The Connection Between Wellness and Retirement Savings

By ASPPA Net Staff • January 27, 2017 • 0 Comments
Wellness — physical, as well as financial — certainly has generated a healthy amount of discussion. And recent studies find that these forms of wellness are not only inter-related, they also can affect retirement readiness.

Health and Wealth

State Street Global Advisors’ (SSGA) latest research suggests that there is a noteworthy interplay between people’s happiness with their working life and their financial well-being. In fact, a new report claims to have found that financial wellness actually influences an employee’s happiness at work.

SSGA’s 2016 Biannual Investor Survey of Millennials and Generation X — what they call “Generation DC” notes that employees who score highly on financial wellness metrics, such as reporting low levels of stress and high levels of confidence in achieving retirement goals, are disproportionally more likely to characterize themselves as happy.

Moreover, the report’s authors claim to have found that participants who feel financially well tend to attribute those feelings to their employer, “crediting them in part for their positive emotional and financial situation,” and that as feelings of financial wellness improve, participants’ feelings about their working life and their employers improve as well.

Financial Finesse’s analysis of retirement plan contribution rates in its 2016 ROI Special Report, which was drawn from a case study of a Fortune 100 company’s workplace financial wellness program from 2009 to 2014, found that employees that improve their financial wellness score from 4 to 6 could potentially improve their retirement plan balance by more than 27%.

It Costs Employers, Too

Employers whose employees suffer from overwhelming financial stress or struggle to maintain financial stability tend to suffer immediate as well as future financial costs due to the absenteeism, garnishments, payroll taxes and delayed retirement that result from that stress, Financial Finesse says. However, as employees’ financial health improves, these costs diminish.

While the study said that employees who characterized themselves as “suffering” amounted to just 13% of respondents, it found that their financial stresses and difficulties can disproportionately affect overall workplace health and efficiency. For example, they averaged 17 hours of absenteeism a year; 10.7% had wage garnishments; and 49% reported having taken a retirement plan loan or hardship distribution. They also were the least likely to contribute to their retirement plan (80%), have the lowest average retirement plan deferral rate (5.04%), and contribute the least, on average, to flexible spending and health savings accounts.

Address the Stress

A recent Ernst and Young Financial Wellness Assessment, which reflects assessments taken between August and October 2016 of more than 4,000 respondents age 18-65+, says that retirement weighs on employees’ minds. Thirty-seven percent said they are confident they are on the right track for a comfortable retirement, and a majority — 51% — said they are worried about their financial situation.

If stress is created and exacerbated by financial concerns, the converse also can be true, Financial Finesse indicates. Its study says that participants with higher wellness scores had higher rates of flexible spending and health savings account contributions.

The report’s authors explain that employers can help improve the overall workforce financial wellness score by offering financial education in three areas: personal financial basics, retirement planning and investment planning.

Financial Finesse’s 2015 findings regarding Millennials indicate that there is work to do in educating employees. It showed that:

  • 59% understood the basics of investing;

  • 32% knew their investment risk tolerance;

  • 24% had 15% or more of the wealth in a single position; and

  • 23% have used a retirement calculator (up 1% from the prior year).

Employers appear to be taking notice. In a 2015 report, Aon Hewitt reported that nearly half (49%) of surveyed employers said that financial wellness was more important to their organization since 2013. In a later report, “2016 Hot Topics in Retirement and Financial Well-Being,” Aon Hewitt said that 58% considered it to be of more importance than they had before.

Their motivations for offering these financial wellness programs went beyond just the bottom line and included:

  • it’s the right thing to do (85%);

  • increasing employee engagement (80%);

  • improving retirement statistics (58%);

  • decreasing employee time spent addressing financial issues (44%);

  • employee requests (33%); and 

  • cutting medical costs (26%).

Aon Hewitt’s latest report, issued in January 2017, shows that the trend continues. It says that 60% of employers believe that the importance of employees’ financial wellbeing has increased over the last two years, so it’s no surprise that 90% of employers said they are concerned about how well their workers understand how much they need to save to achieve an adequate retirement savings. Furthermore, the report says that 87% of those that are not satisfied say they are likely act this year to help workers make plans to reach their retirement goals, and that by the end of 2017, 84% of employers will have a tool available that covers at least one aspect of financial wellbeing.

Not only that, a study Financial Engines released in December 2016 indicates that employees are receptive. It found that more than half (57%) of all plan participants said that they were very or extremely interested in accessing financial planning help through the workplace. And more than half (53%) of them said having their employer select an advisory service that operates as a fiduciary, or acts in the employee’s best interest, was a major advantage.

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