Gen Z and millennials are outpacing older generations in 401(k) contributions because they’re so worried they’ll never be able to retire

2023-08-10 - Scroll down for original article

Company: Bank of America (BofA)

Summary Bank of America released its Q2 2023 Participant Pulse report, which highlighted that younger generations, specifically Gen Z and millennials, contributed more to their 401(k) retirement plans compared to other age groups. The report also mentioned that Americans' average 401(k) balances increased by nearly 10% since the end of 2022. This trend is significant considering that younger generations have faced economic hardships such as recessions, high student debt, and a volatile housing market. Despite these challenges, they are showing optimism and determination to save for retirement.

Article Analysis The article presents a positive sentiment towards Bank of America and its 401(k) offerings. It highlights the increase in contribution rates by Gen Z and millennials, emphasizing their resilience and desire to secure their financial future. The mention of the growing withdrawal of "hardship distributions" from retirement accounts due to inflation serves as a contrasting point, showcasing the challenges faced by individuals in the current economic climate.

Market Reaction Historically, positive news about increased contribution rates and higher average 401(k) balances have had a positive impact on Bank of America's stock price. It indicates that the bank's retirement plan offerings are attracting more participants and generating potential future revenue. Given the positive sentiment towards retirement planning among Gen Z and millennials, this news may be seen as a vote of confidence in Bank of America's ability to serve younger generations.

Investor Sentiment The news article suggests that younger generations are taking retirement planning seriously and are willing to contribute more to their 401(k) accounts. This may attract the attention of investors who view Bank of America's retirement services as a growth opportunity. Increased trading volume and options activity related to Bank of America's stock may indicate heightened investor interest.

Competitor Comparison Bank of America's position in the retirement planning sector should be compared to competitors such as JPMorgan Chase and Wells Fargo. Any differentiation in the growth rate of their 401(k) business and customer satisfaction could impact Bank of America's competitive position. However, the article does not provide direct information about the performance of competitors in this particular area.

Risk Factors Although the article portrays positive sentiment towards Bank of America's retirement services, potential risks include factors such as economic downturns, changes in regulatory policies, and shifts in customer preferences. Moreover, the withdrawal of "hardship distributions" may indicate financial difficulties for individuals, which can indirectly impact the bank's services.

Conclusion Overall, the news article suggests that Bank of America's retirement plans are resonating well with Gen Z and millennials, leading to increased contribution rates. This positive sentiment could potentially boost investor confidence in the bank's retirement offerings. However, it is important for investors to consider potential risks and monitor factors that may affect the long-term performance of the company's stock.

Disclaimer This financial report is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with a financial professional before making any investment decisions.

Original Article:

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If building wealth is an obstacle course for Gen Z and millennials, they’re willing to jump all the hurdles. The youngest generations contributed more to their 401(k)s last quarter than anyone else at a time when the promise of retirement has never felt less hollow. That’s according to Bank of America’s Q2 2023 Participant Pulse report, released Tuesday, which found that Americans’ average 401(k) balances have increased by $7,250—nearly 10%—since the end of 2022. This quarter, many more of the 4 million workers BofA analyzed increased their contribution rate than decreased it. That push was led by the youngest workers, who contributed more than any other age group: 19.3% of Gen Zers upped their contributions, as did 11% of millennials, compared to 9.7% of Gen Xers and just 7.8% of baby boomers. The momentum among Gen Z and millennials (fewer than 3% of them decreased contribution rates this year) contributing to their 401(k)s is exciting given that older generations usually outpace their younger colleagues both in 401(k) plan participation and contribution, says Lisa Margeson, managing director of external affairs, retirement research, and insights at BofA. Contribution rates can give us a glimpse into how 401(k) plan participants feel about retirement, she tells Fortune. For young professionals, those feelings stem from the economic hardships they’ve weathered in early adulthood. Millennials, who grappled with two recessions before the age of 40, have struggled to accrue wealth amid a volatile housing market, crushing student debt crisis, and a soaring cost of living. Gen Z—many of whom don’t think they’ll ever be able to retire—have borne witness to millennials’ strife and are anxious to avoid falling victim to their same pitfalls. “The onset of the COVID-19 pandemic rocked the economy as Gen Z entered young adulthood,” Charlie Pastor, a financial planner, told Fortune’s Alicia Adamczyk. “Older generations should understand that the next generation of savers has seen a lot of economic turbulence in a short period of time.” Story continues Considering that $1 million is no longer enough to retire in today’s economy, retirement feels far out of reach for many young adults, who want to start saving as early as possible (no wonder Americans’ number one financial regret is not saving enough for retirement). The share of workers unsure they’ll ever be able to retire has grown from 10% to 24% since 2021, a BlackRock report found, with Gen Zers feeling the least confident. It explains why they invest in their company’s retirement plans at significantly higher rates than their older colleagues did when they were their age. Yet, at the same time, a growing number of workers are withdrawing “hardship distributions” from their retirement accounts in an economy that has been marred by sky-high inflation. Thirty-six percent more people have done so this year than last year, BofA found. “The data from our report tells two stories—one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals,” Lorna Sabbia, who leads BofA’s retirement and personal wealth solutions, wrote in the report. But despite dire straits, she added, employees must continue investing in “life’s biggest expense”: retirement. Start ’em young Of course, Gen Z and millennials might be a bit better at saving for retirement because the benefits of saving early have become more widespread over the years. “While saving for retirement is important for all employees, we want to encourage younger employees to get started as soon as possible,” BofA’s Margeson says. “Saving and investing your money early in life will put you on the best path forward.” It’s hard to undersell how crucial investing early really is thanks to the power of compound interest, which has "the potential to magnify regrets about foregone savings over time as a ‘what could have been’ realization becomes more stark,” Greg McBride, Bankrate’s chief financial analyst explained in a recent report on Americans' financial regrets. “At a modest 6.5% annual return, every dollar you put away in your twenties becomes $17 by the time you retire.” Most experts advise contributing at least up to the full employer match to maximize your benefits. But if you’re on an entry-level salary, putting away as little as 1% to 2% of your monthly earnings—if you can afford it—is better than nothing. That compound interest might just be enough to convince Gen Z to save instead of spend, even if it means ditching their rich friends or suffering from vacation FOMO. After all, there will be plenty of time to travel if you can eke out an early retirement. This story was originally featured on More from Fortune: 5 side hustles where you may earn over $20,000 per year—all while working from home Looking to make extra cash? This CD has a 5.15% APY right now Buying a house? Here's how much to save This is how much money you need to earn annually to comfortably buy a $600,000 home