Nudging Investors into Better 401k Behavior


Some encouraging news about people saving for retirement:

A study by Vanguard Group found that “Automatic enrollment and the rise of target-date funds” are having a substantial and positive impact on retirement savers, in particular, on Millennials and Generation Z investors. They have seen a significant uptick in overall participation rate, which has increased from 62% in 2006 to 82% in 2021.

More employer plans are adopting automatic enrollment, a small nudge often credited to Nobel prize-winning economist Richard Thaler.

As of 2021, Generation Z’s participation rate was more than twice as high as similarly aged employees in 2006. Eligible employees deferred nearly 40% more in 2021 than in 2006.

In 2006, ~25% of participants ages 18 to 24 had zero equity exposure! By 2021, 97% of automatically enrolled Generation Z participants had an equity allocation between 41% and 99%.

Target-date funds in 401k plans are improving age-appropriate equity allocations across for all generations, but as the charts nearby show, it is having the biggest impact on the youngest investors.





Generational changes in 401(k) behaviors
By Jeffrey W. Clark and Kevin D. Kukulka
Vanguard Group, April 2023



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