Investment-minded youth are wagering on Exchange-Traded Funds (ETFs) and Bitcoin for their future retirement funds.
Younger Generations Face Widened Pension Gap Due to Covid-19 Impact
A new study by YouGov Germany has revealed that the Covid-19 pandemic has significantly impacted retirement planning, particularly among younger generations.
The research shows that every fifth respondent under 24 years and almost every fourth respondent under 35 years are more concerned about their financial security. This finding surprises the YouGov researchers, as at the beginning of the pandemic, 18- to 24-year-olds were least concerned about their financial situation in old age.
The study also reveals that the younger generation, particularly those under 35 years, are more concerned about their financial security in case of illness and in old age due to the virus. This increased concern is likely due to the financial disruptions caused by the pandemic.
Many younger and mid-career workers dipped into retirement savings during the pandemic to cover immediate expenses, reducing their long-term retirement assets. This phenomenon, known as hardship withdrawals, contributed to a decline in average retirement portfolio balances despite increased participation in retirement plans.
The financial instability caused by the pandemic has led many people, including pre-retirees, to plan on working longer or delaying retirement. About 35% of pre-retirees now plan to work longer and 27% plan to delay retirement, reflecting concerns over insufficient savings possibly caused or exacerbated by the pandemic.
According to national data, although 75% of non-retired Americans have some retirement savings, less than half feel confident they are on track to meet retirement goals. The pandemic’s economic shock contributed to lowering this confidence and exacerbated savings gaps.
In comparison, an earlier survey at the end of March 2020 showed that 31% of participants feared that the Corona crisis would affect their retirement provision. Currently, only 8% of all respondents say that Corona has an influence on how they provide for their old age.
Marco Adelt, co-founder and co-CEO of Clark, reports that consumers who have planned their pension exclusively with stocks and fund-based pension products experienced a great shock at the beginning of the pandemic. Adelt recommends investing in a combination of pension products to spread the risk and keep losses low.
Short-time work allowance does not make up for the resulting pension gap. Many employees had to go on short-time work in 2020 and paid less into the statutory pension scheme with decreasing gross income.
In response to these challenges, new laws like SECURE 2.0 (2022) are attempting to improve the retirement landscape by expanding eligibility and enhancing savings options, including provisions to manage student loan repayments and emergency savings, which may help younger workers recover and rebuild long-term security.
Overall, the pandemic disrupted retirement planning by forcing many to prioritize short-term financial needs over long-term savings, particularly harming younger cohorts and increasing the pension gap. To maintain their accustomed standard of living, many people may find that the statutory pension alone will not be sufficient. Efforts at the policy and employer level aim to address these setbacks and improve retirement readiness moving forward.
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