No one looks forward to getting old, but the opportunity to leave the daily grind is appealing for most of us. Whether the goal is to spend more time with grandkids, pursue a favorite — or new — hobby or travel the world, many people envision a life of freedom and flexibility in retirement. For a growing number of employees, however, leaving the working world behind seems an impossibility.
According to the 2024 Alight International Workforce and Wellbeing Mindset Study, 40% of U.S. employees say there’s no way they will be able to retire at the age they want. Prospects for a timely retirement seem even bleaker for two specific demographic groups — women and Generation X. Among women, 44% don’t expect to retire when they want, compared to 36% of men, while nearly half (48%) of Gen Xers express pessimism about retiring at the desired age, compared to 39% of Millennials, 37% of Boomers and 33% of Gen Z.
Not surprisingly, financial difficulties are the overriding reason people cite for doubting their ability to retire. Workers over 60 have an average account balance of less than $150,000 and a median account balance of only $32,0001. In other words, half of these near retirees have less than $32,000 in their employers’ 401(k) account. Even when combined with Social Security, many will fall woefully short in having enough savings to live comfortably in retirement.
Ready for retirement? Replacing your current income.
Determining retirement adequacy can be fickle. A commonly cited rule of thumb is to have enough saved to annually replace 70% of your pre-retirement, post-tax income. This implicitly means that replacing 69% is inadequate. However, a retiree with a 69% ratio could easily cut back on discretionary spending enough so that their accounts don’t fall to $0.
So, where do you draw the line? Can you reduce enough discretionary expenses to make a 60% replacement ratio be adequate? Maybe. What about 40%? Unlikely. Even though only a few of us will go to bed one night without enough money to retire and then wake up the next morning and magically achieve retirement readiness, there is value in thinking about how close people are to achieving retirement adequacy.
In calculating retirement readiness, it becomes abundantly clear that differences in life experiences, age, gender, race and more can result in significant variance in how successful someone has been in saving for retirement. As employers seek to help workers become more financially secure, it is crucial to consider these factors, especially when encouraging participation in the retirement plan.
Challenges in retirement readiness
Today’s workforce is drastically different from the largely homogenous labor force of the 20th century. Women comprise 47% of the U.S. civilian labor force, while people over the age of 75 make up 3%. Included within those figures are other demographics, such as race, ethnicity, LGBTQ+, disabled and veteran status, that can hinder an individual’s ability to effectively save for retirement.
Let’s take a closer look at the challenges women face in achieving retirement readiness. Traditionally, women have been more likely than men to take time out of the labor force to raise a child or care for an ailing parent. Those career interruptions, coupled with the gender pay gap, can negatively impact their ability to build a sufficient nest egg. Consequently, women have roughly one-third less than men in their retirement accounts, setting up a potential crisis for female retirees, especially since women tend to have longer life expectancies than men.
Other factors influencing retirement readiness include:
- Age: Younger workers often prioritize immediate financial needs over long-term savings, while older workers may face challenges in catching up on their retirement savings. Additionally, younger workers can often absorb market corrections more easily than older workers.
- Tenure: People with longer work histories generally have higher retirement balances than shorter-service ones because they have more years in which to contribute and accumulate earnings. Some might even have access to benefits like pension plans or retiree medical subsidies to help provide more income and decrease expenses.
- Pay: Individuals from lower-income backgrounds may struggle to save for retirement while meeting daily expenses. Additionally, certain costs like medical expenses are often the same for everyone making it a higher percentage of pay for lower-income workers than higher-paid ones.
Retirement readiness means personalized planning
The varied nature of the workforce means a one-size-fits-all approach to retirement planning is insufficient. Workers face different challenges that require tailored solutions. It is incumbent upon employers to provide essential assistance to help these individuals take advantage of retirement benefits and support them in their quest to achieve retirement readiness.
A personalized retirement benefits strategy that combines high-tech tools with high-touch support can address these challenges. Here's how:
- High-tech tools: Digital platforms can provide personalized financial planning advice, track savings progress and offer educational resources. Employees are able to access these tools anytime, empowering them to make informed decisions about their retirement savings.
- High-touch support: Personal interactions, such as one-on-one consultations with financial advisors, can address unique concerns and provide tailored advice. Workshops and seminars can also help employees understand the importance of retirement savings and how to maximize their plans.
To encourage involvement in retirement plans, employers must consider the varied backgrounds of their workforce. Strategies include:
- Offering multichannel resources to allow people the opportunity to understand the retirement plan options in the way they deem best.
- Implementing flexible contribution options to accommodate varying financial capabilities.
- Providing targeted communication that addresses specific needs and concerns of different demographic groups.
Addressing the retirement readiness challenges of the 21st century workforce requires a comprehensive, personalized approach. By recognizing the different factors that influence retirement savings and implementing a high-tech, high-touch benefits strategy, employers can better support their employees in achieving financial security. Embracing differences in retirement planning is not only beneficial for workers but also for the overall success of the organization.
1Alight recordkeeping data as of December 31, 2024
