Generational shifts in home ownership, ongoing gender inequalities and changes in retirement preparedness underscore the importance of workplace financial wellness programs, says a new report.
“The confluence of trends is of great concern to Americans’ financial security,” according to Prudential, which offers its perspective on research it cosponsored with the Stanford Center on Longevity’s Sightlines Project examining the financial consequences of expanding longevity.
In “Preparing for Longevity: Overcoming Financial Wellness Challenges,” Prudential contends that employers – viewed as trusted partners by employees – are “well equipped to help employees with their evolving challenges,” particularly since they are bearing increased financial responsibility but lack access to tools to help manage their financial lives. This would involve everything from budgeting to debt management to saving for retirement, according to Prudential.
Generational Shifts
More than half of Americans are saving for retirement, but reportedly not enough to maintain their standard of living after they stop working, the report contends. It references a study by the Center for Retirement Research at Boston College suggesting that to retire at age 62 and sustain their lifestyles, today’s 25-year-olds need to save 15% of their income for retirement consistently. Most employees, however, are only saving about half the suggested level, even when counting employer contributions to their workplace retirement plans.
“That’s especially problematic for workers who don’t start saving until later in life,” the report emphasizes. It notes that for someone who starts saving at age 35 instead of 25, for example, the required contribution rate to retire at 62 spikes to 24% of income.
Prudential suggests that this is “worrisome for multiple generations,” noting that Baby Boomers have lower wealth than their parents and the highest debt-to-wealth ratio of any previous generation. Even more worrisome, according to the study, is that Gen Xers and Millennials lag their targeted retirement savings goals more so than previous generations.
Along with not having adequate assets to retire at age 65 and maintain their standard of living, the study notes that older workers generally do not have enough working years left to boost their savings significantly. Prudential further notes that its analysis focuses only on the half of American workers who participate in employer-sponsored retirement plans, while those who don’t participate often face even greater challenges.
Homeownership
An additional factor that could potentially further erode financial wellness among Millennials and Gen Zers is the trend of later and lower levels of homeownership.
The study notes, for example, that urbanization continues to lead to more expensive housing and that increases in the average size of new homes continue to drive up the price of housing. What’s more, student loan debt is also making it difficult for younger Americans to save for a down payment on a house.
Consequently, the increasing debt-to-income ratios strain the ability of people to meet day-to-day expenses and save for retirement. Moreover, the study contends that delays in homeownership leave Americans paying mortgage debt later in life, leaving fewer years for empty-nesters to save money.
Financial Inequality
While there have been recent improvements, women still face greater challenges than men in maintaining financial security later in life, the study further observes. Women have longer life expectancies, greater lifetime health care costs and a greater likelihood of being single or widowed at some point during retirement, the report explains. What’s more, leading up to retirement, women tend to earn less than men, which can translate into less money available for saving and lower Social Security benefits.
Prudential’s own research shows that women are more likely than men to carry student loan debt (25% versus 18%). Women are also less likely to have saved for retirement (54% versus 61%) and, on average, have lower retirement savings ($115,000 versus $203,000).
Prudential’s Takeaways
Given these ongoing challenges, the firm submits that employers and financial advisors should consider providing employees with tools that let them model differing financial scenarios to understand how much they will need to save for retirement and how they are progressing toward their goals. Additionally, employers and advisors can make sure that employer-sponsored retirement plans include investment options, such as TDFs, designed to help individuals reach their retirement savings goals, the firm recommends.
Employers and financial advisors also should consider giving employees access to tools to help them choose a Social Security claiming strategy optimized for their needs and circumstances. “This is especially important for women, who are more likely than men to collect benefits as a surviving spouse,” Prudential advises.
