Short Term Financial Wellness is Key to Retirement Planning

Even though retirement plan sponsors are seeing higher participation rates, several employees struggle with handling debt, budgets and savings, which is undermining retirement readiness.

Failure to manage short-term financial obligations such as budgets, debt and savings can have a lasting impact on financial health and retirement readiness, according to an independent study by retirement consulting firm AFS 401(k).

The survey found 38% of employees said they don’t feel comfortable with their current debt. Of that percentage, 42% don’t check their credit reports annually, 62% don’t pay their credit card bills in full every month, and 71% said they don’t have at least three months’ worth of emergency savings.

However, the firm also found that a majority of employees are seeking help facing these challenges, and many are turning to their employers.

Speaking with PLANADVISER, Alexander Assaley, managing principals with AFS 401(k), says effective financial wellness programs can help. He explains that successful wellness programs typically combine financial literacy content in a range of media, incentive-based challenges to drive financial behavior, and one-one-one coaching and advice to personalize the experience.  

He stresses that while retirement savings is critical to financial wellness, employees typically won’t make the most of it if they’re struggling to meet short-term financial obligations.

“What we’ve found is that regardless of their age or income, if employees aren’t getting access to financial literacy tools, resources and educational advice that helps them make wise financial decisions for today and tomorrow, they can create negative impacts on their long-term financial future and retirement,” says Assaley.

Moreover, the firm found that mishandling one financial obligation can have a ripple effect across their entire financial well-being. For example, AFS found that those who don’t have at least three months of emergency savings tend to fare poorly on the other two aspects of financial wellness, compared to those who do have at least three months of emergency savings.

Out of the non-emergency savers, 44% say they don’t feel they have cash flow under control, 66% say they don’t pay off their credit cards in full every month, and only 14% are retirement ready. Out of those with adequate emergency savings, 86% feel they are in control of cash flow, 60% say they pay their credit card bills on time each month, and 31% are on track to meet their retirement goals.

Clearly, financial wellness programs can benefit from emphasizing the importance of saving for unexpected financial obligations, while also getting workers to take action toward meeting this goal. The educational component can come from print and online educational materials, webinars, group sessions, and individual meetings. But a crucial component to any financial wellness program is its ability to drive action and change behavior. Assaley points to incentive-based challenges that motivate employees to engage with these programs, while being rewarded with various incentives such as cash bonuses or reduced premiums for health benefits. One example AFS presents to clients is a 90-Day Budgeting challenge in which employees play a mobile game to meet different financial milestones and are rewarded.

“I would be very excited for a future in which there is more flexibility inside the retirement plan, where you can use different kinds of incentive-based programs to reward employees with something like an additional employer match or discretionary contribution,” explains Assaley, noting that such a move would require some regulatory change.  

However, one financial wellness program may benefit one company and flop with another. Assaley recommends taking a customized approach that considers the specific needs and preferences of a particular work force. He says this can be done with various surveys, assessments, and one-one-one counseling that can provide “a good amount of data about the demographics around the organization, as well as the financial challenges and obligations that are most important to them.”

And despite advances in technology, the firm finds that financial professionals can learn a lot from employees and help them through one-one-one sessions. The survey found 63% of respondents prefer one-on-one meetings with financial professionals.

But over the last few years, financial wellness has become a buzzword in the industry and a lot of money has been pumped into creating programs around this concept. So, is it a bang for the buck? Research suggests some financial wellness providers are not doing it right.

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Some research suggests several financial wellness providers aren't doing it right

Assaley tells PLANADVISER, “One of the most important questions we ask is, ‘Does financial wellness live up to the hype?’ In a lot of cases, I think it’s being pitched as financial wellness, but it’s really just recycled presentations on different broad-based topics. Generally, what we’re seeing now in the market place is not integrated and engaging programs.”

Still, AFS drew some positive outcomes from several financial wellness programs and offered some case studies in its research.

One banking client that started working with AFS in December 2015 managed to boost participation rates from 73% to 93% and average savings rate from 5.4% to 7.5% after “implementing a structured financial wellness education program that includes group and one-on-one financial counseling, as well as online resources employees may access at any time they wish.” These results were recorded as of September 2016. Notably, auto enrollment features had not yet been implemented by then.

Nonetheless, Assaley acknowledges it’s often hard to truly measure whether the benefits of these programs outweigh the costs. “Many employers have been hesitant to offer these programs because they are not sure of their value or how to measure their value.”

He recommends looking at the standard metrics such as participation rates, savings rates, and retirement readiness levels; as well as other facets such as the reduction of liabilities an employer may have in retaining their employees past retirement age, and seeing how financial wellness can help employees retire on time. “If their employees aren’t retirement ready, what does that cost them in terms of health care and workers’ compensation, and human capital? Ask, ‘how can you improve your bottom line by getting employees retirement ready?’”

The research notes that the process of implementing a financial wellness program and measuring its real ROI can take years, but have lasting impact.

“When structured, managed, and delivered in the right way with buy-in from the employer, these programs can drive significant results and provide benefits for the employee and the organization.”

Of course, there is plenty of room for improvement in the industry.

“What we’re seeing in the market place generally is not integrating and engaging programs that create a model, challenge or incentive for employees, and then support that with one-on-one coaching. Those are the pieces that are a launch pad to getting working Americans on track for today, tomorrow and for retirement.”

The study "Beyond Retirement: An Examination of Financial Wellness for Employers" by AFS 401(k) was conducted by interviewing more than 1,000 working professionals and surveying more than 500 employees to learn about their financial priorities and struggles. A white paper based on the study can be accessed at