Millennial Retirement Habits to Cost Your Retirement – Prepare to Fund Your Grandchildren Personal Finances | Finance

Retirement savings habits can impact people throughout their lives, as not saving enough while working could make a person’s retirement years difficult. Recent research from a number of organizations has shown that millennials find it difficult to put money aside for their later years and older generations, like baby boomers, may pay an extra price for it. .

At the end of June, Profile Pensions published a study which found that three in 10 millennials do not save at all in a pension fund, with a quarter finding the pension rules “very confusing”.

Additionally, 28 percent of millennials surveyed expressed a lack of confidence in money and financial matters, pointing to a general lack of awareness.

Where young savers put money aside, a closer analysis of recent ONS figures revealed that young people are unlikely to be “as rich” as their retired parents.

On June 24, the government released the results of its financial survey of pension plans for the last quarter of 2020.

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These data showed:

  • There were 23.2 million members of defined contribution (DC) occupational pension plans in the last quarter of 2020 (22.4 million in the same quarter a year earlier).
  • There were 17.8 million members of funded defined benefit and hybrid (DBH) pension plans (18.3 million a year earlier). Only 3.4 million DB members are active.
  • 98 percent of benefits paid during the quarter came from defined benefit plans.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, explained what those numbers meant: “You might not be as rich as your retired parents because the lion’s share of pension money in this moment comes from generous defined benefit plans. , but if you’re contributing to a plan right now, you’re much more likely to have a much smaller defined contribution pension.

“This means that there is a risk that today’s workers will be lulled into a false sense of security by the enviable lifestyle of many retirees today.

“Not all retirees enjoy exceptional income, but many of them do. This means that we can look to the older members of our family and assume that we can expect a retreat from socializing, traveling. and expensive hobbies (except in times of pandemic globalization of course).

“In the meantime, there’s every chance that we’re paying the minimum in a defined contribution pension that we’ve been automatically enrolled in. And while it’s clearly better than not preparing anything at all, it’s not going to deliver. the same kind of lifestyle. time the number of people contributing to DB continues to decline, while DC continues to increase, so more and more people will end up with less generous pensions than their parents. ”

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These retirement trends are unfortunately bound to make retirement even more difficult for older generations, as they may need to finance their children and grandchildren.

This may prove particularly prevalent as Emma-Lou Montgomery, associate director of Fidelity International, has warned that life expectancy rates will place a strain on scarce resources.

Ms Montgomery explained: “According to the latest data from the Office for National Statistics (ONS), the UK population over the age of 90 peaked in 2019. If this trend continues, many of us should plan our retreats to potentially last much longer than we currently think.

“Research from Fidelity International shows that financial security is a life goal for nine out of ten people, but that 50 percent of the population has yet to meet it. This rises to two-thirds (63 percent) of people in their 20s and 55% of people in their 30s – meaning younger generations can turn to family members for support.

“Sadly, only 30 percent of people think they will have enough in their pension fund to fund the personal income they would like in retirement. Having to financially support other family members would put even more strain on them. squeeze those insufficient savings.If you are thinking about financially supporting your family, it is important that you assess your own retirement needs and how you plan to fund them first to avoid ending up with a shortfall.

“The growing reliance on intergenerational wealth only illustrates the importance of financial literacy – showing kids how to manage their finances from a young age could be a way to ease the strain on older generations. seniors – as well as the value of having open conversations about financial planning.

“However, if you’re not sure how much you’ll need during your retirement for yourself or to help those around you, it may be helpful to speak to a financial advisor. An advisor can help you determine what you can afford, while you lay out your options for passing on wealth now or in the future.

Adding more difficulties, the pandemic may have accelerated this process, with further research from Killik & Co. finding that 48% of UK grandparents stepped in to financially support their grandchildren during the outbreak.

At the same time, 20% said they were worried about the value of their private pension and an additional 13% also worried about the stability, as well as the value of their occupational pension (s) ( s), in a context of persistent uncertainty.

Svenja Keller, Wealth Planning Manager at Killik & Co., concluded on these difficulties and provided advice to affected retirees.

Ms Keller said: “Much of the attention around the financial fallout from COVID-19 has been on recent volatility and concerns about the value of retirement jars, but the pandemic has touched all generations. Our research shows that grandparents want to provide for their families, even if it worries them about their own financial future.

“However, they shouldn’t choose their family’s financial stability over their own.

“If you are a grandparent, it is important to ensure your own lifestyle first, and only then to give what is possible. Understanding your long-term cash flow – such as tracking income and expenses and examining how your existing assets can support you – is essential to putting a plan in place. This will provide you with the clarity you need for your own situation and ultimately help you make decisions about providing sustainable financial support to younger generations as well. “

About Christian M.

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