Consumers Retirement Worries
If calls into human resource departments are an indication, some members and other consumers were able to get a better handle on cash flow, save more and manage their debt in 2010.
Employees made improvements in all areas of finance last year, according to a new report from Financial Finesse, a workplace financial education firm in El Segundo, Calif. Trend analysis research was compiled by tracking calls into the company’s financial helpline service through more than 500,000 employees from more than 300 organizations.
Calls about proactive planning issues outnumbered short-term, crisis management calls, with retirement planning calls jumping from 15% to 24% from 2009. In a parallel trend, debt-related calls fell from 21% in 2009 to 16% in 2010 and calls about cash management declined from 17% to 14% over the same time period.
"Consumers were no longer in the crisis management mode they were in during 2008 and 2009," said Liz Davidson, founder/CEO of Financial Finesse. "But they had enough of a wake-up call with the recession to take action to improve their finances, and many have developed new habits as a result. Once good habits form, the chances of lasting behavioral change go way up."
Davidson said while all of this comes as good news in light of what has been happening with our economy over the last several years, there is a dark cloud that looms on the horizon. Employees are finding themselves grossly underprepared for retirement, with only 17% reporting being on track, the data showed. Instead of being able to save more for retirement, many employees have had to shoulder the weight of higher health care costs.
As employees watched their retirement account balances drop over the last several years, many reacted by allocating more of their portfolio to conservative investments, according to the report. One of the predictions is that the threat of a massive retirement crisis remains high unless employees continue to dramatically change their savings and investing habits.
"Employees are on the right path, but much more change is needed in order for us to avoid a retirement crisis that will come to a head as more baby boomers near retirement age with insufficient assets to retire," Davidson said. "After health care, the second most pressing topic for most human resource and benefits managers is the cost of employees delaying retirement."
Trisha Brambley, president of fiduciary consulting firm Resources for Retirement, said delayed retirement is also becoming a big concern among investment committees responsible for the fiduciary management of corporate 401(k) plans.
"Many people’s savings continue to be far too low to adequately fund their retirement. Plus, employees face more challenges ahead. Even with the recession behind us, things like diminishing Social Security and changes to health care are requiring them to save even more," Brambley said.
Whether the retirement crisis hits fully depends on how employees plan now and how well they manage their finances as a whole, Davidson said.
"If employees don’t continue to improve their finances, they will have no choice but to delay retirement. Imagine the impact of millions of baby boomers delaying retirement. This has the potential to devastate an already fragile job market since fewer retirees means fewer job openings. It will induce more costs for U.S. companies and hugely impact our economy. It will literally affect everyone."
According to Financial Finesse, while the improvements in cash and debt management are strong signs for our long-term economic health as a country, the fact that employees are far behind in retirement preparedness is a daunting reminder that there is still a lot of work to do.
"Long-term economic recovery could depend heavily on how employees manage their finances from here on," Davidson said. "With so much at stake, this is the beginning of an extremely important change to financial management in our society."