Most 401(k) participants lack retirement confidence, yet say no to financial wellness
Only 24% of 401(k) plan participants feel “very confident” in maintaining their standard of living in retirement, questioning the effectiveness of employer financial wellness programs, says a new report.
Only one in four (24%) of 401(k) participants say they are very confident they will be able to maintain their current standard of living in retirement, yet they fail to take advantage of the plethora of employer tools and solutions aimed at improving financial wellness, according to The Cerulli Report – U.S. Retirement-End-Investor 2024.
While 71% of 401(k) plan sponsors have adopted a financial wellness program, which can provide valuable knowledge and recommendations, only 20% of participants partake in the financial wellness tools and resources. While 41% of users found the tools “very helpful,” 57% remained neutral about their effectiveness.
There is some confusion in the industry between financial literacy and financial wellness, and the incorrect terminology can hinder usage, according to Cerulli.
Financial literacy programs typically address budgeting, savings and responsible credit card use, while financial wellness can help employees feel more confident in retirement, which can be offered through personalized counseling or online tools, as well as the importance of emergency savings.
The most effective financial wellness programs include guidance, financial planning or financial coaching, according to Cerulli. “A key feature of personalized financial wellness programs, in general, is their ability to effectively account for key life events in the investor’s life,” said Cerulli analyst Elizabeth Chiffer.
Employers and plan sponsors might need to redesign financial wellness programs so that participants are motivated into action, she recommends. “When the user is compelled to act on their own and feels like they have made their own decision, it is more likely that the user will continue to make more positive financial decisions,” said Chiffer.
The most effective financial wellness programs include guidance, financial planning or financial coaching, according to Cerulli. “A key feature of personalized financial wellness programs, in general, is their ability to effectively account for key life events in the investor’s life,” said Chiffer.
Related: U.S. retirement preparedness, confidence varies by demographic
Effective financial wellness programs “can offer return on investment for recordkeepers by bringing in richer participant data, building potential retail relationships, and winning and retaining plan sponsor clients,” Chiffer said.