Data and Research September 19, 2019

Natixis Reports U.S. Drop in Global Retirement Index

Natixis identifies interest rates, longevity and climate change as the three pressing risks affecting retirement in the U.S.

Reported by

The United States fell two spots among developed nations in the annual Global Retirement Index (GRI) released by Natixis Investment Managers.

Landing in 18th place, the U.S. ranked either the same or lower in all four sub-indices: health, material wellbeing, finances and quality of life. The study pinpoints three global risks—lower interest rates, an increase in longevity and high costs associated with climate change—as responsible for the downshift.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

“This is a holistic review for the overall quality of life over the world, and what platforms lead to this overall experience of someone living in different parts of the world,” said Ed Farrington, executive vice president at Natixis, in an interview with PLANSPONSOR. “How comfortable are these participants?”

The study isolates the 2008 financial crisis for introducing interest rate cuts in order to lift global economies during the time. According to the report, reducing these rates in the short-term meant workers had easier access to cash, however as higher priced bonds matured in the long-term, investors could only reinvest in the lower rates.

The study adds that appropriate planning will have to account for investment risk. This includes investing in higher risk assets including equities, even if it means exposing portfolios to volatility.

The aging workforce continues to impact the U.S. economy, as well. Projections from the United Nations show that individuals in developed countries who reach age 60 in 2015 will live an average of 23 more years.

“You’re still seeing for a couple who retires healthy at age 65, there’s a likelihood that one of the two will be alive well into their 90s,” says Farrington.

He adds that a well-designed 401(k) contribution solution and an expansion of workplace retirement plans in every job market can mitigate the complexity served with longevity. One of the easiest tasks retirement plan sponsors can do, he says, is help their employees save money.

Another pressing risk on retirement security is climate change and its financial and health impacts. Mainly viewed with a long-term lens, the study notes the effects of climate change are affecting today’s retirees. For example, older workers are burdened with costs due to natural disasters, including high insurance rates and expenses due to damages. Additionally, the study reports that according to the Environment Protection Agency (EPA), extreme heat in the U.S. has increased the risk of illness among older workers, especially those with chronic illnesses.

“We’re living in climate change, and it could be more severe in older adults,” says Farrington. “Retirees are living in extreme conditions, and it has a direct impact on their health. When that happens, it can lead to dislocation for families, and puts pressure on the government to solve these numbers.”

While climate change is a current driver in security risk, the study notes Millennial workers could be the driving force in weakening its impact. Natixis research shows Millennial investors in the U.S. are more likely than older generations to “align their personal and environmental and social values with investing and purchasing decisions.” And since Millennials will make up 75% of the workforce by year 2025, it’s likely the economy will see its effect.

“They clearly have a desire to have access to more responsible, sustainable investments for their workplace savings and personal savings,” explains Farrington. “[Millennials] are asking more questions, they want to know these things.”

Farrington adds that it’s time for plan sponsors to encourage more sustainably-driven investment options. In past years, these investments were described as “feel-good” options: investors utilized them because it made them feel better about what they were doing for the environment, not because it was sustainably responsible.

“Plan sponsors should be considering them as part of the overall evaluation of investment menus they offer, we should be helping Millennials have more access to responsible, sustainable investments,” he says.

Other factors affecting the U.S. GRI ranking are growing pressures on government resources, such as Social Security and Medicare; economic inequality; a decline in life expectancy compared to top-ranking nations including Japan; and a lower response to quality of life. Nordic countries dominated the top ten in GRI rating, including Iceland, Switzerland and Norway in the top three, as well as Ireland, New Zealand, Sweden and Denmark.

More information about the 2019 study can be found here.

Benefits September 19, 2019

Health Care a Top Concern to Address in Financial Wellness Programs

Surya Kolluri, with Bank of America, says financial wellness should be thought of in the broadest way, with an eye toward how employees live their lives; this includes health care and caregiving efforts.

Reported by

More than twice as many companies are offering workplace financial wellness programs to employees today compared to four years ago (53% vs. 24% in 2015), according to Bank of America’s ninth annual 2019 Workplace Benefits Report.

