Are Gen Z individuals anxious about their retirement prospects? Justified or not?
In the face of changing demographics and family planning challenges, Generation Z in Germany can ensure a more stable pension by leveraging new government programs, increasing labor market participation, and proactively building personal retirement savings.
The German government is set to launch a program that deposits 10 euros monthly into a retirement investment account for children aged 6 to 18 attending school. From age 18, individuals can add funds within limits, helping Gen Z build a long-term financial foundation early on. This initiative, combined with extended labor force participation due to pension reforms, can help stabilize pension systems by delaying withdrawals and maintaining contributions.
Studies show that raising the pension eligibility age boosts employment rates among older workers, such as the 13.5 percentage point increase in female employment after Germany abolished early retirement. However, it is crucial for Gen Z to prioritize private retirement savings and investments to reduce dependency on state pensions.
While inheritance might support some individuals, only about 30% of Gen Z in comparable contexts expect one, so relying on this is less certain and should not substitute for active retirement planning.
The German pension insurance offers orientation aids for building up additional old-age provision. Specially trained experts answer questions about statutory, occupational, and private old-age provision in these consultations. Generation Z can take advantage of intensive pension consultations from the German pension insurance.
It's important to note that a comfortable life in old age will only be possible if the other two pillars - occupational and private old-age provision - are also used. The German pension system is based on a 3-pillar model, with the statutory pension insurance being the most important form of old-age provision for most people.
However, concerns among many Gen Z members about the current system being outdated are valid. The demographic change poses a challenge to both statutory pension insurance and capital-based old-age provision systems. The effect of compound interest is significant in capital-based old-age provision systems, making it crucial to start with additional old-age provision as early as possible.
The amount of the statutory pension depends on the number and amount of contributions paid during working life. Social components such as child-rearing times, maternity protection periods, and vocational training times are taken into account in the statutory pension and provide a certain balance.
The political approach to solving the problem is the Boomer solidarity tax, which is proposed to save the pension. However, it's essential for Gen Z to understand that their active participation in the pension system is crucial for their future financial security.
Katja Braubach, the press spokeswoman of the German pension insurance, emphasized the importance of Gen Z taking an active role in planning for their retirement. "The demographic change is a challenge for old-age provision, affecting both statutory pension insurance and capital-based systems," she said. "But with the right information and planning, Generation Z can secure a comfortable retirement."
[1] Source: German government press release [2] Source: OECD report on labour market trends [3] Source: Gen Z survey on retirement expectations
- By taking advantage of the German government's program that deposits 10 euros monthly into a retirement investment account for school-aged children, Generation Z can proactively build a foundation for their long-term financial future in wealth-management and personal-finance.
- As extensively proven in studies, increasing labor market participation through pension reforms, such as raising the pension eligibility age, can help stabilize pension systems and provide additional income for personal-finance and career-development in later life.
- To secure a comfortable retirement, Gen Z should prioritize their own retirement savings and investments as well as make use of the pension consultations offered by the German pension insurance, along with understanding the importance of the three-pillar model for old-age provision.
