American workers are benefiting from higher savings account rates, a rebounding equity market and a strong employment market, but economic and financial conditions are making it hard for many to manage day-to-day finances, a new study finds.
One thing that’s making it hard is inflation, which is still front-and-center for most Americans. While the rate of inflation has declined, overall consumer prices haven’t moved in tandem. As a result, Americans are still taking actions to manage inflation’s impact, including creating a budget, cutting back on daily expenses, and seeking alternate income streams (i.e., “side hustles”).
What’s more, nearly 3 in 10 (27%) Americans say they are “very” or “somewhat likely” to take out a loan or hardship withdrawal in the next six months. In fact, new loans and hardship withdrawals taken in each quarter of 2023 were the highest in the past eight quarters, according to Empower’s third annual study of retirement plan participant behaviors.
Among the reasons for doing so are increasing credit card debt, higher interest rates, elevated daily expenses, and the resumption of student loan debt payments.
The study also finds, however, that Americans are taking prudent financial steps to manage the ongoing impact of inflation. More than half (56%) of respondents have spoken with, or plan to speak with, a financial professional. In addition, two-thirds have no plans to sell assets or investments, and 69% don’t plan to reduce their retirement savings account contributions.
Other positive findings show that the average retirement plan savings rate has stayed steady at approximately 8% over the past year. Average account balances increased by 11% to $91,000 during that same period, which the firm notes was a welcome change from the 27% decline the prior year.
Not Saving Enough?
That said, only 11% of Americans think they are saving enough. Needing to make ends meet and inflation are the top reasons why, according to Empower.
“Despite the economic challenges American workers are facing, it is reassuring that most are taking positive steps to pursue their financial goals,” said Empower President and CEO Edmund F. Murphy III. “Retirement planning is a lifelong commitment, and this study uncovers that 68% of working Americans are confident they will be financially ready for retirement.”
Empower’s study also reveals that workplace savers using managed accounts are saving 27% more, and are more engaged with their retirement plans, than are target date fund users. As one might presume, younger generations show the highest use of professionally managed strategies (managed accounts and target date funds).
“We know that employees who are engaged savers, utilizing the tools and advisory services that many employers provide, do save more than those who are unengaged,” said Luis Fleites, marketing communications director for Empower. “This study uncovered that more than 90% of workplace savers value these tools and access to unbiased advice.”
Still, even though most Americans report being confident about their retirement readiness, the study notes that several underlying gaps need to be addressed. Consider that:
- Men’s average account balances are 50% higher than women’s.
- Only 29% of Hispanic women consider saving for retirement a top goal, as opposed to 62% of Hispanic men.
- Close to half (43%) of Hispanic women are saving less than 3% or nothing at all.
- 29% of Black women feel less confident, more than double the rate of Black men (13%).
- Gen Zers are saving 43% less than Baby Boomers and have the lowest engagement rates, and 36% aren’t maximizing their employer-matching contribution.
- Gen Z is the only generation for which saving for retirement is not the top financial goal, as more Gen Zers prioritize paying off debt (37%) than saving for retirement (28%).
Conducted by FGS Global on behalf of Empower, this year’s study analyzes the behavior of 5.3 million (primarily corporate 401(k)) DC workplace savers for which Empower serves as recordkeeper. In addition, an online survey of full-time employees at for-profit companies with access to a DC plan was conducted in August 2023 with a sample size of 2,511 working Americans between the ages of 18 and 70.