More than half (55%) of employees today rate their own financial wellness as good or excellent, down from 61% a year ago. Employees who rate their financial wellness positively are more likely to feel that they can effectively manage their day-to-day finances, pay bills while saving for future goals, and that their retirement savings are on track.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

According to Bank of America, awareness and understanding of critical health care savings and caregiving support benefits are lacking.

Surya Kolluri, managing director with Bank of America’s retirement and personal wealth solutions group in Boston, says financial wellness should be thought of in the broadest way, with an eye toward how employees live their lives.

“When we think about priorities in life, health care is at the top. It is a financial burden,” Kolluri says. The Bank of America report shows the average person spends $7,700 per year in health care costs. In addition, the survey of 996 employers and 804 employees found 53% of employees have skipped or postponed an activity—going to the doctor, buying a prescription, etc.—to save money on health care.

“As we go from work life to retirement life, health care costs will only go up. If we don’t address health care costs now, it will drive down employees’ feelings of financial security,” Kolluri says. “We should all appreciate that health and wealth are two sides of same coin; If one is not healthy, he may draw on savings to pay for expenses, and if one is not financially well, being unable to get care and the stress of financial burdens can drive up health care costs.

Employers can encourage employees to take advantage of no-cost preventive care, health savings accounts (HSAs) and employer-provided physical wellness programs to get a handle on health care costs now and for the future.

Kolluri says HSAs are emerging as a critical tool to address health care costs. But, HSAs are connected to high-deductible health plans (HDHPs). Bank of America found 90% of employers that offer HDHPs also offer HSAs. More than three-quarters (76%) of employees that have an HDHP are also enrolled in an HSA.

But, the study found 65% of employers say they have a good understanding of HSAs, while only 7% correctly identified four basic attributes of HSAs. Likewise, 57% of employees say they have a good understanding of HSAs, while only 11% correctly identified the attributes.

Kolluri suggests that employers should not only offer HSAs, but provide HSA education. They should inform employees of what health care costs and how Medicare works, as well.

Caregiving

Caregiving is another way of life for many employees that employers may not recognize. According to the Bank of America report, 45% of employees perform caregiving duties for a family member, and 62% of caregiver employees don’t believe their employer knows they’re a caregiver.

In the most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey, roughly half of U.S. investors (53%) report they have provided financial assistance, personal assistance or both to adult children or extended family members—not including school tuition. When asked how much they spent in total in the past year financially supporting adult family members—not including college expenses for an adult child—investors estimate spending $10,000 on average.

Non-retired investors are 11 percentage-points more likely than retired investors to say that providing this monetary help has harmed their finances (31% vs. 20%). Nearly one in four say the time commitment has negatively affected their ability to save for retirement (23%) or their finances more generally (22%).

Kolluri says employers should think about offering caregiving benefits as part of a broader financial wellness program. He suggests offering flexible work hours as well as care consultation programs to give patient’s advice about care, for example. In addition, providing a subsidy for the suggested care needed can help caregivers financially.

He explains that flexible work hours could provide caregivers time for caregiving activities, including implementing legal actions that can put the person they are caring for in a better financial position.

Women’s versus men’s financial wellness

Kolluri says one trend found in the report is the difference between women and men when it comes to financial wellness. “The life journey and financial life journey for women is different from men,” he says.

Bank of America found women are less likely to say they are financially well; 43% of women versus 65% of men. In addition, the median retirement savings for women is $30,000 compared to $100,000 for men.

Kolluri attributes this in part to more women taking time off to raise children or taking time off to be a caregiver. “Overall its’ the right thing to do, but the effect on time and savings is showing up,” he says.

The most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey shows that women investors are more likely than men to spend time helping a parent or in-law (14% of women versus 8% of men). Women who provide this care are also much more likely than their male counterparts to be the sole caregiver (40% versus 13%).

Diversity and inclusion

The Bank of America reports suggests that diversity and inclusion (D&I) programs contribute to a feeling of financial wellness.

Kolluri says diversity and inclusion impacts wellness, engagement and participation in programs.

“According to studies, corporations with a D&I program perform well,” he adds. “We found only half of employers have D&I programs. Having strong executive sponsorship and strong employee networks can lead to engagement, participation and a feeling of wellness.”

«