For many members of Generation Y, purchasing a first home and paying down debt are being prioritized above accumulating a nest egg. Nearly half (47 percent) of employed adults between ages 22 and 33 with a retirement plan at work say paying for mortgage or credit card debt is a more crucial obligation than saving for retirement, according to a recent Fidelity and Consulting Services survey. But the importance of retirement savings is beginning to resonate with some young employees. About 18 percent of the young workers consider saving for retirement to be their top financial goal, up from 13 percent in 2008.
“This is the life stage when retirement is competing with an ever growing list of financial priorities,” says Philippe Mauldin, executive vice president for workplace investing at Fidelity. The workers in the survey had an average of three credit cards and 20 percent had a balance greater than $10,000 on their cards.
Most young workers (57 percent) desire a retirement savings plan through their employer. But they typically value health insurance (82 percent) and paid vacation time (68 percent) more. “This generation will be faced with different challenges including higher debt, greater responsibility for costs associated with benefits, and less access to traditional pensions,” says Brad Kimler, executive vice president of Fidelity’s consulting services business.
Some younger workers are job hopping less frequently, Fidelity found. A quarter of those surveyed intend to remain with their current employer until retirement, up from 14 percent in 2008. Among those who did change jobs, just over a third (35 percent) cashed out their 401(k) or 403(b) account with their previous employer. A withdrawal before age 59½ is subject to a 10 percent early withdrawal penalty plus income tax on the amount withdrawn. The most common reasons for raiding the retirement stash were a small balance perceived to be not worth rolling over (30 percent), a need for the money because of job loss (24 percent), to make a major purchase (20 percent), or for everyday expenses (19 percent).