HR professionals have much on their minds ahead of the 2025 open enrollment season, but a perhaps understated issue concerns employees’ long-term worries about their finances.More than two-thirds of workers in a recent multigenerational survey published by the Transamerica Institute said they did not believe they would have enough saved to meet their retirement needs even if they worked up until retirement.A strong share of respondents, including 57% of baby boomers, 39% of Generation X and 33% of Generation Z, said they planned to work until age 70 or older.
Employers must help their workers better understand the reality of what retirement actually looks like in order to assist them, said Dan Doonan, executive director of the National Institute on Retirement Security. This includes topics such as planning for potential healthcare expenses and the importance of compound savings over the course of their working lives.
Younger workers, especially, “have time to let that savings grow,” Doonan said.He noted that investment returns could generate up to three-quarters of retirement funds for those who begin saving in a typical defined contribution plan at age 25.”If they get on track now, that number is going to grow manny times.”
It is indeed also key to inform employees about their income expectations in retirement, Doonan added. For example, plan members might potentially be unaware of principles like the so-called “4% rule.”
Retirement Savings Challenges: Trends in Target Date Funds and Emergency Savings
Employees face ongoing challenges in saving adequately for retirement, driven by factors like financial instability and a lack of engagement with complex investment options. Recent trends indicate a growing reliance on target date funds (TDFs) to simplify retirement planning, alongside a recognition of the importance of addressing employees’ immediate financial needs through emergency savings programs.
The Rise of Target Date Funds
Target date funds (TDFs) have become increasingly prominent in retirement plans. These collective investment vehicles are designed to automatically adjust and rebalance their asset allocation over time, becoming more conservative as the target retirement date approaches. According to a 2024 report by the employee Benefit Research Institute (EBRI), TDFs offer a long-term investment strategy that simplifies plan access and appeals to employees seeking a straightforward approach to retirement saving. As EBRI notes, they provide “an easy option to do the right thing.” retirement savings, experts emphasize the importance of addressing employees’ short-term financial vulnerabilities. Unexpected expenses, such as car repairs or medical bills, can derail even the most diligent savings plans.
“In many cases, having an extra $2,000 or even $500 can really help people get through these times where their car breaks down or whatever things can happen,” explained Jack Copeland, highlighting the impact of even small emergency funds.
Recognizing this need, recent legislation and innovative benefit programs are emerging. The SECURE 2.0 Act, passed in 2022, allows employers to establish short-term savings accounts as part of a retirement plan. https://www.congress.gov/117/bills/h6721/BILLS-117h6721enr.pdf Alternatively, organizations can partner with third-party vendors to offer similar emergency savings programs, providing employees with accessible funds to navigate unexpected financial challenges.