Workers are financially stressed (and employers have an essential role to play)

With inflation, market volatility and lingering pandemic impacts, now is a perfect time to proactively offer guidance and resources to help workers make the best decisions to balance current financial needs without jeopardizing their future. 

Many Americans are struggling to make ends meet as they cope with historic inflation, market volatility and lingering pandemic impacts. While most are taking small steps to offset increased expenses, such as eating out or driving less, others have been forced to put off major life events like buying a home or starting a family.

These pressures have taken a serious toll on American’s long-term financial security, too. In fact, a recent Nationwide Retirement Institute study found 13% of older Americans have had to postpone or consider postponing their retirement due to inflation. And only about half of U.S. parents feel confident they’ll be able to save enough for retirement or say they’re on track to meet their financial goals.

Many Americans have turned to their savings to get by – in fact, in response to inflation pressures, about 1-in-10 parents say they withdrew from their retirement accounts over the past year to meet their family’s financial needs and a significant number have decreased their retirement contributions (10%) or delayed setting up a retirement fund (6%). We’ve seen participants in the public sector plans we support pulling back as well. Our data shows more participants have reduced their contributions or stopped them altogether, up 45% compared to this time last year.

Related: 5 financial wellness benefits small businesses should consider offering

Plan sponsors can play an essential role in helping their company’s workers navigate today’s challenging economic climate and avoid making short-term decisions that could erode their long-term financial security.

Here are three tips for plan sponsors who are seeing participants pull back on their retirement savings in response to current economic challenges.

1. Educate participants about the benefits of staying the course when possible

It’s a good time to make sure participants understand the impacts early withdrawals can have on their long-term savings, as well as any penalties they could incur for loans or withdrawals. There is also an opportunity to remind younger participants who stop or delay saving that they may be failing to leverage one of their biggest advantages – the compounding gains they will have an opportunity to accumulate over the rest of their career.

While markets have been ugly this year, the sun will come out again. Although times may get tougher ahead, plan sponsors should remind employees that short-term market fluctuations historically have had little long-term impact. As we saw following market crashes in 2008 and 2020, those who decide to sit on the sidelines when markets rebound may regret their decision to do so.

A difficult reality is that many Americans have no choice but to borrow from their future savings. We’re hopeful the pending SECURE Act 2.0 legislation will pass this year, which includes a critical provision enabling workers to tap into retirement savings for emergency expenses without penalty.

2. Provide tools and resources to help workers make the best decisions for their situation

Employer-sponsored retirement plans are among the most cost-efficient investment vehicles today’s workers have access to, but many are unaware of the full details of their plan, including the benefits of saving pre-tax dollars and employer matches. Plan sponsors can help fill those gaps by providing information and resources they need to make the most educated decisions for their unique circumstances.

Tools like Nationwide’s Paycheck Impact Calculator can help participants understand how changes to their contributions impact their take-home pay. Nationwide’s My Interactive Retirement Planner tool can also help them set retirement goals, understand how much they may need to live comfortably in retirement, and track their progress. Be sure to ask your recordkeeper for tools like these to help educate participants.

3. Ask your company’s consultant or financial professional about investment solutions that will offer protection from volatility for your employees

Recent market volatility has provided a wake-up call for retirement savers. For most defined contribution plan participants, there are no guarantees they won’t outlive their income. In fact, 66% of Americans told Nationwide they’re worried about having enough income to live securely in retirement.

Guaranteed lifetime income investment options within an employer-sponsored retirement plan offer pension-like benefits that can help protect workers from volatility and provide guaranteed income they can’t outlive in retirement. Participants are ready for these solutions. In fact, roughly 8-in-10 say they are interested in an in-plan guarantee investment option and would be at least somewhat likely to roll over a portion of their retirement savings into one, according to our recent Lifetime Income Investment Option Survey.

These solutions are a new territory for many. Reach out to your consultant or financial professional to learn more about how they can help address some of your employees’ biggest fears, including the impact of market crashes we’re experiencing today and the risk they will outlive their savings in retirement.

American workers are currently saving near the lowest level since the 2008 crisis – and many are turning to those around them for support, including their employers.

Now is a perfect time for plan sponsors to enhance or provide trusted education and solutions for their employees, proactively offering guidance and resources to help them make the best decisions to balance current financial needs without jeopardizing their future.

Eric Stevenson is President of Nationwide Retirement Solutions.