American employees’ overall state of retirement preparedness has improved steadily since 2011.
A Financial Finesse report finds that 20% of employees who took a financial wellness assessment reported being on track to reach their income replacement goal in retirement, up from 14% in 2011.
In addition, a greater percentage of employees have indicated taking a risk tolerance assessment and rebalancing their investment accounts.
Although improvements to employees’ retirement preparedness are encouraging, they seem to stem from market appreciation and improvements that employees are making to their investing behaviours rather than from changes to their savings behaviours.
The key findings from the report indicate the following:
- Millennials are at significant risk of not being able to achieve retirement security. Only 17% of millennial employees said they are confident they are on track to retire with 80% of their income (or their goal) in retirement. This is particularly concerning, given that this generation is likely to face higher healthcare costs and longer life expectancies.
- Women’s retirement preparedness continues to lag behind men’s, and women will continue to face challenges in the future that will make retirement planning more difficult. Only 17% of women are confident they will be able to reach their income replacement goal in retirement—an increase from 13% in 2012.
- Lower-income employees (those with total annual household incomes of $60,000 or less) backslid in several key retirement planning areas in 2013. A lesser percentage reported participating in their DC plan (84% in 2013 versus 86% in 2012) and feeling confident in their ability to reach their income replacement goal (10% in 2013 versus 11% in 2012).
While there is a lot of attention on baby boomers’ lack of preparedness because of their proximity to retirement, more attention should be paid to the savings behaviours of at-risk groups—in particular, millennials, dubbing this cohort the “lost generation” when it comes to retirement planning, says Liz Davidson, founder and CEO of Financial Finesse.
“Although they have more time than the boomers and gen Xers, they face far more economic and financial challenges than any other demographic, and they’re not recognizing retirement planning as a priority.”
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