Despite earlier findings that employees were renewing their focus on long-term planning issues like retirement, new research from Financial Finesse found that it's not enough.
A report released Wednesday found that regardless of age, most employees have never run a retirement projection, the report found. This is especially troubling for those close to retirement; 57% of employees between 55 and 64 haven't calculated whether they're on track to replace at least 80% of their income.
Knowing what's in store for them doesn't seem to change their behavior, though. Employees who have calculated whether they are on track only to discover that they are not received a financial wellness score of just 4.2 out of 10, compared with 4.7 for those who didn't know. Employees who knew they were on track, and who had good money management skills like maintaining a cash reserve, fully paying credit card bills each month and keeping a debt payment plan, scored much higher at 7.2 out of 10.
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It's those money management skills, the report found, that are so important to an employee's retirement preparedness. The report found "significant correlations" between retirement preparedness and good money management habits. The report noted that while some employees have gotten better with managing their money, "most are still in a position where they need to make further improvements."
Michael Smith, resident financial planner at Financial Finesse, attributes employees' reluctance to run retirement projections to a combination of two things: their confusion about how to start and their fear of what they'll find.
"The majority of people who had never run a projection were more in line with people who were not on track," Smith told AdvisorOne.
"There's definitely an element of 'I don't want to know,'" he said, adding that employees "don't know where to go or how to start the conversation."
Another factor, though, is their overall pessimism about the economy. "Pensions are dwindling, and people joke about Social Security not always being there," Smith said. "Everyone's a little afraid now."
The report named several challenges today's employees face in planning for retirement that past generations did not, including less assistance from employers, decreased Social Security and government benefits, lower market returns and interest rates on investments, lower home equity and higher health care costs coupled with longer life spans to plan for.
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