New research from Aegon, written in collaboration with the Transamerica Center for Retirement Studies®, evaluates the state of retirement preparedness among young employees in countries around the world. The Changing Face of Retirement: The Young, Pragmatic and Penniless Generation found that future retirement shortfalls among employed young adults between the ages of 20 and 29 will likely be due to a lack of opportunity to save, rather than a lack of will.
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But while young employees are prepared to take responsibility of their financial future, they also require the support of employers, retirement providers and governments to help meet their retirement goals. Initiatives that would make a difference include ensuring financial information is straightforward and user-friendly, financial products that meet modern lifestyles, more generous tax breaks on long-term savings and retirement plans, and employer benefits.
On the question of employer support, for instance, contemporary employment patterns demand flexible savings products like portable retirement benefits and other workplace benefit offerings which move between employers throughout life. Meanwhile, easier-to-understand investment products from the private sector would increase young peoples’ propensity to save. There is also a leading role for government to play through the creation of stable long-term financial and taxation policy.
A summary of the key findings follows:
Young employees are realists in a challenging environment and changing world.
Working adults between the ages of 20 and 29 expect to be worse off financially in retirement than their parents (59%), and take on more financial responsibility, including funding their own retirement.
Additionally, 37% believe that they will likely fall short of their retirement needs, including 27% who believe that their shortfall will be large by at least half of what they estimate they will need. As a result, 44% are pessimistic that they will not be able to choose when to retire, a luxury enjoyed by many of their parents.
Another factor is the financial impact of caring for the older generation, with 28% expecting to provide financial support for retired parents, and 40% agreeing that ‘adult children of retirees should help provide financial support for their parents if needed.’
Young employees are ready to save for retirement.
A surprising and encouraging two-thirds of young employees are committed to or have the ambition to save for their retirement. A core 25% of young employees are habitual savers who ‘always make sure’ that they are saving for retirement, and a highly encouraging 41% of young employees are ‘aspiring’ savers who intend to save.
Furthermore, the need to save is widely recognized – 57% of young employees believe that retirement savings are important, but not a priority for them at the moment. Taken together, these findings suggest that many young employees are prepared to ‘own’ the retirement problem, having accepted the new reality, perhaps more readily than some older employees.
Aspiring savers can become habitual savers with better education, advice and information.
The survey reveals that a significant percentage of younger employees (47%) do not know if they are on course to achieve their desired retirement income – a lack of insight into the future which may contribute to savings inertia.
Addressing this shortfall, many young employees expressed an interest in financial education and advice. Fully 26% say that ‘better and more frequent information about my retirement savings’ would encourage them to save more for retirement, 23% cite ‘access to a professional advisor with personal recommendations,’ and 22% want ‘financial education so I am more aware of what I need to do for myself.’
Young employees can reach their retirement goals with access to tax incentives, financial products, and employer benefits.
Young employees’ employment patterns are different from those of previous generations. The survey revealed that 39% are planning to look for a new job in the next 12 months, compared to 29% of all employees, and 31% of young employees are thinking about quitting their jobs.
Therefore, today’s young employees require flexible savings products, such as more portable retirement benefits and other workplace savings offerings, which move with them between employers and across different life stages. At the same time, young employees place a high value on occupational benefits, with 87% believing a workplace retirement plan with employer contributions would be an important factor when choosing their next job.
These dual needs of workplace retirement plans and high levels of labor mobility can be resolved with a more flexible range of employer benefits. A third (33%) of young employees would be encouraged to save for retirement by matched retirement contributions from their employer. Again, clarity and insight are themes, with 24% stating that access to simpler investment products would increase their propensity to save. Finally, there is a leading role for government to play through the creation of stable, long-term financial and taxation policy. Among young employees, 34% stated that more generous tax breaks on long-term savings and retirement plans would encourage them to save.
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