter

Younger Americans are at a lower risk of a retirement shortfall than older generations, according to a Morningstar (MORN) report, as they have more years to save until they will need their savings. Per Morningstar, members of Gen X and Boomers are more likely to experience retirement shortfalls than younger Gen Z or Millennial savers.

But it’s not because older generations aren’t good at saving. Instead, the report attributes the generational differences to changes in retirement plans over time. For older workers, defined benefit pension plans are more common, while employer-sponsored defined contribution plans, such as 401(k) plans, are the norm for younger employees.

Here’s why that matters: Defined benefit plans provide a fixed passive income come retirement. However, a predetermined ceiling on earnings may mean that retirees have to supplement their retirement income, or change their lifestyle. Meanwhile, defined contribution plans mean workers may have to make some lifestyle sacrifices as they’re putting money away, but their contributions typically grow over time through investments, potentially leaving them better-positioned in the long run.

Dodging Shortfalls

Workers who don’t participate in defined contribution plans are far more likely to fall short on retirement savings than those who do, said Morningstar.

It’s never too early to start on your retirement planning. If your employer offers to match your contribution, taking advantage of these incentives can help you reach your savings goals in the long-run. Even Americans who are approaching retirement can benefit from bolstering their savings during the years they are still working.

Looking for more stories like this? Check out On the Money — SoFi’s one-stop-shop for news, trends, and tips!

Check it out

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

Communication of SoFi Wealth LLC an SEC Registered Investment Advisor

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

SOSS24081401