Inflation and credit card debt are increasing financial instability for many employees, leading many to tap their retirement savings, according to a new study released today from Betterment at Work.
The annual Retirement Readiness Report found that 31% of employees reported facing moderate to significant financial instability, up 9 percentage points from 2022, and only 11% of employees said they feel very financially stable. For most, inflation (63%) is the main stressor, with credit card debt (37%) coming in second.
As student loan payments resume, employees are also feeling stressed out by student debt. Nearly half of borrowers (49%) said they didn’t feel financially prepared to restart student loan payments.
Nearly one in three workers (30%) tapped into their retirement savings over the past 12 months to pay for short-term expenses.
Increasing instability is having an impact on employees’ retirement preparedness. Nearly one in three workers (30%) tapped into their retirement savings over the past 12 months to pay for short-term expenses. Less than half of employees (40%) feel confident they’ll be ready for retirement. While 61% of employees believe they’ll need to have at least $500,000 saved for retirement, only 31% expect to get there.
Employees said rent and bills (73%), home and car repairs (44%), and medical expenses (42%) were their main impediments to saving more for retirement. Among those with student loans, 64% said the debt has impacted their ability to save for retirement.
Additionally, many employees don’t have emergency funds to fall back on. Only about half (52%) reported having an emergency fund, down from 59% in 2022. Among those who do have an emergency fund, 40% tapped it this year, up from 31% in 2022.
The resulting financial anxiety is hurting employee performance: 44% of workers said financial anxiety is affecting their ability to do their job “all” or “most” of the time. This is especially true for Gen Z: 69% report being affected by financial anxiety at work, compared to just 36% of Boomers.
“Financial anxiety isn’t an isolated issue: it can impact every aspect of employees’ lives, from their homes, to the office, and more,” said Edward Gottfried, Betterment at Work’s senior director of product management, in the report. “As so many people struggle with this, employers have an opportunity to think critically about what they can do to help assuage financial anxieties.”
Employees said their employers could help by offering benefits aimed at reducing their financial anxiety. Among those surveyed, 95% said it was important that their employer provides financial wellness benefits, and 70% said financial wellness benefits are more important to them now than they were a year ago. The benefits employees said they wanted the most are a 401(k) matching program (52%), an employer-sponsored emergency fund (49%), and a 401(k) plan (39%).
Financial benefits are playing in a bigger role in attracting and retaining employees. Among those surveyed, 60% said they would be enticed to leave their job by an employer offering better financial benefits than their current employer, up from 54% in 2022. And 72% of workers would be less likely to leave if their employers offered better financial wellness benefits.
“It’s not surprising to see that employees value a 401(k), but it’s worth remembering that the majority of them have access to a retirement plan already,” said Harlyn Croland, Betterment at Work’s head of business operations and strategy, in the report. “It’s clear that employees are eager for more offerings, like an employer-sponsored emergency fund. These additional benefits can catch the eyes of employees who might be considering a change—both to keep your current employee base engaged and to attract prospective employees.”
SEE ALSO:
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• Betterment at Work Launches 529 Savings Solution
• 401(k) Loans Grow as Participants Struggle with Emergency Savings