CHICAGO, IL – OCTOBER 16: The fantasy sports website DraftKings is shown on October 16, 2015 in Chicago, Illinois. DraftKings and its rival FanDuel have been under scrutiny after accusations surfaced of employees participating in the contests with insider information. An employee recently finished second in a contest on FanDuel, winning $350,000. Nevada recently banned the sites. (Photo illustration by Scott Olson/Getty Images)
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26% of Gen Z Investors Call Sports Betting a Retirement Strategy
More than half of Gen Z retail investors said they redirected money intended for investing to sports betting in the past year, according to Betterment’s 2026 Retail Investor Survey. Even more striking, 26% said sports betting was a deliberate part of their long-term financial strategy.
Those numbers produced predictable headlines, but they do not show that half of young adults are draining their 401(k)s. I don’t think Gen Z is (generally) dumb or addicted. Everyone surveyed held at least one qualifying investment. The survey did not report how much money was redirected or whether any came from a retirement account. This is a warning light that the retirement system is broken.
The finding should not surprise us. Sports betting can be addictive, and mobile apps put the wager in a pocket. In the United States, 401(k)s are far too liquid. For a person in addiction’s grip, put a pile of nickels beside a dose of cocaine in a clear box that opens with a nickel, and the nickels will be gone in a flash.
Okay, sports betting is a problem. But, the American retirement system is a colossal failure.
The Bigger Problem Is 401(k) Leakage
Money removed from retirement accounts before retirement is called”leakage.” And leakage is an American problem. People tap their accounts for all the reasons people need money: after a layoff, illness, divorce, home purchase, job switch, a kid’s needs, or a new car. It includes hardship withdrawals, unpaid plan loans and cash-outs at job changes.
Sports betting is only the newest reason to not save in the headlines.
How large is the broader leakage problem? In research I conducted with Siavash Radpour and Anthony Webb, 4.7% of 401(k)-only participants took a pre-retirement withdrawal in the year measured. If that annual rate persisted, there would be roughly 47 withdrawals for every 100 participants over ten years, though some people could withdraw more than once.
The bite is worse for those in worse financial shape.
Among all retirement-account holders, the leakage rate was 6.5% for the bottom income quartile, more than twice the 2.8% rate for the top quartile. The economic shocks we could observe explained only about one-fifth of withdrawals.
Small Annual 401(k) Leaks Become Large Lifetime Losses
A small annual flow becomes a large lifetime loss. The Center for Retirement Research estimates that about 1.5% of 401(k) and IRA assets leak out each year and that aggregate retirement wealth is at least 20% lower than it would be under stronger preservation rules. An Employee Benefit Research Institute simulation likewise found that cash-outs at job change do more damage than loan defaults or hardship withdrawals.
401(k) Leakage Widens Retirement Inequality
Leakage also widens inequality. Lower-paid workers face more job loss and health shocks, have less access to credit and liquid savings, and withdraw a larger share of a small account when trouble hits. Black and Hispanic workers are more likely to be in insecure, low-wage jobs with less retirement-plan coverage. The people who struggle hardest to accumulate retirement wealth are also the people our system most readily invites to spend it early.
The lost compounding lands in a system that is already inadequate. SCEPA’s latest Tracking the Retirement Crisis report shows that the share of workers holding a defined-benefit pension at ages 55 and 56 fell from 39.5% among the Silent Generation to 21.9% among Generation X. Later generations also carry more debt and face longer, more expensive retirements. Asking a 401(k) to double as unemployment insurance, a medical fund, a college fund, and now a betting bankroll makes inadequate savings still smaller.
Other Nations Protect Retirement Wealth From 401(k) – type Leakage
Other nations draw a harder line. High-performing systems generally cover workers automatically or by mandate, manage investments professionally and preserve pension assets until retirement. The 2025 Mercer CFA Institute Global Pension Index gave the United States a barely passable C+ and ranked it 30th out of 52 systems, below Kazakhstan. Weak coverage, low contributions, pre-retirement leakage, lump-sum payouts and high costs help explain why the American system lags.
Social Security demonstrates the value of protected retirement wealth. It provides retirement, disability and survivor benefits, but workers cannot borrow against or cash out their accrued Social Security claim to cover a layoff or bet a parlay. That lack of liquidity is a feature, not a flaw: the benefit remains available when retirement, disability or death actually occurs.
Protect Retirement Savings From Fun and Emergencies
Policy should separate two different savings jobs. Workers need an automatic, liquid emergency account for genuine short-term shocks. They also need a universal, portable, low-fee retirement account protected from pre-retirement access. The bipartisan Retirement Savings for Americans Act (RSAA) points in the right direction with automatic enrollment, a progressive federal match and Thrift Savings Plan-style investments for workers who lack an employer plan. But the bill’s own loan, hardship-withdrawal and lump-sum provisions should be tightened so retirement money remains retirement money. And Social Security must be strengthened, not cut.
People will drain accounts for many reasons; sports betting is simply today’s sensational one.
