Today’s young adults, including the youngest millennials and older members of Generation Z, are experiencing a first working decade that’s very different from those of generations before them. Among the differences: high levels of educational attainment, significant student debt, a greater proportion of gig work, fluid expectations for their career paths and a practically unfathomable retirement target date.
Older generations may tend to judge the choices of younger people, but it’s important to recognize the ways work, life – and retirement savings – have changed over the course of decades.
Among young adults, life experiences, priorities and outlooks vary widely but well over half of U.S. twenty-somethings (59%) surveyed agreed that they expect to work for an employer between just one and five years before moving on to the next job.1 An even higher percentage (63%) expect a flexible shift into retirement, characterized by part time and/or contract work throughout the transition period.1
How do these expectations affect retirement planning, and how can advisors help young adult clients prioritize and achieve retirement savings while also responding to fast-changing conditions at work and in life?
Young Workers’ Experiences: Why Differences Matter
The early working years often set the theme and tone for the rest of a person’s career. That’s when workers learn critical skills, start building professional networks and get grounded in the basic knowledge of a career field. It’s also during this time that foundational habits are developed — and that includes saving and planning for retirement.
Many young adults have already faced significant early career disruptions. Early in the pandemic, half of older Gen Zers reported that they or someone they lived with lost a job or had a cut in pay due to the pandemic.2 But even before COVID-19, many younger workers were already cobbling together a living in the gig economy. While they have more education, it comes at a cost: greater debt. And those extra years of study delayed the start of work, so younger adults started to earn and save later than previous generations.
The differences don’t end there. While the gig economy makes work less stable, rapid shifts in technology coupled with globalization influence young adults’ feelings toward their careers. Just as they have to accept uncertainty, many actually enjoy the variety, portability and flexibility of gig work or self-employment. But a major downside persists: few gig workers receive employer-sponsored benefits like defined contribution retirement plans or insurance.
Further complicating the challenge is the perception many young adults share that retirement is far off in the future, and that they’ll have a long, slow transition rather than a target date. While this idea can ease tension and increase confidence about the future, on a global scale, young adults surveyed estimated life expectancies years lower than actual averages.1 What does that mean in practical terms? Young adults will likely be living in retirement longer than they expect.
How Advisors Can Help Young Adults Establish Balance
It’s not all bad news. There’s a positive side to the fast pace of change in young adults’ lives. As a whole, they embrace lifelong learning and aren’t daunted by new technologies, systems and ways of working. They have accepted the reality that new experiences require new learning, and are willing to look for information in unconventional places. Another plus: young adults today may have 40 years or more to prepare for their retirement.
What does this mean for advisors? First off, now is the time to work to steer young clients toward the smart choices and habits that can help them get started (or get back on track) with saving for retirement. Here are a few important considerations for helping young adults…
- Remember, there is no monolithic generational attitude. Millennials and Gen Z are more diverse than previous generations. Their varied experiences engender differing perspectives on issues including financial priorities.
- Young adults are in a prime habit-building phase of life. Now is the moment to help them understand and build healthy habits at work, in life and in planning for retirement. In fact, it’s important to encourage habits that support overall mental and physical health — because good health supports better outcomes across the board. Only 40% of U.S. young adults are currently habitual savers, so there’s room to grow.1
- Specific triggers can spur young adults to start saving. Recognizing and understanding employer-provided benefits and matching contributions can help motivate them to increase their own contributions and maximize benefits. So can reminders that they’re not getting any younger.
- Basic financial literacy is an important place to start. Only 7% of U.S. young adults answered all of the “Big Three” financial literacy questions correctly when surveyed.1 Making sure they understand concepts like compounding, inflation and basic investment principles can help them build confidence and prioritize financial fitness.
- Young adults are ready and willing to learn. As digital natives, they’re comfortable using technology to access learning. They’re a prime audience for online influencers, so it may be helpful to identify and share legitimate budgeting, saving and investing tips from influencers in, for example, the FIRE (Financial Independence, Retire Early) movement.
- A written plan can help. Young clients can benefit from feeling prepared for the inevitable: major life milestones, job changes and even unexpected economic challenges. A written plan can help them keep retirement goals in mind, prepare for the unexpected and move forward with confidence.
Embrace the Differences and Encourage Growth
Learning more about the formative experiences of young adult clients can help advisors to deliver empathetic, compassionate advice that works for them. You can access and download our guides, Three Myths About Millennials and The Power of Generation Z, to deepen your understanding and build a more effective approach to help these diverse clients meet their retirement planning and savings goals.
1Nonprofit Transamerica Center for Retirement Studies, The New Social Contract: Young adults reinventing life, work, and retirement, 2020.
2Pew Research, On the Cusp of Adulthood and Facing an Uncertain Future: What We Know About Gen Z So Far, May 14, 2020.