Bank of America Merrill Lynch Study Finds Retirement Readiness and Overall Financial Wellness Increasingly Linked to the Effectiveness of Workplace Savings Vehicles
Bank of America Merrill Lynch today announced findings from its 2013 Workplace
Benefits Report, a study of the increasingly significant role
financial benefit plans play in helping the American workforce achieve
financial wellness. Based on a nationwide survey of more than 1,000
employees from companies of all sizes, this research offers new insights
into the availability, utilization and evolution of these workplace
benefits – from 401(k) plans and health savings accounts (HSAs) to
financial advice and education. Key findings include:
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More needs to be done to help employees confidently transition into
retirement
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Tax-advantaged saving for medical expenses is becoming the norm,
though many are saving less for retirement as a result of rising
healthcare costs
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401(k) contribution rates indicate that the majority of younger
workers may be comfortable with an automatic deferral of 5 percent
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One out of four “pre-retirees” – employees who indicate being within
five years of retirement – expects to have less than $250,000 saved
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Workers are willing to give up portions of their salary for guaranteed
retirement income
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Employees are looking to their employers for access to one-on-one
advice from a financial professional
“Corporate benefit leaders, the retirement services industry and
legislators must continue to work together to improve and protect the
effectiveness and health of our country’s retirement system,” said Kevin
Crain, head of Institutional Retirement and Benefit Services for Bank of
America Merrill Lynch. “We see many employers actively working to
empower employees to take greater control of their financial success, as
well as enhancing their financial benefits to ensure they are
results-based, easy to use and encourage healthy behaviors.”
For many employees, achieving financial wellness is increasingly tied to
preparing for income needs during retirement, addressing the rising cost
of health care and balancing competing financial demands throughout
their lifetime. Although employers have made strides in recent years to
help put employees in a better financial position, this study reveals a
need for greater focus on the retirement readiness of the nation’s
workforce and access to personalized advice that goes beyond retirement
goals.
Retirement Readiness
Two-thirds (66 percent) of employees indicate that their focus on
retirement goals has increased during the last five years. However, most
employees (85 percent) feel they are not saving enough, and 60 percent
believe it will be very difficult to ever save enough to support their
standard of living during retirement.
This lack of confidence may be one of the reasons why 78 percent see
themselves working into their late 60s or 70s, up from 72 percent one
year ago. Another reason may be that workers in later stages of their
careers often find themselves on their own when it comes to
transitioning into retirement. In fact, only 34 percent of workers feel
that their employer provides sufficient advice to help employees with
this transition.
When it comes to preparing for long-term financial security, the
importance of workplace retirement savings plans is not lost on
employees. The study found that the majority of people (71 percent)
believe their workplace retirement savings plan will be their largest or
second-largest source of retirement income, followed by Social Security
(43 percent) and other savings and investments (38 percent).
Health Savings
The rising cost of healthcare remains a top concern for employees. Eight
out of 10 (80 percent) indicate that they have experienced an increase
in healthcare costs during the last two years – among whom more than
half (56 percent) say they are saving less for retirement as a result.
Seventy-six percent of employees indicate that their company now offers
an HSA option, among which 38 percent participate in this tax-advantaged
savings vehicle. HSA participation increases to 50 percent among
pre-retirees; however our research finds that younger workers (35
percent) are also using these vehicles to start saving early for current
and future medical expenses. Nearly half of all respondents (47 percent)
who participate in an HSA or flexible spending account (FSA) began doing
so or increased their level of participation in these vehicles as a
result of rising healthcare costs.
“As healthcare costs continue to rise and private sector and state
employers continue to reduce or eliminate retiree health benefits,
Americans need to become better savers and more informed consumers in
this area of their lives,” said Bob Kaiser, head of Health Benefit
Solutions for Bank of America Merrill Lynch. “We do see positive trends
among our HSA users, with the number of our active and funded accounts
more than doubling since 2011, and balances in these accounts increasing
year-over-year for the last few years.”
According to consulting firm Devenir, nationwide assets in HSAs grew to
an estimated $15.5 billion as of the end of 2012 and are projected to
reach $26 billion by 2015.
Saving Behaviors and Perspectives
Other notable retirement saving behaviors and perspectives of our
nation’s workforce revealed through our 2013 study include:
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Two-thirds (66 percent) of employees contribute 5 percent or more of
their salary to a 401(k) plan. Among pre-retirees, more than half (56
percent) contribute at least 10 percent of their salary to their
401(k), and 29 percent contribute 15 percent or more to their 401(k).
Among “early starters” – those under the age of 30 saving in a 401(k)
plan – 55 percent contribute 5 percent or more of their salary and
only 8 percent of these younger workers have a contribution rate of
less than 3 percent.
