Employees are thinking more about what they need to do to retire securely, but their savings habits are making that goal difficult. That’s what Financial Finesse, an independent educational company that counsels employees at more than 400 organizations about financial matters, found when it compiled its “State of U.S. Employee Retirement Preparedness” report.
The report reveals some positive developments: Over the past year, more employees are inquiring about retirement planning issues with the company’s on-staff CFPs. Specifically, they want to know how much they need to save and where to put their money. Retirement workshop attendance has increased, as is the number of employees running a retirement projection.
Further, the percentage of employees participating in an employer-sponsored retirement plan ticked up from 91 percent in 2011 to 92 percent this year. Contributions to a traditional or Roth IRA is up, rising from 21 percent in the second quarter of 2011 to 25 percent in Q2 ’12.
Yet, the report also noted that while employees are more aware of retirement planning issues today, they fall short in taking the concrete steps to make that happen. The percentage of employees who contribute enough to get a match from their employer dropped from 85 percent in 2011 to 78 percent in 2012. Also rising was the percentage of employees taking a hardship withdrawal or loan from their 401(k)‑27 percent last year to 34 percent.
Only 18 percent of employees feel they are on rack to replace 80 percent of their income so they can experience a comfortable retirement. That does, however, represent an increase from 14 percent reporting the same last year.
Of those who have yet to consider retirement planning, 74 percent have failed to take the first stride in the process, which is to calculate how much they should save and invest to fund their retirement.
Personal money management skills are lagging as well. Forty-nine percent report having an emergency fund to cover unexpected expenses, down from 53 percent last year. When asked if they had a handle on their cash flow so they spend less than they make each month, 67 percent replied in the affirmative this year versus 71 percent in 2011.
Broken down by age groups, the study found that those age 30-44 were the least prepared for retirement, with less than a majority reporting having an emergency fund or paying off their credit card balances in full. But this younger cohort has the advantage of having more time to save for retirement, the report noted.
In a statement, Liz Davidson, founder and CEO of Financial Finesse, said that despite some positive movements, current workers must boost their savings if they want to spend their golden years free of financial worry. “The needle is moving, but not fast enough to counter long-term economic challenges that are requiring employees to save significantly more than in previous decades to retire comfortably,” she stated. Factors such as health-care costs, inflation, taxes and longer life expectancy will all have an impact on retirement preparations, she noted.