No one wants to live paycheck to paycheck.
But more than 4 in 10 Gen Z, millennial, and Gen X workers say they’re doing just that, according to a new Goldman Sachs Asset Management report.
Roughly three-quarters report that their ability to save for retirement is stymied by the rising costs of other financial nonnegotiables, including childcare, mortgages and rent, college costs, and medical bills.
Learn more: Living paycheck to paycheck? 5 ways to break the cycle
“If current trends continue, more than half of US workers could be living paycheck to paycheck by 2033 — underscoring how retirement is becoming unaffordable for many,” said Greg Wilson, head of retirement at Goldman Sachs Asset Management.
“These findings force us to ask a very critical question: Does the retirement math still work? The answer is no. Telling workers just to save more ignores the realities they face.”
On average, approximately 3 in 10 working baby boomers report that competing priorities hamper retirement saving; this share jumps to more than 50% for Gen X, tops 75% for millennials, and hovers above 70% for Gen Z.
Read more: What is the average retirement savings by age?
The majority of Gen Z and millennials experienced at least one major life event, such as buying a new home or getting married, which most often meant veering off the track of saving for retirement.
“The ’save more’ strategy may be sufficient for some, but we believe many others will need to more thoughtfully use investment advice and retirement income strategies to close their savings,” Wilson said.
Two solutions: personalized planning advice offered by employers to workers as a workplace benefit and private asset investment options in employer-provided accounts such as 401(k)s.
“Having a plan makes a huge difference,” Nancy DeRusso, head of financial planning at Goldman Sachs Ayco, said.
Workers with a personalized retirement plan show a 15% higher savings-to-income ratio, while retired respondents with a plan show a 27% higher ratio, according to the survey.
An employer benefits package that gives access to financial coaches or planners can help workers drill down into their own situations, she said.
That bespoke advice may be paramount as new employer plan offerings become available.
“More sophisticated solutions are coming to market, including alternative asset classes that may diversify risk and return, and guaranteed income strategies that add stability and predictability,” said Greg Calnon, co-head of public investing at Goldman Sachs Asset Management. “Personalized investing and advice will be essential to maximize the potential opportunity.”
For private asset enthusiasts, the pitch is that investing in diversified private-market investments, including private equity, venture capital, hedge funds, real estate, and possibly gold and crypto offers diversification from run-of-the-mill stocks and bonds and will deliver juicier returns over time.
A modest allocation to diversified private-market investments can add 0.5% each year to annual returns over the course of a career, resulting in 14% higher retirement savings and might make up between 15% and 20% of a worker’s 401(k), per Wilson.
That’s on par with the projection touted by BlackRock CEO Larry Fink earlier this year.
The guardrails: “The two most important factors in determining what the allocation should be would be the risk tolerance that you have as an investor, and then your time horizon,” Calnon said. “So if you have 20-plus years until retirement, if you are willing to take a lot of risk, you should have a higher allocation to private assets. If you’re very close to retirement, or you’re already retired, I would have a much lower allocation in private assets.”
Learn more: What is a 401(k)? A guide to the rules and how it works
The fervor to open the doors for millions of ordinary retirement savers in employer plans to tap private assets has been gaining momentum. President Trump’s recent executive order will smooth the way for broader adoption.
The directive instructs the Department of Labor and the Securities and Exchange Commission to draft guidance for defined-contribution plans like 401(k) plans to incorporate these types of investments so they meet the fiduciary requirement plan providers must adhere to, such as acting solely in the interest of the participants and their beneficiaries.
Many plan sponsors are mulling how they might slide private investments into retirement plans.
Goldman Sachs (GS) is taking up to a $1 billion stake in global asset manager T. Rowe Price (TROW) with the goal of opening the doors to offer private assets to US retirees by mid-2026.
The firms plan to offer new, co-branded target-date funds that blend private assets, such as private equity, credit, infrastructure, and real estate funds, alongside public bonds and stocks.
BlackRock (BLK) previously announced a target-date fund consisting of private credit, private equity, and other investments. Empower, the second-largest retirement services provider in the US, plans to offer private equity, credit, and real estate in some of its retirement portfolios later this year. Voya Financial and alternative asset manager Blue Owl Capital are partnering to create private markets products for defined-contribution plans.
Real estate and private equity giant Blackstone (BX) announced a similar partnership with Vanguard and Wellington Management to jointly develop “multi-asset investment solutions” that offer individual investors exposure to both private and public markets.
Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.
Buzzy as they are, these investments come with red flags. Unlike stocks and bonds, private assets are generally less transparent, typically have higher fees, are less liquid, and can’t be easily sold if cash is needed, making them less suitable if you have a shorter time horizon.
Having an institutional quality manager that evaluates capabilities and what’s under the hood is critically important, Wilson said.
“Private markets should be part of (defined contribution) plans, but only within professionally managed portfolios, whether it’s in a target-date fund, or in a professionally managed account,” he said. “And the education around that is going to be so critical.”
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky.
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