Employers Can Help Prevent Shortfalls in their Employees’ Retirement

Old age is inevitable. We march toward it every day. And yet as much as everyone knows this truth, properly preparing for the future seems to present a most challenging task for the average household or individual to accomplish.

How can free financial wellness programs add value to what employers already offer employees?

Financial wellness programs provide employees resources to respond to short-term financial emergencies while also offering counseling and products to address long-term financial stability and security. Such programs should address debt reduction, budgeting, credit building, saving, and investing.

The Need for Employee Financial Wellness Programs 

According to a 2020 study performed by the Center for Retirement Research at Boston College, the majority of households (more than 50%) with individuals still in the workforce may need to reduce their standard of living in retirement due to unmet savings goals.

Even more astonishing, a 2018 CareerBuilder survey found that more than half (53%) of workers aged 60 or older are actually postponing their retirement. Four out of ten workers surveyed don’t believe they will be able to retire until they are at least 70 years old, or 4 years later than the full social security retirement age.

A 2019 GoBankingRates survey found that nearly 65% of Americans expect to head into their retirement with less than $10,000 in their retirement savings plans. For perspective, $10,000 equates to less than 15% of the median American household annual gross income. In other words, $10,000 won’t get the retiree much more than one month into their retirement.

The lesson is clear: most workers could do much better.

Experts say these widespread failures to properly prepare for retirement find their origins in both realities and perceptions:

1. Many believe the most obvious reason has to do with the cost of living increasing at a faster rate than workers’ pay, thereby creating less room in the household budget to set aside savings. Reality paints a different picture, though. One pre-COVID study found that Americans were already eating 6 meals a week outside the home, sharply increasing meal costs and adding up to $2,500 to nearly $4,000 a year of extra convenience spending. To name just one more convenience, Americans now spend an average of nearly $600 a year on video streaming. Such figures suggest rather strongly that when we blame the lack of retirement savings on the cost of living, we should more accurately refer to Americans’ increasing standard of living instead.

2. Those who have calculated the cost of retirement choose to bury their heads in the sand since the goal numbers are overwhelming. Instead of breaking down their monthly contributions or even their contributions by each paycheck, workers allow the sheer magnitude of the required nest egg to scramble their ability to make rational decisions.

3. Most consumers struggle to understand where they should keep retirement savings and how they should manage and maximize their growth. As a result, company-managed plans are underutilized. Ironically, in the age where so much information about investing, fund performance, and securities, in general, appears at the touch of a fingerprint, consumers struggle to filter out the biased pages of companies and salespeople pushing irrelevant, unnecessary, or even fraudulent products.

4. Some workers are unaware of the importance of taking advantage of compound interest as early as possible and therefore delay retirement contributions until circumstances are “ideal.” Unfortunately, the ideal time to start investing is the day they get their first paycheck.

5. If young workers lack basic financial education, a retirement contribution may seem difficult to accommodate with lower incomes. This, despite most young Americans spending almost recklessly on discretionary technology and clothing coupled with their near fanaticism when it comes to brand loyalty over affordability.

6. Many workers common fear investing in the stock market because they associate its volatility with the randomness of playing the lottery. Unfortunately, too many workers fail to grasp the reality that losing all your money in a diversified investment portfolio is just as nearly impossible as winning any meaningful amount in a multi-million-dollar lottery.

Employee Financial Wellness Programs Support Retirement Planning 

While human resource departments often work tirelessly to educate staff on various benefits and available resources during open enrollment and new hire orientation, employees would be more thoroughly served and supported by having financial resources available year-round.

Providing access to a financial wellness program can do just this and more. With a well-rounded financial wellness program as part of their company’s benefits, employees should expect to:

• Have their questions been answered about how common retirement programs such as 401(k), 403(b), and Individual Retirement Accounts work?

• Understand what they should strive to contribute in order to sustain their current lifestyle through retirement and to retire within their desired timeframe.

• Learn tips to adjust their monthly spending plans in order to increase retirement contributions to effective amounts with minimal sacrifice.

• Receive budget counsel that helps create and continue a habit of savings that ensures financial stability over the short-term and throughout retirement.

A growing body of evidence shows that financial wellness programs offered in the workplace have the power to alter the trajectory of employee lives for the better, and not just financially.

Positive Side Effects of Employee Financial Wellness

The ripple effects of delivering basic financial education alone are undeniable. When employees are financially literate, they reduce their cost of credit. This money saved from poor interest rates can make a huge difference in building a nest egg.

With guidance, employees can create a plan and prepare for homeownership. Besides creating a less transient and more stable workforce, building equity in a home can also play a key part in a smooth retirement.

The more financial wellness the employee experiences, the less negative stress they endure, minimizing stress-related physical and mental health crises. Fewer physical and mental health crises mean fewer costs associated with the company’s health insurance coverage, leading to lower monthly premiums the next year.

While other examples show how financial wellness programs indirectly improve the likelihood of a successful retirement, there are more obvious impacts as well.

Financial Wellness Programs Increase 401(K) Participation

A well-rounded program would deliver increases in employee participation in their defined-contribution plans such as a 401(K) or 403(B) and enrollment in Flexible Spending and Health Savings Accounts (a tool growing in popularity for retirement savings).

Employees currently enrolled in benefits programs often choose to raise their contribution amount after receiving further financial education. Additionally, they become more capable of evaluating and management of their own investment plans.

Moreover, having established sustainable financial practices nurtured and supported by financial wellness programs, employees become far less likely to dip into or completely cash out their retirement savings.

With proper knowledge, encouragement, and access to an abundance of resources, employees feel much better equipped to set a plan in motion that allows them to confidently march toward their long-term financial goals.

Related Questions

What are some ways that employers can support employee financial wellness?

Employers can support employee financial wellness by incentivizing employee participation in financial education programs and workshops, setting up financial accounts, and, most importantly, making their defined contribution retirement plan an OPT-OUT program for all employees.

What are some examples of employee financial wellness?

A financially well employee exhibits long-term housing stability, demonstrates day-to-day control of their spending, eliminates their consumer debt, contributes regularly to their retirement plan, and steadily saves for and progresses toward their short-term goals and long-term plans.