New work dynamics call for employers to re-imagine retirement benefits for younger adults
Millennials and Gen X workers are changing the workforce in the U.S., and employers and policymakers must respond.
Young workers are reshaping how people work and as a result, they will require different strategies for building financial security and preparing for retirement, a challenge which must be met by employers, the government and individuals.
Day-to-day work and career trajectories are more fluid for younger workers than they were in the past, according to a new study by Aegon titled “The New Social Contract: Young Adults Reinventing life, work and retirement.” Nearly 70 percent of young adults between the ages of 20 and 29 — representing younger millennials and older Gen Z — expect to have far more job changes than previous generations, and less than 10 percent expect to work for a single employer for more than 20 years.
In contrast, more than half of workers over the age of 60 have worked for a single employer for two decades or more, said the report. This trend of frequent career moves has implications not only for employees but also for employers when designing retirement plans, said the report.
In addition, new employment structures like the growing gig economy are attracting many younger workers, but these types of employment arrangements can be inconsistent and typically lack benefits such as retirement plans that are important for building financial security.
Young adults in the United States also face mounting financial challenges, from a precarious job market to increasing student debt loads. Thirty-four percent of young adults from age 18 to 29 reported having student loan debt.
Young adults also face challenges related to expensive housing, particularly in urban areas. More than half of young adults in the United States between 18 and 29 were living with their parents in 2020, the first time this has happened since the Great Depression, said the report.
COVID-19 has magnified challenges for young adults in particular. While the health-related impacts are less pronounced in younger workers, the economic ramifications of the pandemic are more dramatic. Young workers are facing economic disruption during the important formative years of their careers when they should be developing skills, building professional networks, establishing successful career habits, and beginning to accumulate wealth.
Despite these challenges, young employees are focused on their financial wellness, with 62 percent of young adults in the U.S. saying their top life priority is planning for their financial future.
The top financial priorities among young employees in the United States are paying for basic living expenses, enjoying life, and paying off long-term debt.
But many young workers view retirement as far off into their future and they often have a fluid definition of what retirement will look like, according to the survey.
Rather than foreseeing a hard stop to their working days as they enter a non-working retirement, about two-thirds of young adults see retirement as a transition that might continue to include some form of paid work.
This can make pinpointing a target retirement date and expected length of retirement difficult and impact accurate financial planning. The report also found most young adults significantly underestimate how long their retirement will be.
A significant take away from the report is that one-size-fits-all retirement planning may be a thing of the past.
Rather than focusing strictly on saving in retirement funds, young adults may be better served by paying off loans early to free up income for long-term financial needs, or investing in home ownership early in adulthood to build equity that will reduce housing costs later in life, said the study.
Employers play a crucial role in helping young workers build retirement security. In fact, many young workers surveyed said they decided to start saving thanks to an employer-sponsored retirement plan, and they would consider increasing their savings if they received a raise or a better employer match, or had better access to financial education or professional financial advice.
To help younger employees, employers should consider implementing auto enrollment and escalation features and provide education through onboardings and workshops.
Policymakers also have a role to play. Ensuring sustainability of social security benefits, including generational equity, tops the list, while providing incentives for gig-economy and self-employed workers to save via tax benefits could help, said the report. The study also advocates for required financial literacy education in schools.
Aegon encouraged young Americans to prioritize their own financial wellbeing using its five fundamentals for retirement readiness, which include saving habitually, developing a written plan, creating a backup plan for unforeseen events, adopting a healthy lifestyle and embracing lifelong learning.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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