Generation Z reveals ideal retirement age but expects to work much longer than that

While Generation Z dreams of early retirement, they don’t expect it.

The ideal retirement age for Generation Z is 59, according to a new survey by insurance company Manulife John Hancock Retirement.

However, this generation, which includes people between the ages of 18 and 28, actually expects to retire much later, at 67 years of age. A similar trend occurs across generations, with people’s ideal retirement age being younger than their expected retirement age.

Millennials, ages 29 to 43, want to retire at age 61, but don’t expect to retire until age 69.

Despite Gen Z and Millennials’ not-so-optimistic retirement outlook, they may be more prepared for their golden years than they think.

An analysis conducted by Vanguard earlier this year found that of all generations, Generation Z and Millennials had the largest share of people considered ready for retirement.

With pensions falling out of favor in recent decades, Generation Z today is more likely to have access to defined contribution plans like 401(k)s than baby boomers were when they were young.

In other words, access to workplace retirement plans makes younger generations more likely to save for retirement.

There are other factors working in favor of young people as well. For example, the design of the 401(k) has changed since the 2000s.

Due to legislation passed in 2006, 401(k) funds can now be automatically invested in what are known as qualified default investment alternatives (QDIAs).

When a plan sponsor designates an investment option as a QDIA, contributions from an employee who does not designate investments are automatically invested in the QDIA. Plans often choose a target-date fund, balanced fund, or professionally managed account as a QDIA. These types of funds put one or more professional investment managers in charge of selecting securities such as stocks and bonds for the fund. This relieves the worker who owns the account – but may not want to make such decisions – from having to choose what to invest in.

In addition, saving for early retirement can make a big difference for young people. This group has a longer investment horizon and can benefit more from the power of compound interest. Compound interest refers to the interest earned on your contributions and the interest (and other earnings) you have already accumulated.

Let’s say a 25-year-old starts from scratch, invests $500 at the beginning of each month and earns 8% annually on his investments. At age 65, this investor will have more than $1.6 million. In contrast, a person who starts investing at age 45 would have about $286,000 by age 65, under the same assumptions.