EL SEGUNDO, Calif.--(EON: Enhanced Online News)--Financial Finesse, the leading provider of unbiased workplace financial wellness and retirement planning programs, has announced today the release of its third annual research report on the state of U.S. employee retirement preparedness.
“Although they have more time than the Boomers and Gen Xers, they face far more economic and financial challenges than any other demographic, and they’re not recognizing retirement planning as a priority”
The report found employees’ overall state of retirement preparedness has improved steadily since 2011. For the first half of 2013, 20% of employees that took a financial wellness assessment reported being on track to reach their income-replacement goal in retirement, up from 14% in 2011. In addition, a greater percentage of employees have indicated taking a risk tolerance assessment and rebalancing their investment accounts. That said, even with the recent improvements, the majority of employees have done very little to prepare for retirement, with 61% indicating they have not used a financial calculator to run a retirement projection.
Key findings from the report:
- Although improvements to employees’ retirement preparedness are encouraging, they seem to stem from market appreciation and improvements employees are making to their investing behaviors rather than from changes to their savings behaviors, which is concerning since ultimately this is the biggest driver to achieving retirement security.
- Millennials are at significant risk of not being able to achieve retirement security. A lesser percentage reported having used a retirement calculator to run a retirement projection—29% in 2013, down from 32% in 2012—and only 17% of Millennial employees said they are confident they are on track to retire with 80% of their income (or their goal) in retirement. This is particularly concerning given that this generation is likely to face far more economic challenges than older generations, with relatively lower Social Security payouts, higher health care costs, and longer life expectancies.
- Women’s retirement preparedness continues to lag behind men’s and they will continue to face challenges in the future that will make retirement planning more difficult. Only 17% of women are confident they will be able to reach their income-replacement goal in retirement—an increase from 13% in 2012 but still far too low considering the challenges they face, including living on average longer than men, receiving lower compensation over the course of their careers, and investing more conservatively which often compromises their ability to grow their savings.
- Lower-income employees (those with total annual household incomes of $60,000 or less) backslid in several key retirement planning areas in 2013. A lesser percentage reported participating in their 401(k) plan (84% in 2013 versus 86% in 2012), feeling confident in their ability to reach their income-replacement goal (10% in 2013 versus 11% in 2012), and running a retirement projection (33% in 2013 versus 36% in 2012).
While there is a lot of attention on Baby Boomers’ lack of preparedness because of their proximity to retirement, Davidson says that more attention should be paid to the savings behaviors of at-risk groups, in particular Millennials, dubbing this cohort the “lost generation” when it comes to retirement planning. “Although they have more time than the Boomers and Gen Xers, they face far more economic and financial challenges than any other demographic, and they’re not recognizing retirement planning as a priority,” says Davidson.
She points out that retirement planning is not resonating with this group of employees. According to Financial Finesse’s study, 87% of this demographic are saving in their employer-sponsored retirement plan, but this is more likely a result of employers implementing automatic enrollment. According to an AON Hewitt report, 59% of employers use automatic enrollment and it’s likely that Millennials are taking a ‘set it and forget it’ mentality thinking that because they are automatically enrolled their retirement planning is being taken care of for them. A 2011 Mercer study called attention to this phenomenon, finding that participants who are automatically enrolled in retirement plans defer on average between 3.5-4.4% into their plan versus over 7% for those who proactively elect to contribute.
Davidson adds that the generation is very reliant on automation in all aspects of their lives, from online bill-pay services to GPS automatically navigating them to their destinations. As a whole, these services work well for them because they solve relatively simple problems where there is not a lot of opportunity for error. The problem is that retirement planning needs to be a proactive process where participants actively engage, running projections annually and making adjustments as needed based on changes in personal and economic circumstances. For a generation focused on getting answers and conducting transactions instantly, a process that requires more thought, patience, and planning is actually counter to their natural decision-making processes.
When you layer on the challenges Millennials are likely to face, with fewer government and corporate benefits, longer life expectancies, expected increases in taxes and inflation, and rapidly increasing health care costs, they are already at a significant disadvantage versus older generations who have more subsidized benefits, relatively low taxes and inflation, and a more traditional “planning” mindset.
Barbara Delaney, founder of StoneStreet Equity, one of the largest independent retirement plan advisory firms in the country, agrees, noting that this generation has inspired her to incorporate financial wellness and planning services into her business model, after years of functioning strictly as a consultant to retirement plans.
According to Delaney, “We have the largest generation in history facing the largest retirement planning challenges in history. We have to do a lot more. We need to provide financial education and guidance designed around the way they think, live, and relate, to facilitate incremental behavioral changes that will ultimately get them on the right path. The world has changed, and it’s time for the industry to catch up.”
About Financial Finesse
Financial Finesse is an unbiased financial education company providing personalized and innovative financial education and counseling programs to over 600,000 employees at over 500 organizations. Financial Finesse partners with organizations to reach goals such as reducing fiduciary liability, increasing plan participation, decreasing stress, and increasing productivity through its unique approach to financial education. Financial Finesse does not sell products nor manage assets. For more information, visit www.financialfinesse.com.
About StoneStreet Equity, LLC
The retirement advisers at StoneStreet Equity are focused on helping Plan Sponsors of all sizes manage Fiduciary risks while achieving plan objectives. Led by a team of corporate retirement specialists with an average of nearly 30 years experience, StoneStreet Equity strives to be a trusted, respected advisor to plan sponsors, focusing on successful participant outcomes and enabling plan committees to understand all aspects of their duties. For more information, visit: http://stonestreetequity.com.