Timing, it is said, is everything. If that’s the case, financial wellness may offer yet more proof of the validity of that premise. Recent studies indicate that employers are increasingly interested in financial wellness — and that it can’t come soon enough.
So what exactly is financial wellness? The Consumer Financial Protection Bureau (CFPB) defines it as a state of being in which the individual has control over their day-to-day, month-to-month finances, has the capacity to absorb a financial shock, is on track to meet financial goals and has the financial freedom to make choices that allow them to enjoy life.
Employers are concerned about employees’ financial wellness and how well they grasp how much they need in order to be financially ready to retire. How concerned? Aon Hewitt recently reported that 90% of them are. And a mere 15% expressed satisfaction with their employees’ saving rates.
And concerned those employers should be.
Bank of America Merrill Lynch has found in a recent study that Americans don’t know how much they will need to fund their retirement, and think they should be saving about five times more than they are. In “Finances in Retirement: New Challenges, New Solutions,” a four-year, 50,000-respondent investigation focused on understanding the transforming nature of retirement through seven interconnected “life priorities” — family, work, health, home, giving, leisure and finances — Bank of America Merrill Lynch found that:
- While most Americans realize retirement will be the biggest purchase of their lifetime, 81% say they do not know how much money they will need to fund their retirement.
- Americans are saving only a fraction of what they think they should: 5.5% vs. 25% of their annual income (after taxes).
- More than half of Millennials feel a secure retirement is beyond reach, though only 30% of Boomers (who, let’s face it, are closer to that goal line) feel this way. Of course, Millennials expect 65% of their retirement income to come from personal sources, including savings and continued employment, far more than earlier generations, which might have something to do with their concerns.
- While most people say they want to live to the age of 90, only 27% of pre-retirees age 50+ feel financially prepared to fund a retirement that lasts 10 years, let alone 20-30 years.
- Nearly two-thirds (65%) of Americans say the language of finance is confusing and not user-friendly.
- Americans are seven times more likely to say that talking about personal finances is taboo than they are to say it can be discussed openly. Only 11% feel comfortable discussing their personal finances.
What may explain this? Mercer offers a suggestion. Mercer found in its “Inside Employees’ Minds – Financial Wellness” report that one’s perceived financial literacy — one’s level of confidence, irrespective of actual financial knowledge — was a significant factor driving whether or not individuals engage with financial planning resources. Those with a more favorable self-rating were found to be more likely to engage with a financial advisor and to seek guidance in improving their financial well-being. Mercer also found that what it calls financial courage — confidence about engaging in financial issues — is an important factor as well. “When employees have financial courage, they’re more likely to engage with a financial wellness program when prompted,” says the report.
And employees’ concern over their finances and financial prospects in retirement doesn’t just affect them. Mercer says it also affects employers — and, therefore, their bottom line. Its study found that on average, people spend about 13 hours per month worrying about money matters at work — about five hours at the median, suggesting that some spend a lot more time than others thinking about such things.
What to Do?
Aon Hewitt found that employers understand they can play a key role in bolstering employees’ financial wellness. It found that most (60%) of the employers in its study feel that the importance of financial wellness has increased over the past two years.
And they plan to take action. Aon Hewitt says that 87% of the employers that responded that they are not satisfied with their workers’ level of understanding about how much they need to save to achieve an adequate retirement savings say they are likely to take action this year to help workers make plans to reach their retirement goals.
Aon Hewitt says that just over half (58%) of the employers polled (which collectively represent about nine million workers) say they have a tool available that covers at least one aspect of financial well-being. By the end of the year, however, Aon Hewitt says that percentage is expected to reach 84%.
Not only that, Aon Hewitt finds that this year, nearly all (92%) of the responding employers say they are likely to focus on the financial well-being of workers in a way that extends beyond retirement (such as help with managing student loan debt, day-to-day budgeting and even physical and emotional well-being).
And it appears that employees will be receptive. In the Bank of America Merrill Lynch study:
- 91% of the employees say they would make healthier choices to reduce potential expenses in later life, and the same percentage would use more generic medications and supplies.
- 90% would be willing to cut back on basic expenses and save more.
- 77% would increase use of tax-protected retirement accounts.
- 75% say they would downsize their home to both lower ongoing costs and benefit from the equity.
- 68% say they would consider purchasing long-term care insurance.
- 67% would be willing to move to a less expensive location.
- 66% would sell belongings or real estate that they no longer need.
- 60% would adjust the timing of their Social Security benefits.
- 47% would consider selling their home and renting an apartment.
And another positive thought: Among those who are saving for retirement, 46% in the Bank of America Merrill Lynch study said that what got them started in the first place was an employer offering a retirement savings plan.
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