Employees Shift Focus From Retirement Planning to Money Management

Cutting high-interest debt beats saving in retirement account, Financial Finesse says

Employees improved their financial wellness in the third quarter, a much-needed climb back from a weakened condition in the first quarter, according to new research released Wednesday.

Financial Finesse, a provider of workplace financial wellness programs, identified several major trends.  

For one, employees shifted their focus to short-term money management issues after several quarters of long-term focus. The report said budgeting and debt management questions had made up more than 30% of all questions received by the company’s team of certified financial planners.

This was up from about 22% last quarter, and approached levels not seen since Q3 of 2010.

As a result, the report noted improvements in all areas of money management and financial planning, in particular managing debt, living within their means and setting up an emergency cash reserve.

It said employees still had a long way to go, but their active focus on improving their finances was a good sign, as was their quick recovery from the backslide they suffered in Q1.

In addition, investing emerged as a key employee priority in Q3, based on data collected from the firm’s financial wellness assessment tool. The report attributed this to recent market improvements.

As well, it said, employees realized they may have to invest more aggressively in order to reach retirement goals, largely to compensate for not being able to save more until they build a stronger financial foundation.

Financial Finesse founder and CEO Liz Davidson (left) said in a statement that the positive shift of focus onto money management issues had come at the expense of retirement planning, which saw a drop in questions to below 30% of all questions asked for the first time in more than a year.

This shift was overdue and very much needed, she said. A recent Financial Finesse report found that employees’ lack of financial wellness was the biggest obstacle to their retirement preparedness.

“The reality is that beyond saving up to the company match, most employees will generate a higher return paying down high-interest-rate credit card debt than investing those savings in their retirement plan,” Davidson said.

“As counterintuitive as it is, this strategy actually enhances retirement preparedness,” Greg Ward, director of Financial Finesse’s Think Tank, said in the statement.

“Employees who follow it go into retirement debt-free, with a higher net worth, strong financial habits and behaviors, a strong credit score and a focus on living within their means.”

Davidson and Ward cautioned that employees are still far behind where they need to be in order to effectively prepare for retirement. Only 18% reported they were on track to replace 80% of their preretirement income (or their goal) in retirement, and this was likely because of money management problems.

Approximately 40% of employees still did not have an emergency fund, more than 25% reported they were not making ends meet and about 10% were in a state of crisis where they could not pay their bills on time.

“These are still disconcerting numbers in an economy that poses increased responsibility for employees to fund their own retirement,” Davidson said.

“We are encouraged by the recent improvements, but no financial planner in their right mind would be comfortable with these numbers as they stand. Employees still have a long way to go in order to be able to retire comfortably, and this cannot be overstated.”

Reprints Discuss this story
This is where the comments go.