Financial Well-Being for Men: Helping Them Prepare for a Successful Retirement
This article is the latest in BDO’s ongoing series about how plans sponsors can improve their employees’ financial well-being. In May, we published an article about helping women prepare for retirement, and now we look at several factors employers may want to consider about how their male employees are preparing for retirement.
Many sitcoms and comedians have played with the stereotype that male drivers are notoriously reluctant to stop and ask for directions. According to research, this reluctance to ask for help also affects men as they head toward retirement—and what that means for employees’ financial well-being isn’t anything to joke about.
MassMutual examined gender financial issues and found that men are less interested than women in receiving financial planning services, budgeting assistance, debt counseling and other financial education programs from their employers. Fidelity conducted research specifically for BDO and found that at the end of the first quarter of 2018, 41 percent of men didn’t have their investments allocated appropriately for their age group.
This statistic should grab the attention of men and their employers, because it directly impacts the financial wellbeing of employees. Those employees who are worried about their finances, may negatively affect workplace productivity. In fact, a recent survey by consulting firm Mercer found that financial stress is costing employers about $250 billion in lost wages each year. As a result, companies should identify ways to improve their employees’ financial well-being, and part of this effort should involve understanding their male employees’ retirement savings habits.
Men Are Saving for Retirement, But...
It’s true that men, on average, have larger retirement account balances and prioritize saving for retirement more highly than women. But that doesn’t mean that men are doing just fine when it comes to retirement saving.
In its How America Saves 2018 report, The Vanguard Group found that men and women participate in their defined contribution plans at similar levels overall, however, disparities appear when this data point is analyzed by income levels. For example, only 74 percent of men earning between $50,000 and $74,000 annually participate in their defined contribution plan, compared to 86 percent of women. Meanwhile, men are contributing a lower percentage of their pay to defined contribution accounts, Vanguard found. For example, in that same earnings bracket, women saved 7 percent of pay compared to men saving 6.8 percent.
Fidelity Investments looked at the disparity between how men and women save for retirement and had findings similar to Vanguard. The research found that women tend to save a higher percentage of their salary than men (9.0 % vs. 8.6%) and generated a higher annual rate of return (6.4% vs. 6.0%).
How Employers Can Help
As employers look for ways to improve financial well-being across their entire workforce, a good place to start is by gaining a better understanding of the saving and investing habits of various demographic groups of employees. Many record keepers and other service providers can offer information to help plan sponsors better understand their employees’ needs. Providers can analyze segments of a company’s workforce to pinpoint gaps, learn what motivates employees and offer possible solutions.
For example, plan sponsors may want to look to see if there are differences in the risk profiles of their employees’ retirement portfolios across genders, age groups or income levels. With this information, plan sponsors can tailor communications strategies to address any suboptimal investment practices by each group.
Employers also may want to harness some of the recent findings from the burgeoning field of behavioral finance. Rather than simply assuming that humans will act rationally, behavioral finance looks at some of the cognitive biases that affect people’s decision-making when it comes to finances. By understanding these biases and tendencies, plan sponsors can better identify some of the traps that employees may fall into and communicate with employees in a way that aligns with how they actually make decisions.
Behavioral finance has found that inertia is a powerful force when it comes to preparing for retirement. Plan designs like automatic enrollment and auto escalation take advantage of the power of inertia and can help put employees on a successful path to retirement. Also, online tools that prepopulate with data from healthcare and retirement plan providers, which remove some of the friction and barriers to good decision-making, can make it easier for employees to take action to improve their financial well-being.
BDO Insight: Educate Employees About Investment Options and Encourage Family Conversations
The lack of preparedness for retirement is certainly not a gender-specific issue. According to MassMutual’s study, nearly three-fourths of both genders (74 percent of women and 71 percent of men) aren’t saving enough for retirement.
When it comes to men specifically, Fidelity’s finding that 41 percent of men didn’t have their investments allocated appropriately for their age group actually represents a positive trend. The figure has decreased 13 percentage points over the last five years. This improvement can most likely be largely attributed to the increased use of target-date funds, which are professionally managed accounts that are tailored to the retirement age of users.
To continue building on this positive trend, employers should educate employees on the importance of developing an appropriate asset allocation strategy, as well as on the tools and investment options that are available for implementing this strategy. This education, along with finding ways to reduce the friction and make it easier for employees to save for retirement, should be an important part of companies’ financial well-being programs.
Also, plan sponsors should encourage employees to realize that a family’s long-term financial planning shouldn’t be the responsibility of just one family member. Rather, all of the adults in the family should be involved in the big picture discussions about saving for retirement, budgeting and insurance.
To learn more about how you can help your employees prepare for retirement and improve their financial well-being, BDO’s ERISA team is here to help.
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