Comprehensive financial wellness programs that repeatedly engage employees can effectively mitigate current and future costs associated with delayed retirement, according to new research that quantifies the savings from improvements in employee retirement preparedness.
According to Financial Finesse’s “Special Report: The ROI of Improving Employee Retirement Preparedness,” even modest improvements in employee financial wellness generate meaningful cost savings.
Based on the firm’s updated ROI predictive model, the findings show that an improvement of the average workforce financial wellness score from 4.0 to 5.0 leads to a 17.85% increase in retirement plan contribution rates, reducing the average projected retirement age by one year. For a large employer with 50,000 employees, this upward shift in the wellness score can generate $33 million to $49 million in annual cost savings from reducing delayed retirements.
The firm’s financial wellness score is measured on a scale of 0 to 10, with 0 indicating minimal financial wellness and 10 indicating optimal financial wellness. The firm notes that scores are adjusted to consider age, income and the needs associated with different life stages.
Repeated engagement with financial wellness programs can improve average workforce financial health from a 4.0 to a 6.0, increasing employee retirement plan contribution rates by a factor of 38% from original rates, the firm notes.
This can translate to the projected average workforce age at which an employee could retire and replace 80% of their income dropping by two years — from nearly 69 years of age to 67 years. The study suggests that when applied across a total workforce of 50,000 employees, that reduction in average retirement age could result in the employer saving over $65 million.
When looking at even larger employers, the estimated savings appear to be even more impressive. According to the report, employers with 100,000 employees can save more than $65 million when overall financial wellness scores increase from 4.0 to 5.0, and more than $129 million when scores increase from 4.0 to 6.0.
The report further explains that reductions in retirement age occur across all career stages, with employees under 35 seeing the largest reduction at 2.67 years, while older employees see a reduction of one year. Accordingly, the firm emphasizes that comprehensive financial wellness programs that repeatedly engage employees are found to be most effective in mitigating current costs of delayed retirement, as well as future costs.
Financial Finesse’s CEO Liz Davidson notes that improvements in employee financial wellness are incremental and increase with the number of interactions, so companies should focus on creating multiple channels to reach employees and engagement techniques which encourage them to keep coming back.
Increased Deferral Rates
Financial Finesse’s analysis further finds that every one-point increase in overall financial wellness scores equated to approximately a one-point increase in average deferral rates. This improvement contributed to higher levels of retirement confidence among repeat users. In fact, the report notes that in 2017 repeat users were more than twice as likely as first-time users (43% versus 19%) to report being on track to achieve their retirement income goals
The report is based primarily on an analysis of 18,148 employees who participated in the firm’s employer-sponsored financial wellness benefit from 2011 to 2016.