Debt stress is impacting retirement savings, and mental health

Employees continue to struggle with their mental health, and their tenuous financial situations are only adding to the stress. 

According to the most recent Mental Health Index by Telus Health, formerly LifeWorks, 40% of employees are feeling overwhelmed by their debt and financial responsibilities, and 28% have been digging into their savings to cover day-to-day expenses. 

For many, these financial burdens are dealt with in silence. The index found that 71% of employees struggling with financial stress have not reached out for financial help or support, and 17% said that embarrassment was their main reason for keeping quiet. This group has poorer mental health than those who have taken advantage of coaching or other debt relief programs. 

Read more: From student loans to retirement, financial wellness benefits need to help four generations of employees

"This month, we saw the largest decline in mental health since April 2020, and many signs point to the rise in inflation as the main reason for this drop," Paula Allen, Telus Health global leader of business and client insights, said in a release. "Resources such as employee assistance programs and financial well-being programs have never been more important; however many are under-communicated. This is the time to change that."

An inability to manage debt can lead to life-long financial challenges. More than half of employees say that debt is a "major" problem for them, and 51% of employees believe it will  negatively impact their ability to save for retirement, according to the Employee Benefit Research Institute. In 2022, 28% of employees had to tap into their retirement account or stop saving to cover a short-term expense instead, research from Betterment at Work found. 

Read more: The 4 expenses retirees most underestimate, and how advisers can help

To combat this, employers have been boosting their financial wellness benefits, and many list this as a top priority for 2023. Ninety-seven percent of employers feel responsibility for their employees' financial wellness, according to Bank of America, and see improvements in engagement and well-being when those needs are addressed. 

Yet support — and relief — still feel hard to come by for many employees. Despite increased investment in financial wellness offerings by employers, 57% of employees with debt have not utilized their benefits to help them tackle it, Telus Health found. Again, embarrassment was the top reason given for why they have not reached out for external support. 

Despite low engagement, employees feel that benefits including automatic savings and investment plans would be most helpful for them to save for retirement despite their debt, and 41% list access to an emergency fund as critical to improving their anxiety around finances, the index found. 

Read more: Bank of America reveals top retirement concerns amid inflation 

Employers should be prepared to adapt and adjust their benefit strategies as employees continue to be impacted by evolving financial challenges.

"Workers are looking to be supported in ways they may not have been in the past and it's important for employers to be aware of this shift," Juggy Sihota, chief growth officer at Telus Health, said in the release. "Employers can adapt by making financial savings and investment plans more readily available, as well as consultation services to help educate and empower their employees."