Who Is More Prepared for Retirement?

The firm’s annual research on the state of U.S. employees’ retirement preparedness found retirement readiness varies significantly by demographics, with women in lower income and age demographics at higher risk of not meeting retirement goals. In addition, repeat users of financial wellness programs show significantly more progress in retirement preparedness than non- or one-time users.

From 2012 to 2013, households in the lowest-income quintile were the only group to experience an increase in average annual expenditures. This may have led to a drop in the retirement plan participation rate of employees from households making less than $60,000 a year, from 85% in 2012 to 82% in 2013. In addition, only 33% of these employees used a retirement calculator to run a retirement projection, down from 36% in 2012. The declines in these areas may help explain why only one in 10 reported being on track to reach their income-replacement goals, the same level as 2012.

On the plus side, there was a decrease in the percentage of lower-income employees that reported having ever taken a retirement plan loan or hardship withdrawal, from 42% in 2012 to 35% in 2013.

Trouble with cash flow and debt has led to lower participation and contribution rates among women that have taken a financial wellness assessment in 2013. Thirty-seven percent of women do not have a handle on cash flow, and 46% are not comfortable with the amount of non-mortgage debt they carry. Seventeen percent of women are confident they are on track to achieve their income-replacement goals, up from 13% in 2012. However, women are still trailing men in this area, as 26% of men reported being on track (no change from 2012).

Women have so far been less likely to use a financial calculator to run a retirement projection. Only 37% of women that had taken an assessment reported having used a retirement calculator, six percentage points less than men.

Twenty-eight percent of employees reporting $100,000 or more in household income are confident they are on track to achieve their income-replacement goals, up from 23% in 2012. All other income cohorts experienced little or no change in retirement confidence. Only 9% of women younger than 45 in households making less than $60,000 a year are confident they are on track for retirement, compared to 40% of men ages 55 and older in households making more than $100,000 a year.

Financial Finesse also found that among individuals who used its online financial wellness assessment on an ongoing basis, 30% are confident they are on track to reach their retirement-income goal, compared to 17% in 2011. Overall, employees that are on track for retirement tend to focus on the basics, such as controlling cash flow, keeping debt in check, saving for various goals, and investing appropriately. Those not on track often lack these fundamental behaviors, the firm said.

Of the 80% of employees studied that did not indicate they were on track to reach their goals, three in every four have not run a retirement projection. Financial Finesses says running a projection is the first step to finding out how much employees need to save, and how their savings should be invested.

Looking ahead, the firm said its team of certified financial planner professionals has noticed an increase in skepticism and uncertainty among employees who feel that recent growth in the stock market is unsustainable. This, coupled with little to no growth in real wages during the first half of 2014, has resulted in a decline in retirement and investor confidence in the first three quarters of 2014.

Financial Finesse’s research report, “State of U.S. Employee Retirement Preparedness,” is here.