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Most Americans want to save for retirement, but many are too overwhelmed with short-term financial needs to focus on the future.
Saving for retirement is just as popular – and important – now as it has been in previous years. But this doesn’t mean it’s on everyone’s radar. Today, many Americans are confronted with unanticipated hits to their financial well-being. Whether they’re facing an unexpected medical bill, car repair, or loss of income, consumers may suddenly find the need to come up with emergency funds. Unfortunately, most don’t have the emergency savings they need to weather these financial storms.
As an employer, it’s vital that you know how your employees think about their retirement savings. When it comes to understanding how your employees view the importance and feasibility of saving for retirement, here are some numbers to consider.
How many workers are actually saving for retirement?
According to a Consumer Financial Protection Bureau (CFPB) study published in March 2022, 24% of consumers say they have no emergency savings set aside at all. Nearly 40% have some savings, but the amount they have saved is less than a month’s income, while 37% have at least a month’s income in their emergency savings accounts.
While most Americans are saving for retirement, a sizable chunk of people have not saved anything. In 2019, 15% of Americans did not have anything in the way of retirement savings. And this number didn’t vary much between different age groups. Gen Xers, ranging from age 39 to 54, and Baby Boomers, between ages 55 and 73, reported that 14% of each group had nothing saved for retirement.
Among those who are saving for retirement, only a small number think they’re saving enough. About 10% of people say they’re confident their retirement savings will get them through their golden years. On average, people think there is a 45% chance they’ll run out of money during retirement.
Workers aren’t taking action
When asked if they’re doing anything to make up for the lack of retirement savings, 41% of people say that they have not taken any action to fix the issue. They know they need to save for retirement but are often too stressed about day-to-day finances to think about the future.
Additionally, many people not saving for retirement think they can’t afford to start saving. They’re already living paycheck to paycheck, and the idea of reducing their pay to cover the future doesn’t feel feasible to many people.
Workers want retirement benefits
Employees love benefits. In fact, most employees (80%) say they would prefer new and improved benefits over a pay raise. For younger employees ages 18 to 34, this number was even higher, at 89%. Additionally, retirement benefits can help with workplace retention rates. One survey indicates that 75% of new hires say a retirement plan makes them more likely to stay with their employer.
Clearly, the idea of having a financial safety net is essential to employees. However, most Americans aren’t doing enough to ensure they have the financial security they need – not just for emergency needs in the present, but to live comfortably after they retire as well.
The onus of developing a financial safety net doesn’t have to fall solely on employees, however. Employers can help support their people financially by providing more than just a paycheck.
How employers can help bolster employees’ savings
The first obstacle employees face in saving is access to a retirement plan. When employees don’t have an employer-sponsored retirement plan, they often don’t save. Unfortunately, merely offering a retirement plan doesn’t mean your employees will start saving. Nearly 17% of employees with access to retirement plans don’t use them.
Employers can help with this by offering an emergency savings account (ESA), which works similarly to a 401(k). Funds for the ESA are deducted from the employee’s paycheck and deposited into the emergency savings account, and they can also withdraw the funds without paying a penalty, taxes, or fees. Unlike a 401(k), though, their contributions are taxed as income.
If employees don’t have access to an emergency savings account (ESA), they don’t consistently save for retirement. When workers don’t have emergency savings, they don’t want to put their money into a retirement account because the funds are relatively inaccessible.
There are several simple, accessible options for employers to consider to help their employees save, both for the present and the future.
Automatic enrollment encourages saving
If you offer a retirement plan, automatic enrollment is the key to ensuring your employees take full advantage of it. According to a study by the Pew Foundation, if employees were offered a plan but were not automatically enrolled, 55% percent said they would sign up. This is a good start, but there is more that can be done.
The same Pew Foundation study showed that 85% percent of employees said they would stay in the program if they were automatically enrolled. These are significant numbers to consider when determining whether to offer auto-enrollment with a retirement plan.
Employer matches boost employee contributions
Employers shouldn’t just offer retirement savings such as 401(k) plans or IRAs – they should ideally offer a match for employee deposits into those accounts. A Hewitt survey showed that the more businesses that were offering matches, the more employees who were contributing to their own savings. Further, the higher the amount employers were willing to match, the higher amount their workers were contributing.
This concept holds with any form of savings an employer may offer. For example, if a smaller business isn’t poised just yet to offer those typical benefits that often include health insurance and retirement, they can offer their employees an emergency savings account plan and determine what type or amount of match they can afford to contribute to support their employees and remain solvent.
Obviously, the more employers can contribute, the better off – and therefore, the happier and more productive – their employees will be. However, it is important to note that regardless of the amount being matched, employees are far more likely to save when they know their employers are contributing as well.
ESAs support your employees, your business, and everyone’s bottom line
The numbers are clear. Employees want – and need – retirement accounts, but they need the proper support if they’re going to use them. If your organization employs middle and/or working-class Americans, you need to offer them both emergency savings accounts and retirement accounts.
Additionally, if you focus on auto-enrollment and payroll deductions, you can help your employees save both for short-term emergencies and long-term needs. Offering your employees an emergency savings account helps them save while reducing their stress, allowing them to focus more on work. To learn more about employer-sponsored emergency savings solutions, contact SecureSave today.