The New Social Contract: Young adults reinventing life, work, and retirement

Njani Ruetsch, a 26-year-old retirement researcher, tells us why social partners need to take action to help young adults prepare for their future. Banner image: Shutterstock/Fajar Tri Amboro

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Together with my colleagues from the United States, Brazil, the Netherlands and the United Kingdom, I have published a new study on young adults’ attitudes towards retirement. The research report, The New Social Contract: Young adults reinventing life, work, and retirement, finds that across the 15 survey countries, half of young adults (aged 20-29) say they will spend no more than five years with a single employer.

I am a young adult entering a workforce that has changed compared with that of my parents’ generation. My peers and I are on a different career journey through life, with more breaks, periods of self-employment, sabbaticals and hopefully, time to travel. In fact, I sometimes wonder if we will stop working at all when reaching retirement age. As a result, our access to employer and government-sponsored retirement plans may change, and we will have to take on more personal responsibility for securing our long-term financial future.

There are a few things in life that are important to me, such as staying healthy and spending quality time with my friends and family. Like my peers, I also see enjoying life, my career and planning for my financial future as top priorities (see image 1). However, I believe that today’s systems do not fit the ambitions and priorities we have set for ourselves. It is important for both employers and policy makers to recognise these changes in the way we work and live, in order to create products—such as portable workplace benefits or government tax-incentivised retirement savings programmes—that cater to the less linear lives of young adults.

Young adults are juggling a variety of life priorities

Understanding the world view of young adults is key to future-proofing retirement systems and addressing some of our very real concerns. An important finding from the report is that globally, as young adults we expect to self-fund a third of our future retirement income (36%), which is just as much as we expect social security to provide for us (see image 2). We are adopting a more do-it-yourself approach when it comes to securing income in retirement. While social security remains an important piece of our retirement income, concerns about the future funding and sustainability of social security programmes should not be an additional burden for younger workers. Just because we are taking a more DIY approach to secure our future retirement, doesn’t mean policy makers are off the hook— they need to fix social security shortfalls to make sure there is enough for young adults, too.

Young adults expect to fund a third of their retirement income

More on the Forum Network: "No Pension Generation? Why youth-inclusive pension schemes are key" by Nikita Sanaullah, Senior Policy Officer on Social and Economic Inclusion, European Youth Forum

More on the Forum Network: "No Pension Generation? Why youth-inclusive pension schemes are key" by Nikita Sanaullah, Senior Policy Officer on Social and Economic Inclusion, European Youth ForumMore on the Forum Network: "No Pension Generation? Why youth-inclusive pension schemes are key" by Nikita Sanaullah, Senior Policy Officer on Social and Economic Inclusion, European Youth Forum

Over the years, there has been an increasing shift in responsibility towards the individual, as we see government and employer retirement systems struggle to keep up financially. Young adults are responding to this shift, as shown by the fact that the most common way for us to prepare for retirement is through a savings account (see image 3). Although the practice of saving is great, savings accounts typically have low returns. We might be missing out on benefits offered by our employer or government programmes. Also, as we are still many years away from retirement, we are in a better position to take on more financial risk. Looking into possibilities of responsibly investing some of your savings might help you grow your money over time.

Savings accounts are the most cited way for young adults to save for retirement

In the upcoming years, we will be faced with having to make some important decisions, which will not only impact our lives but also our long-term financial security. We are exposed to a lot of information online and via social media, which we sometimes struggle to make sense of or have questions about its reliability. Don’t get me wrong, I think social media is an amazing place for us all to come together and learn from each other. But unfortunately, in making choices, we are not coming from the best starting point; only 15% of young adults were able to answer Drs. Annamaria Lusardi and Olivia Mitchell’s “Big Three” financial literacy questions correctly. There is a great opportunity for policy makers, employers and online influencers to create content that is easy to understand and provides guidance for us when planning for short-, medium- and long-term goals.

As young adults, we are juggling a lot of priorities at the same time. The good news is that we have the gift of time. Those of us in our twenties have forty or more years to build our retirement nest egg, and time to work with social partners to create solutions for a sustainable retirement system that sees an equitable redistribution of responsibility. It is now more important than ever for policy makers, employers and young adults to come together to recognise the changing landscape, and work on a joint solution to help us prepare for a financially resilient future.

Three tips for young adults:

  • Start saving early, and save habitually for things that are important to you in the short-, medium- and long-term. A way to identify these “things” is to make a bucket list or a set of goals which you think will give you pleasure and purpose.
  • Take the time to understand the fundamentals of financial literacy such as compound interest, inflation, budgeting, and the risks and rewards of investing.
  • Finally, don’t wait—act! We are the future of work and retirees. If we all work together, our voice will speak volumes to employers and policy makers and help create systems that meet our needs.

Between between 15 and 30 years old? Take the OECD's Future of Work Survey!

Between between 15 and 30 years old? Take the OECD's Future of Work Survey!

Find out more about the OECD's work pensions in the OECD Pensions Outlook 2020

Find out more about the OECD work on pension arrangements also in new forms of work in the OECD Pensions Outlook 2020

Related Topics

Future of Education & Skills Future of Work Intergenerational solidarity New Societal Contract

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Njani Ruetsch

Associate Retirement Researcher, Aegon Center

Njani Ruetsch has been part of the Aegon Center for Longevity and Retirement team since 2019. Being 26 years old, she is one of the Center’s younger spokespeople who is passionate about helping people become more financially literate and resilient. Next To working with the Center, she also leads the Silver Starters initiative at Aegon, which is an online learning programme designed to help people aged 50 + understand if entrepreneurship is for them, and if yes, how to start their own business. Njani believes strongly in generational equity, and that younger adults should have access to the same social security benefits that their parents and grandparents did.

Comments

Go to the profile of Roxanne Nederpel
29 days ago

Very interesting article. As a young adult myself I find this really relevant and not something we speak about enough!