Longer life expectancy, early retirement pose savings challenges

Against a backdrop of longer life expectancy, and potentially more years to fund in retirement, much more should be done to help improve financial resilience when working, possibly enabling people to save more for retirement, according to the 10^th annual John Hancock Financial Resilience and Longevity Report.

The report shows how workers continue to face financial challenges, with baby boomers generally in a better financial position compared to Gen Xers and Gen Z/millennials.

“While all generations can still be doing more to save for potentially more years in retirement, those in Generation X may be finding it most challenging to save,” said Wayne Park, CEO of John Hancock Retirement. “Workers in this group tend to fall into the sandwich generation, meaning they’re trying to balance their own financial needs with caring for dependent children and elderly parents.

“Respondents in Gen X are struggling to build financial resilience—more than half view their debt as a problem and worry about covering, sudden and unexpected expenses. And while they’ve been out of school for a while, student loans remain a concern for some.

“As well, their savings levels are affecting retirement dates—more than a third (36%) expect to stop working later than planned—the highest percentage among all generations, including baby boomers.

“Gen Xers have significant concerns about their retirement savings, which directly affects their ability to plan for their retirement. Employers can help by providing: Tools and plan design that help them take small steps they can take today to help build their financial resilience[and] education that is easy to access and helps them determine how much money they need to save, strategies for paying down debt and creating an investment portfolio that aligns with their goals.

“Anything employers can do to help Gen X understand the importance of not counting on working longer to help close their savings gap, as 62% of retirees we surveyed ended up, whether due to employment or health reasons or something else, retiring earlier than they planned.”

Life expectancy

“While we used to count retirement in years, now, many of us can look forward to counting it in decades,” said Aimee DeCamilio, Global Head of Retirement, Manulife Investment Management, parent company of John Hancock Retirement. “With life expectancy close to 80, Americans must now plan for how they’ll live and fund multiple decades of retirement. This year’s report brings additional clarity to help participants save, stay invested, and transition into retirement.”

The report suggests that a worker’s target retirement age depends partly on the financial resilience they’re able to achieve during their working years. It refers to financial resilience as the ability to navigate financial obstacles such as debt, college costs, health care expenses, and emergencies. Workers struggling to meet their current financial needs often struggle to build this resilience and tend to delay saving for retirement.

While workers often have a retirement age in mind, many end up retiring earlier than planned. The report indicates that 62% of U.S. retirees left the workforce sooner than expected, shortening their savings period, and extending their retirement years.

Half of workers report being behind in their retirement saving and only 1 in 3 feel they are on track. Less than one third have completed a formal and comprehensive retirement plan and the same number have a financial advisor. Despite being most likely to feel their retirement savings are on track, 2 in 5 baby boomers say they’re behind.

On average, workers expect to retire 4 years later than they’d like to, most commonly so they can continue to work to increase retirement savings or pay off debt. However, because the retiree survey data shows almost two thirds of retirees stopped working earlier than expected, it may not be realistic for workers to count on having the extra time to save.

Close to half of U.S. workers are worried about being able to afford basic expenses or health care in retirement. Generationally, Gen Z/millennials’ concern about affording the basics in retirement has increased since 2022. Along with Gen X, they’re also more likely than Baby Boomers to worry about this a great deal.

Employee financial wellness

“Employers have a great opportunity to help their employees enhance financial resilience and longevity planning,” said Park. “They can help by making sure their retirement plan offers support to help make employees’ decisions easier, as well as to simplify and encourage active engagement with their retirement plan.

“Employers also can provide support through financial wellness tools to help employees take control of their money now and understand how much they need to save for the future. An occasional email isn’t enough to encourage action and change saving behaviors, so employers should make sure they’re providing relevant information on a regular basis and using a variety of formats (personalized communications, online resources, educational meetings, webinars, etc.) to engage their multigenerational workforce.

“Taking a holistic look at plan design factors such as eligibility and vesting requirements, automatic plan features, matching contribution formula, and qualified default investment alternative (QDIA) is an important complement to engagement efforts.”

Employers can help by providing resources for financial planning and investing and engaging with participants digitally.

In the survey, workers said they’d like more support for financial planning and investing. Currently, they most commonly consult financial blogs and websites for financial advice about planning and investing. The greatest untapped interest is in consulting with a financial advisor in-person or virtually.

As in past years, survey results, in combination with John Hancock Retirement’s participant data, found that workers who engage with their retirement plans digitally—by logging in to the plan website or opening email communications from their plan—are more likely to report that they’re in good financial shape and on track for retirement than their less engaged peers.

More than 6 in 10 employees opening 6 or more emails from their financial wellness provider in a year reported being in a good financial situation, compared to 53% who only opened 1 or 2. Similarly, those who’d logged in to the financial wellness website within the year vs. not since last year (2023) or earlier also reported having a good financial situation, 62% vs. 50%.

Related: How long will you live? Poor ‘longevity literacy’ will hinder retirement savings

Employers need to embrace the opportunity to enhance financial resilience and longevity planning across generations by taking the following steps, according to the report:

Evaluate 401(k) plan design: Key factors to consider include automatic plan features, matching contribution formula and qualified default investment alternative. “The most important action employers can take is to take a holistic view that considers plan design, employee profile and behaviors, communication programs so that the retirement plan can be tailored to the profile of the employees at their firm,” said Park.

Review plan’s investment lineup: Make sure the plan offers support to help employees make their decision easier. Also, determine what role annuities can play, if any, since both workers and retirees consider them a primary source of retirement income. “Retirement income can be achieved with or without using an annuity in product form,” said Park. “What’s more important is that employers and participants consider ways to annuitize their nest egg when they retire.  So far, we think it helps participants most to provide educational content and tools to help them with their retirement income needs, rather than to implement a program that may not get the take-up we’d hope for.”

Access employee financial education, communication preference: Make sure to provide relevant information on a regular basis and use a variety of formats (online resources, webinars, personalized emails, etc.) to engage multigenerational workers. “Make communications personal, so that the messages resonate and encourage action among employees,” said Park. “More and more, this takes place digitally. Our survey found that those who are more digitally engaged with their provider – via email, website or mobile app – report better financial situations.”