2021’s Hardships Redefine Financial Wellness Goals

With so many Americans having gone through tough times over the past two years, a new study looks at how this has affected their financial well-being and sense of the future.

By DJ Shaw

A new Empower Retirement study seeks to better understand participants’ savings habits and levels of involvement with retirement planning, as well as where they are turning for help after two challenging years.

Empower Retirement’s “Empowering America’s Financial Journey” study analyzed the behavior of about 4 million active defined contribution (DC) participants in corporate retirement plans from for-profit organizations that use Empower Retirement as their recordkeeper. The study evaluated the attitudes, confidence and sentiments related to retirement and financial planning through a separate survey of more than 2,500 Americans.

On average, Empower finds that participants are saving at recommended levels of 10% to 15%, including both employer and employee contributions. Excluding any employer matches, employees are putting away 8.2% of their salary into workplace retirement plans—a number that’s been trending upward over the past two years. There has been a strong recovery in participants’ contributions to their plans from pandemic lows, with 85% of those eligible contributing.

Three in five workers believe they are saving enough in their 401(k) plans. The study indicates that average worker savings rates are higher now (8.2%) than they were pre-pandemic, in the fourth quarter of 2019 (7.8%).

With the oldest members still only 24 years old, Generation Z accounts for the highest proportion of contributing participants in their defined contribution plans—even higher than working Baby Boomers who are fast-approaching retirement. Millennials have the highest rate (24%) of Roth usage across generations, and, across the board, those making Roth contributions are also saving at a higher rate than people who aren’t (10.2% and 7.9%, respectively).

Although Americans are saving more on average, there are many who still face challenges meeting their retirement needs. Troubles making ends meet and paying back debt, the most-cited challenges workers face, mean that 36% of workers say they aren’t saving enough. Managing finances is especially challenging for those making less than $60,000, with 45% of those in that group saying they are not contributing enough to their 401(k) plans and 61% saying that making ends meet is limiting their ability to save. Participants with incomes greater than $120,000 have saving rates that are significantly higher than those with incomes of less than $60,000.

Empower also looked at participants’ engagement rate, measured by interactions with Empower’s customer care center or with an Empower adviser, website or mobile app—seen as an important part of the user experience—over the past 12 months. Here, the study suggests that 67% of participants were actively engaged with their retirement and financial planning, up from 65% a year ago. Participants who engage with their retirement plan in this way save more than those who aren’t engaged (9.2% compared with 5.7%). This difference is seen across all income segments but is more significant for those making less than $60,000 a year.

More than half (52%) of those surveyed said they used tools and information from their 401(k) provider’s website to make financial and retirement decisions. The study shows that as web interactions rise, so do saving rates. Plans without automatic enrollment have the highest engagement rates, likely driven by the fact that enrollment requires engagement, but these plans have a smaller proportion of contributing participants. Participants automatically enrolled into a plan that also offers auto-escalation features have the second-highest engagement rates.

According to the study, less than half of those surveyed (48%) say they are comfortable making investment decisions. Millennials were the most comfortable at 56%, followed by Gen X members at 48%, Baby Boomers at 42% and Gen Z members at 39%. Empower says the complexities associated with planning as people get closer to retirement may play a role in these attitudes, as only one in three Baby Boomers say they have a high level of investment knowledge.

Recent research shows that people of all ages are seeking more help with financial wellness and retirement savings and planning, and many are interested in financial wellness help from financial advisers. Empower says the top reasons across generations that people seek advice for the first time are for retirement (67%), paying off debt (35%) and building an emergency fund (28%). The top three reasons people seek financial advice or educational information include saving for retirement (51%), overall financial planning (42%) and choosing which funds to invest in and how much to invest (38%).

The percentage of participants using web guidance interactions or “help me do it” interactions is higher for younger participants and almost doubles between the ages of 20 and 25. Usage then flattens out until participants are close to age 60 and drops by age 70.

The full study, “Empowering America’s Financial Journey,” is available here.

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