America Saves Week Reveals Need for Broader Financial Wellness Goals Than Retirement Savings
Mercer encourages everyday Americans to commit to saving successfully and making a plan to achieve better financial stability.
By Neil Lloyd, Head of US Defined Contribution and Financial Wellness Research, Mercer
Today’s America Saves Week 2020 theme is Save to Retire. Mercer is spreading the message of encouraging everyday Americans to commit to saving successfully and making a plan to achieve better financial stability.
America Saves Week, which is this week — February 24–29, 2020, includes six themes:
- Monday Theme — Save Automatically
- Tuesday Theme — Save With a Plan
- Wednesday Theme — Save for the Unexpected
- Thursday Theme — Save to Retire
- Friday Theme — Save by Reducing Debt
- Saturday Theme — Save as a Family
I recently asked Chris Mahoney, Mercer’s US Wealth leader, why America Saves Week is so important, particularly from the perspective of defined contribution (DC) plans. Chris stressed that DC plans are the most effective way for workers to save for the future. But here’s why she said it’s important to consider a person’s broader financial picture when offering a DC plan.
Chris Mahoney: Whenever we discuss employee financial stability or financial wellness with plan sponsors, we tend to focus on the definition that was proposed by the Consumer Financial Protection Bureau (CFPB): Well-being is defined as having financial security and financial freedom of choice, in the present and in the future.
What is great about America Saves Week is that, in concert with the CFPB definition, it considers the breadth and depth of financial issues that the majority of Americans have to deal with each day. It’s important that the retirement industry appreciates that there are more financial pressures on workers than just preparing for retirement. Although we continue to believe it’s critical to encourage more retirement savings, there has to be better balance, given the diversity of people’s needs, living situations and financial resources.
In 2017, Mercer partnered with the World Economic Forum and assisted in writing “We’ll Live to 100 — How Can We Afford It?” The paper focused on the ramifications of a projected global retirement gap of $400 trillion by the year 2050. No big surprise that three of the four key recommendations emanating from that paper were centered on increasing retirement plan coverage and increasing contribution rates for those workers who have been largely underrepresented in the ranks of successful savers, including women, older employees and non-traditional workers.
But the paper’s Principle #4, “Be conscious of other financial needs,” recognizes that retirement savings should not be considered in isolation. Looking at retirement savings without context does not give a full picture of an individual’s overall financial health.
It seems to me that unless our industry can first address the short-term financial needs of Americans, we will simply fail at getting them to save adequately for retirement. Workers with too many competing needs for money will end up cashing in their retirement benefits, which is counter-productive.
For its entire 75-year history, Mercer has focused on the importance of retirement savings. But in recent years, we have worked much more with our clients looking at broader financial savings or financial well-being issues. In our latest Top Priorities for Defined Contribution Plan Sponsors for 2020, we include a section that recommends that sponsors do the work to really understand the diversity of their employee population, and in particular, the diversity of needs. (Many employers have learned, for example, that the concept of an “average” employee hides a lot of critically important nuance.) For example, some people rate their top need as retirement, but for others it’s creating an emergency fund, and still others are struggling with paying off student loans. And the retirement industry is responding! We’ve seen the launch of arrangements that link retirement contributions to student loan payments, or retirement plans with integrated (or sidecar) emergency savings accounts.
Against the backdrop America Saves Week, we challenge Americans to take some positive wealth-building action, however small in the beginning, and to pledge to sustain and build on that action during the following year. Using the America Saves Week agenda listed above, those actions could be increasing 401(k) contributions, starting or increasing an emergency fund, contributing more to a Health Savings Account or even paying more toward student loans or mortgages.
Neil Lloyd: Thanks, Chris.
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