An alarming trend could be affecting your staffers’ ability to save for retirement — and your return on investment for 401(k) and other retirement programs.
More than one in four employees is using money designated for their retirement to pay for current expenses.
That’s according to new research of consumer finance data from the Federal Reserve and the U.S. Census Bureau by financial advisory firm Hello Wallet.
And this isn’t just $100 here and $50 there; Americans are withdrawing $70 billion annually from their retirement savings via cash-outs, loans and withdrawals to pay for bills, credit card debt or their mortgages.
Other relevant findings:
- 75% of workers report that they breached their savings because of basic money management problems. That goes against the common belief that people who’ve lost their jobs are the ones taking early distributions. (The data say these individuals only account for 8% of the total.) Researchers concluded that employees are running into trouble because they’re “not addressing basic financial needs, such as spending less than [they] earn and building emergency savings.”
- Penalized withdrawals increased from $36 billion to about $60 billion between 2004 and 2010. Researchers also found that the percentage of tax units with retirement accounts or pension coverage that receive a penalty every year for non-retirement spending increased to 9.3% in 2010, up from 7.9% in 2004.
- Workers in their 40s are most likely to breach their savings for non-retirement needs. These are the employees most likely to have mortgages, revolving credit card debt and kids in high-school or college.
So what’s all this mean?
One particular statistic was telling: People who had trouble managing their basic financial needs or didn’t have an emergency savings account were the ones most likely to need to withdraw money.
Though there’s no single solution, companies would be remiss if they didn’t attempt to step up their financial education to help workers manage their basic financial responsibilities and needs.
If HR or benefits staff aren’t qualified, reach out to your retirement vendor to ask about savings education tools, which can range from emails and newsletters to sit-downs with administrators and vendor employees.