Young people will struggle to have the same standard of living in retirement as their parents

While paid more than their parents, younger workers won't be able to accumulate as much wealth out of their savings as previous generations

Younger people may earn more — but lower returns mean they may not be able to accumulate as much wealth out of their savings as previous generations. File Picture: Gareth Chaney/Collins

Younger generations will struggle to build up enough wealth for retirement and will face a lower standard of living once they finish working new research from the Central Bank has found.

With people living longer and most developed nations seeing growing numbers of older people, younger workers will face significant challenges in building up sufficient wealth to fund their retirement.

The research paper 'Wealth Accumulation and Inter-generational Inequality with Inverted Population Pyramids' authored by Simone Cima considers the impact of changing population dynamics on the economy and what this means for the ability of younger generations to fund retirement.

It finds that in advanced economies including Ireland, younger people face significant challenges in building enough wealth to fund the same standard of living at retirement as the generations preceding them.

Demographic changes mean many countries are transitioning to an inverted population pyramid, with a greater number of older people than younger people. 

As a result, the labour force is smaller relative to the size of the population, while an increasing amount of wealth is concentrated among older populations and has contributed to a decline in rates of return on wealth. Lower rates of return mean that it will be increasingly difficult for younger people to build up wealth for retirement through the accumulation of returns.

The paper finds that, while younger cohorts might benefit from higher wages compared to previous generations, the negative effect of lower returns means they may not be able to accumulate as much wealth out of their savings as previous generations. 

With current demographic trends, future retirees will likely face a progressively lower standard of living as a result. With public finances coming under increasing strain from pension provision, younger generations may face higher taxes during their working life and/or reduced income from the State at retirement.