Since the 1990s, Americans have been retiring later and later in life. But Gen Z thinks they can do better, much better.
According to a Northwestern Mutual studyAmerica’s youngest adults expect, on average, to retire at age 59. That’s much younger than the expectation of the average adult, 64, and much younger than baby boomers, who said they expected to retire at 71. lower, with a retirement ETA of 61.
Why do Gen Z think they can leave the workforce so soon? Research shows that this is part of the general pattern of economic optimism in the age group – perhaps even too much optimism, in the opinion of some experts.
“It’s overconfidence in their ability to have outsized returns for an extended period of time,” said Andre Jean-Pierre, a New York-based financial adviser who works with many young investors.
Northwestern’s survey reflects that confidence. Seventy-nine percent of Gen Z respondents said they had or will have a successful career, compared to 74% of Millennials, 75% of Baby Boomers and just 64% of Gen Xers. They were also optimistic about their nest egg, with 70% saying they have achieved or will achieve long-term financial security, compared to 66% of Millennials and 58% of Gen Xers. richest generation in US historymatched Gen Z’s level of optimism about it.
Ironically, these confident young investors were also the least confident about something else: their emotional well-being. According to Northwestern, 44% of Gen Z Americans described their mental health as “poor” or “very poor” — far more than the 31% of Millennials and Gen Xers who said so, and more than triple the 13% of baby boomers who expressed the same concern.
Overall, the picture the study paints is of a generation full of contradictions – brimming with financial self-confidence but struggling with emotional self-doubt. What could explain this strange mixture of qualities?
Jean-Pierre thinks there are two factors behind this. About 30 of his clients — about a third of the investors he works with at Ace Advisors – belong to Generation Z, which researchers generally define as those born after 1997. As such, most of these customers are too young to remember the Internet crash of the early 2000s or to have lived through the Great Recession in adulthood. During the longest and most recent period of their economic memory, the stock market had an extended rise from 2009 to 2021. Jean-Pierre thinks this gave them unrealistic expectations.
“There’s strong confidence, but I also believe that’s the byproduct of never really experiencing a downturn,” he said.
The second factor concerns social networks. Many young investors follow financial influencers – sometimes called “finfluencers” – who publish only their absolute best decisions (real or fictional). Jean-Pierre thinks this inflates Gen Zers’ sense of what to expect from a good investment. And when that expectation is disappointed – for example, by a steady, modest return on an index fund instead of spectacular profits from a penny stock – it can lead to anxiety and depression.
“I think Gen Z might be the first generation that most of their social experience in life was formed entirely online,” Jean-Pierre said. “It basically makes them feel less accomplished, because they compare themselves to highlight reels rather than people’s everyday experiences.”
The silver lining to all of this is that due to their exposure to the investments of others, Gen Z Americans are extremely knowledgeable about finance. Take, for example, their choice of 59 as the ideal retirement age. Jean-Pierre thinks it’s likely because 59½ is the age at which Americans are allowed to withdraw from 401(k) and other retirement accounts without paying a penalty. It takes about twenty very shrewd years to find out, and Jean-Pierre finds that encouraging.
“I’ve seen a lot more Gen Z people who are more interested in investing, owning stocks and owning bonds much younger and understanding the principles of investing much younger,” he said. -he declares. “The downside is that if they don’t succeed early, they can get discouraged faster.”
The net result is a volatile combination: lots of knowledge, sky-high expectations, and shaky self-esteem. It can be a difficult personality for advisors, but Jean-Pierre thinks it makes their job more important than ever.
“Even though robo-advisors exist, nothing will beat a human being having a conversation with you and managing your emotions,” he said.
If these young investors and their advisors can achieve this, Jean-Pierre sees a bright future for them, whether or not they retire at age 59.
“I love that Gen Z is getting involved in asset ownership younger than most generations,” he said. “Their optimism is important. I think their ability to invest in themselves and their future is going to drive huge market growth and huge growth in the economy, and that’s good for everyone in the long run. “