As boomers are forced to ‘unretire' because they've not saved enough, 6-year-olds in Germany could soon have retirement accounts
Millions of baby boomers are being forced out of retirement, having realized their nest eggs don't quite make ends meet. With people living longer than ever, the issue will only get worse. So Germany is considering preparing Gen Alphas for the decades they'll one day be retired, with an 'early start pension' plan.
After having a brief taste of retirement, a sizable chunk of Gen X and baby boomer retirees are dusting off their suits and returning to work instead, having not saved up enough to kick up their feet in the current climate. It's a fate that Gen Alpha in Germany may never have to face.
That's because children as young as 6 could start saving for retirement, under new plans.
As per a report from CNBC, Germany's coalition government has proposed an 'early start pension'—a retirement program designed for children between 6 and 18 years old.
Unlike your regular pension pot, which requires putting aside a portion of your salary for your future self, the country's government would pay out 10 euros ($11) a month to children in education under this new plan.
Over 12 years of eligibility, this could accumulate to more than 1,440 euros per child, not counting the potential investment gains from compounding interest over the decade.
Then, from the age of 18 onward, they can add personal funds to the accounts and enjoy tax-free profits. However, that cash will become accessible to account holders only when they reach retirement age—which is currently set at 67 in Germany.
'The government plans to strengthen the state pension as well as reforming company pension schemes and private pensions,' a spokesperson confirmed the plans to Fortune. 'As one project, the so-called early start pension aims at offering young people perspectives for fund-based private pensions.'
People are working well beyond retirement age globally. They're living longer than expected, caring for both their elderly parents and Gen Zers, and wanting to enjoy the fruits of their labor with lavish vacations instead of pottering around.
It's why the number of those who have continued to work past 65 in the U.S. has quadrupled since the 1980s, according to the Pew Research Center.
Now, almost 20% of Americans 65 and older are employed. That's around 11 million people and nearly double the share of those who were working 35 years ago. In the U.K., nearly 20% of baby boomers and late Gen Xers are similarly 'unretiring'—or planning to, because their retirement desires don't match up to the nest egg they've built.
It's why it's never too soon to start retirement planning.
The renowned financial expert Suze Orman previously highlighted that Gen Z and millennials could indeed retire as millionaires if they make the most of compound growth while they're young.
She used just $100 to highlight how powerful compound growth is.
By investing $100 every month from the ages of 25 to 65 into an account with a 12% yield, Gen Z could retire with around $1,188,342. A millennial who started their investment journey just five years later, at age 30, would accumulate around $649,626 by age 65, she warned.
'With a 12% annual average rate of return—the markets can do that for you—you'd have a million dollars,' she explained. 'If there's anything the younger generation needs to understand, it's that the key ingredient to any financial freedom recipe is compounding.'
So you can only imagine what the numbers could look like for someone who started saving at 6, not 26. By the time they reach their golden years, they could be living the retirement dreams their parents had to return to work to chase.
Have you set up a pension for your child? Fortune wants to hear from you. Get in touch: orianna.royle@fortune.com
This story was originally featured on Fortune.com
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