Data and Research February 1, 2023

Inflation, US Workers’ Recession Fears Force Delayed Retirement

A Franklin Templeton Investments study found that although the U.S. economy has not contracted yet, workers feel elevated financial stress and anxiety.   

 

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Workers grappling with the effects of the current economic climate have re-envisioned their retirement because of increased prices and fears of a recession, according to new data from Franklin Templeton Investments.

Inflation, market volatility and historic drawdowns have forced workers to reassess their retirement plans, according to the 2023 Voice of the American Worker Survey.

The report found 73% of workers agreed that inflation directly threatens their retirement plans, and 63% said the current economic climate has affected their plans to retire early.

The research showed that employees have delayed their planned retirement age an average of three years—to age 65 from age 62—and 61% feel their retirement plans are in jeopardy, while 73% agreed with the statement, “The soaring living expenses changed the way I envisioned my retirement.”

“With the stress of a potential recession on the horizon, it’s critical for employers to check in with their employees to see how they’re feeling and offer comprehensive, personalized support,” stated Yaqub Ahmed, head of U.S. retirement, insurance and 529 plans at Franklin Templeton, in a press release.  

Data from the Bureau of Economic Analysis, an agency of the Department of Commerce, show U.S. gross domestic product increased at an annual rate of 2.9% in the fourth quarter of 2022, after increasing 3.9% in the third quarter, following two consecutive quarters with decreases, earlier in the year.

Although workers believe their plans to retire are at risk, many employees remain focused on saving for retirement, with 57% more likely to contribute to their retirement account than to stop saving altogether, the report finds.

Franklin Templeton Investments also found 64% of respondents agreed that their financial independence is in jeopardy due to the current economic situation, and 49% feel uncertain about their job stability—including a full 60% of Millennials—because of economic conditions.

With workers feeling elevated levels of financial stress, employers have an opportunity to build trust by checking in with their workforce, Ahmed added.

“Providing employees with a network of resources in times of uncertainty may help improve wellness across all dimensions—financial, physical and mental—ultimately, enhancing productivity at work,” said Ahmed.

What’s Changed in 2023

Franklin Templeton found that 52% of workers plan to pursue a phased retirement, compared to 47% in the 2022 report and 44% in 2021.

The research showed a seven-percentage point increase year-over-year—to 42% from 35%—of workers feeling highly stressed by their financial health. Franklin Templeton Investments also found a five-percentage point increase—to 74% from 69%—for workers who said achieving financial independence is their top financial concern, and a seven-percentage point  spike—to 61% from 54%–for employees who agreed that paying off debt is top of mind.

Achieving financial independence, at 81%, remained the primary goal for workers surveyed in 2022.

Employer Options

Higher expenses due to increased inflation has caused stress that likely impacts most workers, but plan sponsors still have some options.

“If employers are unable to increase employees’ pay, they should consider offering benefits and incentives that could be just as impactful,” the report stated.

Personalized benefit offerings and appropriate financial wellness tools are among the options for employers to mitigate employee financial stress, the report advised.

For 52% of workers, the most preferred benefit is increased pay, but 41% answered a boosted 401(k) match amount, and 25% preferred an investment with a guaranteed portion of retirement income.

The report was conducted by the Harris Poll LLC, on behalf of Franklin Templeton, from October 17 to October 27, 2022, among 1,000 employed U.S. adults.

Data and Research February 1, 2023

Today’s Employees Expect Retirement Plan Benefit in ‘New Savings Paradigm’

A new Vestwell research report details emerging retirement trends for employers and workers.

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Employers failing to offer workers a retirement benefit have dismissed a basic feature demanded by employees, Vestwell research finds.

As a result of the COVID-19 pandemic, workers’ expectations for their workplace benefits are higher and dissatisfaction has contributed to the post-pandemic Great Resignation and a historically low U.S. unemployment rate of 3.5% in December. Many expect employers to offer a retirement plan benefit, according to the Vestwell 2023 Retirement Trends Report.

“Regulatory tailwinds and advanced technologies have enabled a monumental shift in the industry, expanding retirement access to small businesses and savers that are historically difficult to reach,” Aaron Schumm, founder and CEO of Vestwell, said in a press release.

The research found 73% of employees said they agreed or strongly agreed that they expect employers to offer a 401(k) or 403(b) retirement plan because of the tight labor market and 98% of respondents said they think it’s important for their employer to offer a retirement benefit for employees at the workplace.

Voya Financial Research shows a retirement plan is as important for employee retention as a competitive salary and work arrangement, according to November data 2022, that finds 60% of workers are more likely to stay with their current employer if they offer an employer-sponsored retirement plan.

Among registered voters 25 and older, 96% said that having a workplace retirement savings plan is important to helping them save for retirement, and 92% supported establishing a program to help workers save for retirement if their employer does not currently provide a retirement plan at work, according to American Association of Retired persons 2021 data, presented in a blog post.

The SECURE 2.0 Act of 2022, a package of legislative retirement reforms passed by Congress in December 2022, included provisions to expand retirement plan benefit coverage. The legislation “significantly sweetens the deal for small businesses” interested in offering a retirement plan for the first time, according to the report.

The favorability for employer-sponsored retirement plans at work was shown by workers’ reported saving preference, ranked as follows:

  • 401(k) (57%)
  • cash balance plan (23%)
  • individual retirement account (11%)
  • emergency savings account first (4%)
  • health savings accounts at the top (3%)
  • 529 college savings plans (2%).

 

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“A super-majority of [the] responding population indicated that they see retirement benefits as an expectation, rather than an exceptional perk,” the report found. “Employers seeking to differentiate their benefits package may consider offering additional savings benefits beyond just a retirement plan.”

Vestwell found 89.6% of employees expect companies that offer a retirement plan to also be involved in retirement education. To meet this demand, employers want to work with retirement plan advisers: 30% of plan sponsor respondents placed employee education as the top preferred service among expanded services for employers.

The “survey [data] shows an opportunity for small businesses, technology providers, and advisers to come together and embrace the new savings paradigm of 2023: where retirement plans are an expectation, employers are expanding their benefits, and employees have confidence in their position in the market,” the report concluded.

Data for the Vestwell report was gathered in a series of surveys, conducted in 2022, that included more than 1,300 employees, 500 advisers and 250 small business owners.

 

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