The Mercer Retirement Savings Study recently uncovered a startling truth about Americans’ retirement preparedness. Most professional wealth managers have been advising their clients for years: you can never be over prepared. Out of 39 countries surveyed, the United States ranked a disheartening 28th in terms of retirement savings readiness. This is a topic many career focused business experts shy away from; however, that decision may have significant implications for individual retirement plans and the long-term country’s economy as well. Why are business experts struggling, and what can we do about it? Let’s explore what is happening now within an economic framework.
The Rise Of Nontraditional Work Arrangements And Weaker Labor Protections
One reason for the United States’ lackluster performance in the Mercer Retirement Savings Study can be attributed to the rise of nontraditional work arrangements such as the gig economy. These workers are often unable to access the same retirement benefits as larger company employees, leaving them to fend for themselves. Similarly, weakened labor protections make it harder for workers to retire securely. Only recently have we seen employees in larger scale companies, striking for better wage earnings and an empowerment of work-life wellbeing. Additionally, without any legal requirements to provide workers with retirement savings plans, many companies choose not to. However, recently several states have implemented mandates such as Connecticut for companies to comply if they employ a certain number of employees.
Cash Compensation Over Wellbeing
The global State of Work-Life Wellness report from Gympass showcases people’s attitudes towards wellness and work have shifted post-pandemic: 96% now seek employers who prioritize wellbeing; 93% view wellbeing as important as pay (up 10% from last year); 87% may leave a company that does not focus on their wellbeing. Work-life balance is old thinking, and wellbeing today dominates the conversation. Wellness programs are difficult to measure effectiveness, and are an undefined revenue spend. The overall outcome depends on the culture and leadership of the company.
The Cost of Healthcare
Another reason Americans are not saving enough for retirement is the soaring cost of healthcare. Many retirees are forced to spend a significant portion of their retirement savings on healthcare costs, leaving little cash left over. This is especially true for those who retire before the age of 65 and are not yet eligible for Medicare. Even if you are enrolled in Medicare, many programs outside of emergency care such as functional health upgrades or treatments are not approved by the FDA. Therefore, none of which are covered by insurance. Ongoing costs in these two examples may require years of maintenance care, and travel outside of the United States.
Failure to Plan and Save
While external factors like nontraditional work arrangements and healthcare costs undoubtedly play a role, the Mercer study also reveals that many Americans are failing to plan and save. According to the study, only 36% of Americans are actively saving for retirement. This lack of emphasis on planning and saving could be due to a lack of financial literacy, or simply a lack of understanding about the importance of retirement savings. Even in retirement, the long term view is an approach to consider throughout this new chapter. A well-reviewed budget is a necessity to understand yearly costs and comparisons year over year. Typically, the average retirement spend increases over time as more and more support is needed to live.
Consumerism and Absence of Minimalism
Additionally, research has found that materialistic consumption habits and behaviors are leading individuals to take on more debt than they can afford. This leaves them incapable of saving for retirement. Oftentimes, the focus is on immediate gratification rather than long-term planning. A popular social movement called Minimalism, rejects the materialistic nature of the world and emphasizes living with intention. The minimalist movement focuses on sustainability over materialism and immediate gratification. Over time, this would eventually lead to reduction in debt. One of the popular movements today in retirement is to truly downsize, and leave a legacy of a smaller environmental footprint.
Overall, the Mercer Retirement Savings Study is a wake-up call for all Americans to reevaluate their retirement savings strategies. While external factors may be out of the individuals control, planning and saving for retirement is still essential.
Through concerted efforts, we can work towards building a more financially secure future for all.