For younger employees, the possibility of an enjoyable retirement is dwindling.

According to a study by Aon Hewitt, Generation Y workers can expect stagnant wages, job insecurity and a steady decline in pension plan and retiree medical benefits. The survey indicated that anyone between the age of 18 and 30 may be most at risk from these trends despite having the most amount of time to save.

Because of lack of participation in defined contribution plans, low savings rates and high rates of cashouts, 80% of Gen Y employees will not meet all of their financial needs in retirement unless they significantly improve their saving and investing behaviors.

Aon Hewitt projects Gen Y workers will need to save 18.7 times their final pay in retirement resources, including Social Security, employer-provided defined benefit and defined contribution plans and employee savings, to maintain their current standard of living in retirement. Yet the research indicated that Gen Y employees are only on track to accumulate 12.4 times their final pay.

The situation is even bleaker for employees without a pension plan, who have a shortfall of eight times pay.

According to Aon Hewitt, there are many reasons for these shortfalls, including rising health care costs, increased life expectancy and the emergence of defined contribution plans as the primary retirement savings vehicle, but the biggest factor is Gen Y is saving less and spending more. According to the study, only half of Gen Y workers participate in a defined contribution plan, and those that do save, only put aside 5.3% of their salary, and 41% don't save enough to receive the entire employer-provided match.

Even if Gen Y employees begin saving early, the research indicated that most cash out their savings well before retirement. Nearly 60% cash out their retirement savings when changing jobs.

This story was reprinted with permission from American Banker.


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