Data and Research November 14, 2018

Analysis Shows Impact of Financial Wellness Programs on Retirement Readiness

When workers are continuously engaged in a financial wellness program, they increase their retirement contribution rates by 38%, and the average age at which workers could retire and replace 80% of their income moves from 68.5 to 66.96, according to Financial Finesse.

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Financial Finesse’s “Special Report: The ROI of Improving Employee Retirement Readiness” found that financial wellness programs are succeeding in helping people prepare for retirement. When workers are continuously engaged in a financial wellness program, their financial health moves from 4.0 to 6.0 on a 10-point scale. Additionally, they increase their retirement contribution rates by 38%.

The average age at which workers could retire and replace 80% of their income moves from 68.5 to 66.96. For a company with 50,000 employees, that could lead to annual savings of $65 million to $97 million a year. Citing a 2017 study by Prudential, Financial Finesse says that each employee who does not retire costs a company more than $50,000 a year.

Reduction in retirement age occurs across all ages, with employees younger than 35 seeing a reduction of 2.67 years, and older employees seeing a reduction of one year. Even modest improvements in employee financial wellness generate meaningful savings. For instance, if their financial health moves from 4.0 to 5.0, they tend to increase their retirement savings by 17.85%—and this could result in their being able to retire a year earlier. For a company with 50,000 employees, this could result in annual savings of $33 million to $49 million.

“Repeat engagement in financial wellness programs drives improvement in overall financial health, so this isn’t a one-and-done process,” Financial Finesse says. “Improvements are incremental and increase with the number of interactions. Companies that offer financial wellness benefits should focus on creating multiple channels to reach employees and develop techniques that encourage continuing engagement in the program. Retirement plan design practices, such as auto-enrollment and auto-escalation, are foundational, and should be incorporated with an easy-to-use retirement calculator and unlimited access to financial coaching.”

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At the current median contribution rates, Financial Finesse estimates that the average age Americans can retire is 68 years and 11 months.

When people engage with a financial wellness coach more than five times, they are more confident about their retirement outlook, with 47% of these people saying that they know they are on target to replace 80% of their income in retirement.  By comparison, only 26% of those who only used an online financial wellness program share this confidence.

“For those companies whose employees have predictable day time work schedules, coaching can be offered in person at the worksite,” Financial Finesse says. “In industries with 24-hour work schedules, financial wellness programs will reach more employees if financial coaching is offered by telephone or computer screen-sharing.”

Financial Finesse’s findings are based on an analysis of 18,148 employees who participated in their workplace financial wellness program between 2011 and 2018.


Data and Research November 14, 2018

Boost in Balances Giving Retirement Savers False Sense of Security About Retiring Early

MassMutual urges pre-retirees to calculate their projected income and expenses in retirement because although retirement plan balances are healthier than they were five years ago, they may not necessarily be sufficient to support the income needed for so many early retirements.

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The average age that Americans plan to retire is 62, down from 64, when MassMutual conducted its last State of the American Family Study. Forty percent of Americans plan to retire before the age of 60, up from 32% five years ago. Only 22% plan to retire after age 65, down from 30% in 2013.

However, only 56% of people have calculated how much income they need to retire. In 2013, that figure was 61%.

“There is greater optimism about retirement and people’s ability to retire sooner rather than later, which may be attributed to the growth in the financial markets and a spike in Americans’ retirement savings during the past five years,” says Tom Foster, national spokesperson for MassMutual’s Workplace Solutions unit. “However, many Americans may have a false sense of security when it comes to being ready to retire.”

Eighty-four percent of those surveyed own a retirement product, such as a 401(k), 403(b) or individual retirement account (IRA). Five years ago, only 82% owned such a product.

Forty-seven percent of those surveyed said they were confident about being able to retire, up from 45% in 2013. However, 35% worry about outliving their retirement savings, up from 33% five years ago.

Citing data from the Employee Benefit Research Institute, MassMutual says the average 401(k) balance in 2016 was $75,384, up from $72,383 in 2013. Among those who saved consistently during those years, the average balance was $167,330 in 2016, up from $121,152 in 2013.

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“We urge pre-retirees to calculate their projected income and expenses in retirement before taking the plunge, to ensure they are financially prepared for retirement,” Foster says. “While 401(k) balances are healthier than they were five years ago, they may not necessarily be sufficient to support the income needed for so many early retirements. Look before you leap.”

Isobar conducted the online survey of 3,235 Americans with household incomes of more than $75,000 for MassMutual in January and February.

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