Skip to main content

You are here

Advertisement

Young Adults Face Uncertain Road to Retirement

Practice Management

While the pandemic has provided challenges for all age groups, a new report finds that COVID-19 has produced unique challenges for young adults, particularly when it comes to their financial futures. 

Even though the health implications are likely to be less severe for those in their 20s, young adults have been heavily impacted by the economic ramifications of the pandemic, the Transamerica Center for Retirement Studies reports in “The New Social Contract: Young adults reinventing life, work, and retirement.” 

Estimates show that one in six young adults globally have stopped working since the onset of the Coronavirus, and job loss, economic inactivity and uncertainty about the future suggest that many will enter the workforce at a time of difficult economic conditions.

Moreover, the report observes that the newest cohort of workers (age 20 to 29) has different “needs, desires and expectations” for balancing their personal and working lives, which have significant impacts on young adults’ long-term financial plans. At the same time, they face competing financial priorities, including paying for basic living expenses, enjoying life, home ownership, major life events, supporting family and paying off debt.

“Navigating our 20s was a struggle before the pandemic. Now, many of us are in a more precarious financial situation,” notes Heidi Cho, a millennial retirement expert for the Transamerica Center. “From high rates of student debt and unemployment to unaffordable housing, a variety of factors are stacking against young Americans’ ability to achieve long-term financial security.” 

Thinking About Retirement 

Meanwhile, few young adult workers think they are on course to achieve their retirement income needs (26% in the U.S. and 20% globally), according to the report. That said, many have already begun thinking about retirement. The survey finds that 40% of young adult workers in the U.S. are “habitual savers” who make sure they are always saving for retirement (32% globally). 

Young adults are also expecting to self-fund an even greater proportion of their retirement income than previous generations. They estimate that more of their retirement income will come from their own savings and investments (35%) and the government (34%), than from their employers (32%).

The most cited method for them to save for retirement is putting money aside in savings accounts (31%). This compares with just 22% who have a private pension/IRA and 18% who save for retirement in investments such as stocks and bonds. 

Another factor playing into young adults’ disposition of a do-it-yourself approach to retirement preparations is their job-hopping tendencies. Nearly 60% of young adult U.S. workers say the longest period they have worked for, or expect to work for, any single employer is one to five years. Moreover, fewer than 1 in 10 (9%) young adults expect to work for any single employer for more than 20 years. In contrast, more than half of those over 60 years of age have worked for a single employer for two decades or more. 

Employer Support 

On a positive note, the report finds that employers play a highly influential role in facilitating retirement preparations for workers. When asked what prompted them to start saving for retirement, young adult workers more often cite employer-related reasons (52%), such as starting a job, the offering of retirement benefits, automatic enrollment, and/or receiving a raise or promotion, as compared to life-stage related reasons (44%).

“Employers are in a unique position when it comes to building meaningful relationships with young adults and being able to influence their financial plans,” the report emphasizes. For instance, it notes that three in four workers globally trust their place of work as an institution, significantly outscoring other major institutions, such as the government and the media. 

This trust in employers can translate to workers of all ages, and in particular young adults, being likely to listen and respond to the actions and provisions their employers offer, the report observes.   

And while some of the ideas identified by young adults that would encourage them to save more for retirement are potentially costly and may not be feasible for employers to take, many of the actions are simple steps and could be introduced at a lower cost. These include: 

  • providing access to financial education so that workers are more aware of what they need to do for themselves (this would encourage more than one in five (22%) to save or save more; and
  • facilitating access to professional financial advice so that young adults have personalized recommendations on what steps they need to take (21% of young adults identify this as something that would encourage them to save).

And because young adults are more likely than preceding generations to switch careers, change employers and possibly spend time in self-employment, the study suggests that they need portable health, welfare and retirement benefits that they can maintain on their own after they separate from an employer.  

Based on findings from the 9th Annual Aegon Retirement Readiness survey conducted during January and February 2020 at the onset of the pandemic, the report explores retirement related attitudes and behaviors of workers in their 20s, a cohort straddling Millennials and Generation Z. The sample for the report was 3,070 adults between ages 20 and 29, spanning across 15 countries in the Americas, Europe, Asia and Australia.