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Consistent with findings from our 2012 research, 84 percent of
respondents said their employer provides some form of 401(k) match,
and nearly four out of five plan participants (78 percent) contributed
at least enough last year to meet the match – among pre-retirees this
increases to 90 percent. However, only 20 percent of all plan
participants contributed the maximum legal amount last year, and only
37 percent of pre-retirees are maximizing their annual contributions.
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For the first time, the survey asked how employees would use an
unexpected bonus of $1,000 from their employer, if they could only use
it for one thing. Perhaps offering some perspective on the current
financial state of American workers, 36 percent would use it to pay
down debt, 26 percent would save for retirement, 15 percent would put
it toward bills or other necessities and just 8 percent would use it
to treat themselves or their family to something special. Not
surprisingly, the greatest percentage of employees who would pay down
debt was under the age of 30 (45 percent), and the greatest percentage
of employees who would put it toward retirement was pre-retirees (42
percent).
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Years ago, saving $500,000 or more for retirement may have allowed
someone to live their remaining years in relative comfort. However,
factors such as inflation, longevity, rising health care costs, and
others may make the $500,000 of today a less comfortable nest egg for
some people. When we asked employees if they felt they would be able
to accumulate more than a half a million dollars before they retire,
55 percent believed they would. This percentage was consistent among
pre-retirees (53 percent), though paled in comparison to the 77
percent of early starters confident in their ability to save that
amount or more. Conversely, one out of four pre-retirees (24 percent)
believes they will save less than $250,000 before retiring.
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Also consistent with our 2012 research, when asked about the desire
for a guaranteed source of income during retirement, four out of five
(79 percent) employees would be willing to give up 5 percent or more
of their salary if it meant having reliable income to help them live
comfortably during their later years, and 38 percent would be willing
to give up 10 percent or more. Among pre-retirees, those willing to
give up 10 percent or more of their salary for such a guarantee climbs
to 52 percent.
Making Advice More Accessible
When asked what financial matters they need the most help with, 59
percent of employees cited advice and guidance around saving for
retirement, followed by managing debt, budgeting, and planning for
healthcare costs. The majority of employees (58 percent) are seeking
advice across all aspects of their financial life – including two-thirds
of female employees (66 percent) and half of male employees (49 percent).
When asked about the resources and tools they would like their employer
to provide to help them obtain financial advice, top choices cited by
employees were access to a one-on-one relationship with a financial
professional (51 percent), followed by online tools (46 percent),
financial seminars relevant to their life stage and personal situation
(39 percent), and relevant research or literature to help them make
investment decisions (38 percent).
“Offering employees access to meaningful advice and education can have a
significant impact on their financial health,” added Crain. “Helping
them navigate the road to and through retirement can lead to positive
long-term outcomes for both employees and employers.”
Financial Wellness Score
Employees indicate that there are several financial, psychological and
emotional influences in their lives that have a negative impact on their
ability to save adequately for retirement and to achieve financial
wellness. These include rising healthcare costs (28 percent), not
knowing how much they will need to retire (28 percent) or having a sense
that they will never be able to save enough (24 percent), competing
financial obligations and desires (28 percent), uncertainty about how or
where to invest (26 percent) and a general fear of investing (26
percent).
“Too often financial stress and the weight of uncertainty surrounding
one’s ability to accomplish their goals can cause them to remain inert
and unwilling to look truths about their financial future in the eye,”
Michael Liersch, Ph.D., director of behavioral finance for Merrill
Lynch. “Recognizing that these challenges are in most instances not
insurmountable, and admitting to one self that there are behavioral
changes that can be made to address them, are simple but critical first
steps. From there, even small, positive actions today can have a
significant impact on improving near- and longer-term financial
wellness.”
To better understand the current state of employees’ overall financial
well-being we used this study to create a Financial Wellness Score, a
new tool that uses factor analysis to identify the financial attributes
and perspectives linked to one’s ability to meet future goals and
present-day needs. Going beyond more traditional approaches – which
merely assess one’s likelihood of meeting a retirement savings goal –
the Financial Wellness Score offers insight into the interconnectivity
between household finances, employer benefits and the behavioral aspects
of one’s financial life. Ten attributes were identified and used to
score individuals from zero (lowest) to 10 (highest). Through this tool
we found 65 percent of employees would not be considered financially
well (with a score of four or lower on the 10 point scale) – and only 11
percent have achieved financial wellness (with a score of 8 or higher).
For more information about the Financial Wellness Score, and to review
the full findings from the study, “2013 Workplace Benefits Report:
Employees’ Views on Achieving Financial Wellness,” please visit http://baml.com/benefitsreport.
Workplace Benefits Report Methodology
Boston Research Group
completed a nationwide survey of 1,014 employees from companies of all
sizes between March 6 and March 17, 2013, on behalf of Bank of America
Merrill Lynch. To qualify for the online survey, employees had to be
enrolled in a 401(k) plan. No quotas were set and no weighting was
necessary.
Bank of America
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