Employees could use financial advice. Workers globally anticipate they will need on average 67% of their current income in retirement, yet only a quarter feel they’re on track to meet that goal, according to an insightful new report: The New Social Contract: Age-Friendly Employers.
The research, a collaboration among Aegon Center for Longevity and Retirement (ACLR) and nonprofits Transamerica Center for Retirement Studies (TCRS) and Instituto de Longevidade Mongeral Aegon, is based on findings from the ninth annual global survey of 14,400 workers and 1,600 retired people surveyed across 15 countries. It was conducted in 2020 at the early stages of the pandemic.
It purposely investigates the role of employers in helping workers extend their working lives and prepare financially for retirement.
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The upshot: a range of options employers can do now, and, in the future, including creating age-friendly workplaces, providing flexible work arrangements and ramping up lifelong learning to help workers keep their job skills up-to-date and relevant to remain employable in the future.
All are crucial efforts that I applaud and support.
But these two recommendations caught my eye.
• Offer retirement planning services and financial advice
• Promote financial literacy through training, education, or financial wellness programs.
The way I see it, one of the easiest and best ways that an employer can lend a helping hand right now is by offering employees financial education and retirement planning guidance.
Many of us are nervous about our finances, triggered in large part to coronavirus pandemic. But that anxiety was percolating before that as older adults wrapped their heads around the notion of financing living long lives and unpredictable future health care costs down the road. Younger ones, too, worried about paying off student loan debt and finding a full-time job with employer benefits.
Right now, right here, however, it’s the angst that comes from uncertainty about job security, shaky retirement accounts whipping almost daily from market swings, and the global recession. It’s the whole ball of wax.
And many people are right to be worried because they haven’t taken a crack at planning for retirement. Only 17% of workers globally have a written retirement strategy (31% U.S.) — and 35% have a backup plan in the event they are unable to continue working before they reach their planned retirement age (43% U.S.), according to the survey.
And they lack basic Investing 101 know-how. Only 30% of workers in the U.S. could answer all the “Big Three” financial literacy questions developed by Annamaria Lusardi, an economist and professor of economics and accountancy at The George Washington University School of Business and Olivia S. Mitchell, an economist and professor at The Wharton School of the University of Pennsylvania, that test knowledge of compounding interest, inflation, and risk diversification. (I previously wrote about these questions as it pertains to women preparing for retirement in this MarketWatch column.)
“Amid the pandemic, recession, and market volatility, employers’ offering of financial education, investment guidance, and planning services can be especially helpful to employees who are facing challenges in navigating their long-term financial situation, savings, and investments,” says Catherine Collinson, CEO and president of nonprofit Transamerica Institute and TCRS, and executive director of ACLR.
The good news from the findings is that over three in five (62%) workers who receive financial advice as an employee benefit service have well-developed plans in place for their retirement savings and a comparable proportion (57%) feel as though they are now saving enough for their retirement.
For workers nearing retirement, the big conundrum is converting retirement savings into an income stream. “An important component of employer-sponsored retirement benefits is the inclusion of a robust program, which can help employees save and invest wisely — and develop retirement income and drawdown strategies when they are getting ready to retire,” Collinson says.
“However, our global retirement research finds that many employers are not yet offering a full complement of these services. Without these services, some employees may be making uninformed decisions, while others may be inclined to turn to nonprofessional sources in their decision-making process.”
In fact, the report found that 27% workers are most likely to turn to friends and family as a source for information and advice on choosing how to save for retirement.
And what happens if you’re over 50 and have been laid off during the pandemic? Almost two in five (37%) retirees retired sooner than planned, with the most common reasons for an early retirement being ill health (33 percent) or unemployment/ job loss (23%), according to the report.
“An essential element of retirement planning is having contingency plans for life’s unforeseen circumstances and financial shocks — which can strike at any time.” Collinson says. “The offering of these types of services can make a big difference in employees’ overall retirement outlook.”
Labor economist Teresa Ghilarducci, the director of the Schwartz Center for Economic Policy Analysis (SCEPA) at The New School in New York, who leads the research center’s Retirement Equity Lab, has been especially focused on the impact of COVID-19 on older workers.
The Lab’s quarterly report on the status of older workers was centered on increased downward mobility in retirement amid the pandemic. It found that an additional 3.1 million older workers will fall into lifelong poverty in retirement and overall 67 million older workers and their spouses in the U.S. will suffer a decrease of 7 percentage points in their retirement replacement rate.
“We know that the flawed retirement system combined with older worker bias and the COVID-19 recession are going to drag millions down from the middle class while increasing the level of inequality in health, wealth, and income,” says Ghilarducci.
In fairness, there has been a movement in recent years by many employers to add a financial wellness component to their employee benefit plans. Last year, more than twice as many companies offered workplace financial wellness programs to employees compared with 2015, according to Bank of America’s 2019 Workplace Benefits Report.
Financial wellness programs are currently offered by 42% of employers, according to the MassMutual Financial Wellness Trend Study. Another 19% of employers are in the process of implementing programs and 19% say they plan to introduce wellness programs within the next three years.
“In today’s environment with the national spotlight on economic inequality due to COVID-19 and systemic racism, employers who want to make a difference are increasingly putting these programs in place to democratize access to financial coaching for everyone,” says Liz Davidson, the chief executive and founder of Financial Finesse, a financial education firm in El Segundo, Calif., that offers financial wellness programs at more than 12,000 employers.
“This is a complete reversal from even a decade ago when world-class financial guidance was reserved for executives — the top 1-5% of earners in the workforce — and not made available beyond that, totally bypassing the employees that needed it the most,” Davidson says.
The upside for offering a financial wellness program for employers: In addition to building good will with their workers, it can keep employees productive and on the job. Financial stress can trigger a slew of health issues from depression to ulcers and more.
One caveat for employees: Even though employers are well-intentioned, there are intrinsic privacy issues about revealing too much of your financial life to your employer, or admitting you need help.
And that’s where a pros-cons list can come in handy. My prediction is the pros of free professional help for your financial health now and in retirement will prevail.
As for me, I’m rooting for employers around the globe to take to pay attention to the proposals laid out in The New Social Contract and act. Helping workers extend their working lives and prepare financially for retirement is, put simply, at the very heart of good business.
Kerry Hannon is a leading expert and strategist on work and jobs, entrepreneurship, personal finance and retirement. Kerry is the author of more than a dozen books, including “Great Pajama Jobs: Your Complete Guide to Working From Home,” “Never Too Old To Get Rich: The Entrepreneurs Guide To Starting a Business Mid-Life,” “Great Jobs for Everyone 50+,” and “Money Confidence.” Follow her on Twitter @kerryhannon.