Commentary: A generational shift is underway. This year, millennials will overtake baby boomers as the nations largest living generation. As the boomer generation moves further into traditional retirement years, evolving employee expectations are altering the benefits landscape more significantly than at any other time in recent history.
As evidence, employees increasingly expect employers to help with financial planning issues that go beyond retirement planning. According to the latest Aon Hewitt Benchmarking report, employers are stepping up: 93% of companies are very or moderately likely to create or broaden their financial wellness efforts in a manner beyond retirement decisions. Employers commonly offer education on investing and the financial markets, but many intend to expand offerings in the near future. Understanding the financial realities that each generation confronts may help employers craft effective financial wellness programs that fit employees needs.
The big picture
Participants in all demographics believe they should save for retirement. Many say they are not saving enough; many are uneasy about their retirement prospects, and the popular press reminds us continuously about our nations lack of retirement preparedness.
At the same time, Americans have an understanding of the cards stacked against them; 82% believe salaries are not keeping up with the cost of living, cited as a major factor making it harder to prepare for retirement. They arent imagining this: median household income in 2013 had fallen by 9% since 1999, according to the U.S. Census Bureau.
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And employees are discouraged: 73% agree that the average worker cannot save enough on their own to guarantee a secure retirement, while 67% would be willing to accept less in pay increases in exchange for guaranteed income in retirement, according to the NIRS 2015 Retirement Security Survey.
Now vs. later
As humans, we are inept at securing a future that we know very little about, especially when confronted with a leaking roof, a childs educational needs, car repairs, or even the need to put food on the table. Behavioral finance research tells us that, in the face of uncertainty, humans prioritize the present over the future. Known as hyperbolic discounting, its practical effect for a large percentage of the population is that immediate financial needs overtake even the best of intentions, finds research from Alliance Bernstein.
Leaky 401(k) accounts
Half the population lacks sufficient resources to cover emergency expenses. Only 48% of Americans are capable of covering an emergency expense of $400 without selling something or borrowing money, according to the Federal Reserve. Too often, people with access to the cash in their 401(k) account will use this to cover emergency expenses. Others cash out their retirement account when changing jobs, spending the money on accumulated debt, including medical debt. This leakage from retirement accounts can severely undercut fundamental retirement security over time.
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Increasing evidence demonstrates that those with precarious financial lives also forego necessary health care. Student loans and revolving credit card debt are likely predictors of inability to meet health care expenses. Thirty-four percent of households surveyed by the Federal Reserve reported going without health or dental care in the previous year because they could not afford it. Of these, only 16% reported having an emergency fund that could cover three months of expenses. Conversely, 52% of people who did not report avoiding medical care had an emergency fund.
Financial wellness programs that recognize these realities, and understand how they affect the different generations, may best serve participants in the future.
In a future post, we will examine specifics of each generation and explore how their financial wellness needs may differ.
Cindy Lapoff, J.D., is a legal and regulatory consultant for Manning & Napier. She provides guidance on ERISA, the Patient Protection and Affordable Care Act and other legal and regulatory developments affecting single and multi-employer plans, including Supreme Court and legislative/regulatory activity.
