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Financial Wellness: ‘One Can’t Look at Retirement in a Vacuum’

“Life is complicated and has many moving pieces. One can’t look at retirement in a vacuum,” American Academy of Actuaries Senior Pension Fellow Ted Goldman says of the effort to address and foster employees’ financial wellness.

Goldman spoke at an April 5 session of the Enrolled Actuaries meeting in Washington, D.C. cosponsored by the American Academy of Actuaries and the Conference of Consulting Actuaries. Grace Lattyak, an associate partner at Aon Hewitt, and Neil Lloyd, head of U.S. defined contribution research at Mercer, joined Goldman as panelists.

Pay Attention!

The panelists discussed the importance of — and challenges in fostering — individuals’ attention regarding long-term financial wellness. “The way to reach people is to get them to look at the whole picture,” said Goldman.

But accomplishing that, and getting them to pay attention, panelists indicated, need to be tailored by demographics.

It can be especially challenging for younger employees, they appeared to agree. “It’s hard to get young people’s attention” when they are dealing with such concerns as student loan debt, observed Goldman. Lloyd, similarly, told attendees that when talking with employees younger than 50, it is “better to talk about some other things first” before addressing retirement readiness with them.

Citing figures from Aon Hewitt research, Lattyak struck a similar chord, commenting, “Young people aren’t going to be that interested.” Lattyak suggested that to get them to be so, they should not be presented with too much too soon, calling it “basically useless” to give them really precise calculations about needs for retirement. Instead, she argued that it is “better to give them rules of thumb” such as the total savings rates required for them to retire at age 65 and a target of their needs of they begin saving at age 25.

On the other end of the age spectrum, Lloyd notes, Mercer has found that “retirement is a big concern” for employees under age 50.

Another distinction is the degree of financial wellness employees have. Lloyd said that Mercer has found that only 8% of those with low levels of financial wellness are saving enough for retirement, and that 42% are concerned primarily with meeting monthly bills. On the other hand, said Lloyd, only 15% of employees with a high level of financial awareness are concerned about their financial status in retirement. “If employees are thinking about immediate concerns, they won’t be as able to think about retirement planning,” remarked Lattyak.

What to Do

Education is key in improving employees’ financial wellness, panelists stressed. Lattyak backed the need with statistics Aon Hewitt gleaned from its research. She said they found that employee responsibility for retirement readiness increases and employer contributions decrease the younger an employee is — bolstering the argument there is a need to educate younger employees.

“We [at Mercer] think financial wellness programs should be about education,” said Lloyd. Lattyak said she doesn’t think that employees comprehend the effect of changes they can make to prepare for retirement, such as contributing to retirement funds and changes in investments and retirement age. “We’re expecting people to figure this out. I really don’t think that’s fair,” said Lattyak.