The Struggles of Millennials and Gen Z Are Wiping Out Parents’ Retirement Funds

There’s a strong financial narrative running through Australian society at the moment. And, for the younger generations – i.e. younger Millennials and older members of Gen Z – this narrative is not a good one.

Let’s take home ownership as an example – buying a house was 130% more expensive in 2021 than it was two generations earlier. While there is optimism among the ranks of Generation Z, house prices continue to skyrocket, leaving many younger people barred from participating in the Great Australian Dream. And then there’s the cost of living to think about, which continues to outpace wage growth for working Australians and is expected to be an ongoing issue as we move through 2023 and beyond. Life for young people, it seems, is getting harder and harder.

Hard Times for Everyone in Australia

But this is a society, and in this society, we are all interconnected to one extent or another. These generations – from kids to young adults to parents and grandparents – are not separate entities going it alone. If life and the economy are hitting the younger generations hard, they need somewhere to turn. In many cases, this somewhere is parents. Not all young adults have this kind of support network or safety net, but many do, and this is where they come in when they need financial assistance and help. With this in mind, it is not only younger Millennials and Gen Z who are feeling the pinch. 

A recent Bankrate report found that around 70% of Australian parents with adult children have sacrificed their own finances to support their offspring. “Sacrificed” is a bit of a vague term, but we can gain more insight when we drill into the figures. Roughly 50% of these parents say they have had to use their own emergency savings to help their children or have delayed paying off their own debts. Additionally, 43% said that supporting their adult children was cutting into their own retirement savings.

According to the survey, Generation X parents seem to be the hardest hit. These parents – defined as individuals aged between 43 and 58 – were found to be more likely to step in and assist their kids than the Boomer generation born in the years following World War II. Add to this the already significant debt burden that Gen Xers are struggling with, and then factor in the $7 trillion retirement-savings shortfall reported in Australia at the moment, and this is a bad situation indeed. Yes, the narrative is that the younger generations are suffering, and this is undoubtedly true – but their parents are taking the hit as well.

An old adage goes like this: “You can’t pour from an empty cup.” Bankrate’s senior analyst, Ted Rossman, puts it in slightly more extreme terms, “Remember that saying about putting your oxygen mask on before helping others?… If parents overextend themselves in an effort to help their [young adult children], they might end up jeopardising their own financial security”.

This is bad news indeed. As of 2021, over half of working-age Australians believe that they will not be able to put away enough money to last them through their retirement years. This is even more likely for Australians outside the major cities and state and territory capitals. Statistics from the 2018-2019 financial year also found that the majority of Australians approaching their retirement years planned to use pensions as their primary source of income when they finished working, indicating a lack of confidence in the capital they have saved up.

Something Needs to Change

We’ve mentioned this already, but it’s vital that we remember this: We live in an interconnected society, and what impacts one generation also impacts the others. The cost of living is increasing not just for younger people but also for parents, grandparents, retirees and soon-to-be retirees. As the savings gap grows and retirement capital dwindles, this cost of living increase is putting the squeeze on those who have retired already and those who hope to retire over the coming years.

The danger is that this leads to a negative cycle. Younger generations feel the pinch and turn to their parents. Their parents try to help but jeopardise their own finances and futures in the process. These parents then need support from their children during their later years, but insufficient capital exists to achieve this. Both sets of Australians – parents and their young adult children – find themselves in peril as a result.

It’s not all doom and gloom. We’ve touched upon the optimism that Gen Z still harbours for the future, and there is optimism elsewhere too. But things do need to change. Younger generations need to be able to reach life milestones, such as property ownership, without taking on crippling debt. They need to secure jobs that provide a living wage rather than struggle to make ends meet while working full-time. Australian society needs sustainability rather than forcing young adults to return to their parents for assistance. Those approaching retirement need a better set of financial instruments and options, safeguarding their savings as opposed to leaving them exposed.

Futureproof’s EPM – A Better Deal for Retirees

At Futureproof, we are working to achieve a better deal for retirees. This is why we are developing the Equity Preservation Mortgage (EPM), a new, low-risk-weighted and responsible alternative instrument for those seeking to support themselves during retirement. While this does not address all of the economic issues impacting all sections of Australian society at the moment, it does help those of working age better manage their finances ahead of retirement. With the EPM, users can monetise the capital they have built up in their homes, creating a tax-free income with no depletion of home equity.

We are aiming to launch the EPM in 2023. Browse our resources or reach out to our team to discover more about what this could mean for you.