Already this month we have seen the results of two nationwide assessments that highlight American workers’ need for financial education. That is particularly the case with younger employees, who appear to manage their savings and investment behaviors in a manner inconsistent with their long-term needs. Now is the time to carefully listen to what they are saying and to improve their present habits and future prospects.
Prudential 2016 Retirement Preparedness Survey. Prudential’s annual survey emphasized many themes that have emerged from the last few years:
- Selecting investments is overwhelming. Nearly two-thirds are overwhelmed by the number of financial product choices. The same proportion believe it’s harder to be an investor now than during their parents’ generation.
- Millennials are not jumping into healthy savings habits. Although 84% of people between the age of 21-34 are confident in their ability to save, only 38% are enrolled in an employer-sponsored plan, and nearly 20% haven’t even begun to save for retirement.
- Millennials are also investing very conservatively. They have allocated only 32% of their portfolios to equities. Baby boomers? 45%. Yes, employees in their 20s are, on average, more conservatively invested than those in their late 50s or early 60s.
EY Financial Wellness Assessment. EY has invested considerable resources in diagnosing and improving American’s levels of financial wellness. Its most recent analysis showed that:
- Employees think a lot about retirement, but are not terribly confident in their retirement readiness. Only 37% said they are confident that they are on the right track for a comfortable retirement, and more than half spend time worrying about it.
- Although older workers are thinking more often about their retirement, not enough young workers are. Two-thirds of employees between 18-25 said they have never thought about retirement planning.
Closing Thoughts. In a recent blog post, we wrote about the large impact attributable to seemingly small plan design decisions. Among those with the largest impact are provisions that delay the time at which new employees become eligible to make deferrals, receive any employer contribution, and/or become vested. These issues are linked to the findings referenced above: when any employees wait too long to implement healthy savings habits, invest too conservatively, or fail to invest at all because of fear or discomfort, they miss out on savings and growth years that they cannot get back. As you look ahead to this next year, we hope that you’ll work with your QPA financial advisors to not only carefully consider your plan’s provisions, but also to deliver the education your employees need.
Scrooge couldn’t change what the Ghost of Christmas Past showed him, but he learned from that experience and developed a renewed focus on the Present and Future. We look forward to working with you to accomplish the same in 2017. May you all have the happiest of holidays.
Matthew loves to write. He also loves to think, though he’s probably a better writer than a thinker. He does not like to be on camera or in videos. This blog will allow him to write, challenge his ability to think, and, from time to time, test him with video blog entries.
He has a unique blend of legal and practical experience that helps us to serve our clients well. On the one hand, he has more than 12 years of private legal practice experience focusing exclusively on employee benefits, including time as a partner in an employee benefits boutique where he has represented clients in front of the DOL and IRS. On the other hand, he holds his FINRA Series 7 and 66 registrations and serves as the Director of ERISA Services for Qualified Plan Advisors.
Matthew likes to stay active. He provides fiduciary training, Investment Policy Statement design, and vendor oversight to our clients. He is an active member of the Employee Benefits Committee of the American Bar Association Tax Section, serving as Chair of the Defined Contribution Plans Subcommittee. He also has been appointed to the IRS TE/GE Gulf States Council and is a frequent speaker on regulatory developments, fiduciary responsibilities, and retirement readiness.
Most importantly, he stays active with his family. His wife, Laura, is the founder of REbeL, Inc., a not-for-profit organization. His three young boys are mixed up in far too many sports, and they enjoy traveling, watching college football, running with Dad, and rooting for the Huskers.
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