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Gen Z is ready to take on retirement investing — and doesn’t flinch when the market swings

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Generation Z, the babies born between 1997 and 2012, aren’t too young to start thinking about retirement, the latest Fidelity data show. 

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A record 1.4 million investors in this age group opened up accounts at Fidelity Investments, according to third quarter data from the firm — almost double the number of investors in this generation from the year before. 

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Meanwhile, other retirement savers stayed the course, even when the market fluctuated, the research found. IRA balances ticked slightly upward while the average account balance for 401(k) and 403(b) plans declined moderately from the quarter before. Still, these investments are meant for the long-term, which means investors with decades to go before retirement should avoid panic-selling when the market moves. Changed from “tinkering with their asset allocation” because people do rebalance every so often and that’s OK. 

Even though account balances tapered, these accounts’ average balances rose from this time last year. In the third quarter, the average IRA balance rose 15% from the third quarter of 2020. The average 401(k) balance also increased 15% from the same point the year before, and the average 403(b) balance grew 13% in that time frame.  

See: How to make up lost ground if you got a late start saving

Americans continued to save for retirement, even during an ongoing pandemic. Contributions to 401(k) and 403(b) plans hit record levels in the third quarter — the average contribution rate for 401(k) plans was 9.4% in the third quarter, marking the fifth consecutive quarter of rising contribution rates. More than 97% of 401(k) account holders maintained their contribution rates, or increased them, in the third quarter. 

What’s more, fewer people made changes to the investments within their 401(k) plans — something financial planners typically advise against in volatile markets when investors may be overcome with stress or emotion as balances dip. 

The majority of Gen Z investors chose Roth individual retirement accounts, which are funded with after-tax contributions (and ideal for people who intend to be in a higher tax bracket at retirement). These young investors also primarily stuck with target-date funds, which are investments earmarked to a specific year for retirement (such as 2060, for example). Many Gen Z workers were automatically enrolled in their 401(k) and 403(b) plans, and 86% of them were holding 100% of their accounts in target-date funds, Fidelity found. 

Young workers are often told to stick with equities when investing for retirement. These investors have decades before retirement, which means their accounts can ride out the ups and downs of the stock market.

Target-date funds earmarked to an appropriate estimated retirement year can help — these funds start out with more aggressive investments and slowly revert to more conservative choices as the person ages, and that retirement date draws nearer. Target-date funds aren’t for everyone, however. They’re a great starting point, but some investors may want to be more active in their fund selections. 

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