Younger workers are ready and willing to save for retirement, but a report released Tuesday by Aegon identified several obstacles to their ability to do so.
A survey of 10,800 employees in 12 countries found retirement shortfalls among 20-something workers will likely be a result of lack of opportunity, not will.
Part of the problem is simply life stage. For many younger workers, according to Aegon, retirement was too far in to the future to be a priority. In fact, almost 60% know that retirement saving is important, but say it’s just not a priority right now.
Furthermore, lower incomes and more immediate priorities like paying for education or a house make saving difficult.
The survey found that young workers’ biggest obstacle to saving, more than economic uncertainty or confusion about how to invest and far more than mistrust of the financial services industry, is not having enough money to invest. More than a third of respondents in their 20s said that was their biggest obstacle, compared with just 16% who cited the economy and 13% who said not knowing how to invest or the complexity of investment products was holding them back from saving. Only 6% said they didn’t trust financial advisors.
Consequently, a pay increase was the incentive that would most encourage retirement saving for 57% of respondents.
Of the respondents to the “Young, Pragmatic and Penniless Generation” report, more than 2,700 were between 20 and 29, with a median household income of $27,500. A quarter were married or had children, and more than half had at least an undergraduate degree.
While there are challenges to young people’s ability to save, it is top of mind for many of them. A quarter of workers in their 20s said they were always saving, the report found, and 41% said they were “aspiring” savers. Unfortunately, 59% of younger workers expect to be worse off financially than their parents were and anticipate taking on more financial responsibility. More than a third think they’ll end up short of what they need to retire.
The report noted that younger workers’ career paths frequently look different from those of their parents. Employment is less secure in general, and they’re more likely to change jobs. The report found 39% of workers in their 20s are thinking about looking for a new job in the next 12 months, compared with 29% of all employees. More than 30% are thinking about quitting their jobs. Almost 90% of respondents said that whatever job they move to, a workplace retirement plan would be a major factor in their decision.
Consequently, according to Aegon, flexible designs and benefits would be useful in helping younger workers save. A third said they would be encouraged to save if their employer offered to match their 401(k) contributions, and 24% said simpler products would induce them to save.
Additionally, over a quarter of respondents said they would be more likely to save if they had better and more frequent information about their retirement savings. This could be especially helpful for the 47% of respondents who don’t know if they’re on course to a successful retirement.
To help meet the needs of job changers, portable plans that allow young workers to continue saving even when they leave jobs would be helpful, Aegon noted.
Respondents also noted that tax policy plays a role in how much they save. More than a third said they would probably save more if there were more generous tax benefits to retirement saving.
Check out Americans to Congress: Hands Off Our Retirement Accounts on ThinkAdvisor.