Fidelity: Gen Z Savers Pour Into IRAs

For all age groups, however, average 401(k) balances were down 23% in 2022 due to declines in both stocks and bonds.

Generation Z retirement savers are piling into individual retirement accounts, according to the latest data from retirement plan participants in Fidelity Investments accounts.

Fidelity’s Q4 analysis of savings behaviors and account balances for 43.4 million 401(k), 403(b) and IRA, accounts shows that the average balance for Gen Z savers (born 1997-2012) increased 23% quarter-to-quarter, the highest of any other group.

In addition, Fidelity saw from Gen Z a 71% increase in IRA accounts opened compared to Q4 2021. That growth figure is large as it’s in part from more Gen Zers entering the work force, but it’s also a new environment in terms of financial awareness, says Rita Assaf, vice president of retirement and college products for Fidelity.

“Just because they are eligible and interested does not mean they have to open up a Roth IRA,” Assaf says. “Interest by younger groups [in IRA savings] has been happening for the last couple of years because of the environment; this crowd, or segments of it have had access to workplace plans at much younger ages than other generations, and there has been a lot done by workplaces to provide education and overall financial wellness awareness.”

While Gen Z savers were a bright spot in 2022, 401(k) balances among Fidelity’s sample set fell 23% in 2022 to an average of $103,900. That tracks with Fidelity data PLANSPONSOR reported in November of last year showing average 401(k) balances were down 23% through Q3 due in part to the drop in both stock and bond values.

Young and Wild (About Finance)

Assaf says the proliferation of financial advice and discussion on social media is also likely contributing to Gen Z getting out of the gates strong with saving habits.

“You’re seeing so much more on social media of discussions of financial topics,” she says. “They are saying ‘I’m more interested in my financial well-being.’”

In the past, setting up an IRA meant walking into a branch and working with someone, Assaf points out. Now, IRAs can be started over a phone-based app in a matter of minutes, and Gen Z savers are often favoring Roth IRAs in part due to more flexibility in accessing funds at relatively lower penalties. Fidelity has leaned into the new technology with a no-fee brokerage account for teens that it opened in 2021, as well as Fidelity Bloom, an app that allows users to keep separate accounts for spending and saving.

The competition is growing, however, with app-based IRAs drawing the attention of Silicon Valley. Robinhood Financial, which made its name for stock trading during the pandemic, announced an online IRA with a 1% match in December. A venture-backed startup, Lilly Funds, came out in November with an app-based IRA that rewards savers with cash back and shopping rewards, and just this week new app-based 401(k) Arnie is offering users issue-based investing options that can put money toward—or avoid—certain companies or sectors.

Retirement Accounts Up Despite Inflation, Volatility

When considering Fidelity’s full sample group of 43 million savers, account balances were up in Q4 and participants continued to defer into retirement plans despite higher costs due to inflation and market uncertainty. The average 401(k) account balance increased to $103,900 in Q4, up 7% from Q3 2022. It was, however, well below the average balance of $135,600 in Q4 2021, before the market declines of last year.

The average 403(b) account balance increased to $92,683, up 6% from last quarter, according to Fidelity, though below the $115,100 average of Q4 2021.

The total savings rate for the fourth quarter, which reflects a combination of employer and employee 401(k) contributions, was 13.7%, holding steady from 13.8% in Q3 2022 and 13.9% in Q2 2022. While pre-retirement Boomers saved at the highest levels (16.5%), Gen Z savers were fairly consistent at 10.2% (versus 10.3% last quarter), according to the data.