FINANCIAL FINESSE RELEASES ITS SECOND ANNUAL STATE OF U.S. EMPLOYEE RETIREMENT PREPAREDNESS REPORT

Study finds that employees are making some positive changes to their retirement planning but poor money management skills and long-term economic challenges present major obstacles.

Financial Finesse, the nation’s leading provider of workplace financial wellness programs, has announced the release of its second annual research report on the state of U.S. employee retirement preparedness.

The report found that employees are increasing their focus on retirement planning. Thirty-two percent of questions received by the company’s on-staff CERTIFIED FINANCIAL PLANNER™ professionals in Q2 2012 were on retirement planning issues versus 25% in Q2 2011, and a greater percentage of employees reported running retirement plan projections at 39% in the first half of 2012 versus 33% in the first half of 2011.

All that said, the report concludes that employees are still behind where they need to be in order to retire comfortably at their desired retirement age. According to Liz Davidson, founder and CEO of Financial Finesse, “It’s good to see focus from employees, and they are taking small steps in the right direction, but in and of itself, focus doesn’t increase your retirement nest egg—action does. The needle is moving, but not fast enough to counter long-term economic challenges that are requiring employees to save significantly more than in previous decades to retire comfortably.” Davidson also notes that employees’ financial wellness is far from optimal, with most employees not in a position to be able to save sufficiently for retirement unless they change their day-to-day spending habits.

As of June 30, 2012, 51% of employees said they did not have an emergency fund in place, and 33% report not having a handle on their cash flow. The firm’s Think Tank believes this may be why employees are not making more dramatic improvements to their preparedness despite short-term economic improvements. According to the firm’s Think Tank Director, Greg Ward, “It is also the reason that we are seeing an increase in the percentage of employees reporting that they have taken a retirement plan loan or hardship withdrawal, at 34% in the first half of 2012 versus 27% in the first half of 2011.”

These poor money management skills, coupled with long-term economic factors, pose a serious risk to employees’ long-term retirement security. According to Trisha Brambley, founder of Retirement Playbook, Inc., a firm that provides unbiased retirement plan consulting to employers, it is the combination of low financial wellness and expected economic challenges that put employees at risk of having to delay retirement, or worse, being forced to retire with insufficient savings.

According to Brambley, “Economists overwhelmingly expect increases in health care expenses, taxes, inflation and life expectancy, coupled with decreases in government and corporate retirement benefits which will be most stark for Gen X and Millennial employees. When you consider that over a third of the employees are taking out retirement plan loans and hardship withdrawals, and that most employees do not even have an emergency savings to rely on in times of trouble, employees are caught between a rock and a hard place. They need to save more, sure, but until they change their financial habits, they will be unable to.”

Bob Benish, president of Plan Sponsor Council of America (PSCA), echoes Brambley’s sentiments, noting that the issue is so significant that PSCA is in the process of reestablishing its foundation to include a focus on providing tools, resources, and best practices to help both employers and employees tackle this issue head on. Benish notes that 401(k) plans, along with recent plan design improvements like auto-enrollment and auto-escalation, provide an excellent foundation, but in this economy, more needs to be done to help employees prepare for the challenges ahead.

Dperry@financialfinesse.com
(424) 218-7954

Financial Finesse is an unbiased financial education company providing personalized and
innovative financial education and counseling programs to over 500,000 employees at over 400
organizations. Financial Finesse partners with organizations to reach goals such as reducing
fiduciary liability, increasing plan participation, decreasing stress, and increasing productivity
through its unique approach to financial education. Financial Finesse does not sell products nor
manage assets. For more information, visit www.financialfinesse.com.

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