Young Adult Retirement Confidence Linked to Worries About Uncertain Future

A majority of young adults believe they can make a difference in the world. But when it comes to their own wallets and financial futures, these individuals—between the ages of 24 and 35—feel a lack of control, particularly those with a low socioeconomic status. 

The Young Adults Personal and World Outlook Survey conducted by the TIAA Institute in collaboration with Georgetown University’s McDonough School of Business and released publicly on Thursday, found that young adults’ retirement confidence is linked to their attitudes toward planning for an uncertain future 

These attitudes about the future vary across demographic groups. For instance, a higher percentage of low-income young adults, ages 24 to 27, feel that thinking about the challenges they will face in the world makes them want to “just live for today.” 

Conversely, substantially more high-income young adults feel that thinking about global challenges makes them want to plan and be prepared for an uncertain future, according to the study. 

Across all demographic groups, one half of young adults reported feeling that with the way things are going today, they do not expect to do as well in life, financially, as their parents did. This percentage was higher among low-income adults (60%, versus 34% of high-income young adults) and younger adults aged 24 to 27 (56%, versus 46% for adults aged 32 to 35). 

Confidence Varies 

When asked about saving for retirement, young adults ranked it as a top-three saving priority, falling just behind saving for emergencies (59%) and saving for a long-term goal or purchase (49%), such as a house or car.  

However, high-income young adults were substantially more confident that they will be able to fully retire at a certain age (75%), while female, younger adults aged 24-27 and low-income young adults were much less confident (50%, 50% and 40%, respectively).  

The study found that high-income and male adults are also more likely to save on a regular basis, which likely contributes to their retirement confidence.  

One in five young adults (22%) expressed that they never expect to fully retire but may work less or do something different when they can afford to not work full-time, while 14% of young adults do not expect to ever be able to afford to fully retire. According to TIAA, high-income and Black/African American (as identified in the research) young adults were substantially less likely to say they do not expect to ever be able to fully retire (5% and 6%, respectively). 

Those surveyed also do not expect to have a single or even “main” source of retirement income. Rather, TIAA found that they expect to withdraw from multiple savings and investment vehicles, the top three being personal savings, a workplace retirement plan and Social Security.  

Three in four young adults currently have a retirement savings plan, most through their employer. According to the study, 48% participate in a retirement savings plan offered by their employer, and 13% have purchased a retirement plan on their own. 

A majority of the young adults who participate in their workplace retirement plan said they actively chose to participate, while 34% said they were automatically enrolled.  

Risk Tolerance 

Once enrolled in the plan, one-third (36%) said they actively manage how their savings are invested; another third (33%) indicated they allow the plan to pick their investments based on age, risk tolerance and other factors; and the remaining third (24%) indicated that they rely on a combination of active and passive investments. A small portion (7%) of the young adults surveyed said they do not know how their savings are invested.  

The level of risk those surveyed said they are willing to take with their retirement plan investments also varied by demographic group, but TIAA argued that risk tolerance is generally linked to investment engagement. 

For example, high-income and male young adults were more likely to say they actively manage their money and are also willing to accept the risk of losing some of the money they put into a retirement account in exchange for higher returns. 

The exception to this link is that Black/African American young adults who actively manage their investments said they also lean toward being more risk-averse. 

Despite their stated risk tolerance, many young adults were uncertain as to whether their retirement provides a guaranteed minimum income. More than two-thirds of respondents said they are either certain their plan provides guaranteed income or think it does, whereas the remaining third are not sure or do not think it does. 

“Young adults’ uncertainty about whether their workplace retirement savings plan provides guaranteed minimum income is troubling and also begs the question of whether they fully understand their retirement plan features,” the report stated. 

The report further pointed out that the disconnect between the level of risk young adults are willing to take with their retirement savings and their engagement in and understanding of plan investments and features is something plan sponsors and plan advisers should be aware of. 

TIAA also did not find any standout sources that young adults rely on for retirement planning information. Two in five young adults identified financial advisers and planners as trusted sources, followed by their employer, parents or other family members and friends or work colleagues. Substantially more high-income than low-income young adults were likely to identify financial advisers or employers as a trusted source.  

TIAA recommends that plan sponsors provide financial wellness programs to help young adults plan for the future and reduce their financial stress. The survey also recommended that plan sponsors establish auto features and automatically enroll young adults into their workplace retirement savings plan. 

“Employers also need to help young adults increase their understanding of appropriate diversification of retirement savings investments and whether their workplace plan provides for minimum income guarantees at retirement, as well as provide default options and tools to help young adults with their investments and guaranteed forms of payment at retirement,” the report stated.  

The survey was conducted from March 2 to March 7 and received responses from 1,009 full-time employees, ages 24 to 35, across all genders, geographic locations, education and income levels.