As financial pressures mount on the shoulders of working Americans, clouds are forming over their retirement dreams. According to recent consumer sentiment data from Principal, nearly half (44%) of Americans don’t feel “financially included,” or that they will have the financial freedom to live and do as they wish in retirement.

The Global Financial Inclusion Index data also found that:

• Nearly 6-in-10 Americans (57%) expect to work past the age of 65. On top of that, nearly one-fifth (18%) expect to work nearly a decade past retirement age (65).
• Women are more pessimistic about their retirement. More women expect to work later in life and less than 40% feel they will be able to live as they wish in retirement.

We discussed the data with Chris Littlefield, president of Retirement and Income Solutions at Principal Financial Group, a top three retirement 401(k) provider with $1.6 trillion in assets under administration, to further understand what the government, financial institutions, and employers can do to continue supporting the holistic financial and retirement needs of Americans.

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Q: What is the most important thing employers can do to help workers be able to retire at 65?

A: Employers play a critical role in the financial well-being of employees with more than two-thirds of Americans believing their employers act in ways that help them feel financially included. As attitudes and expectations for retirement keep evolving, including when and how people decide to retire, employers will need to continue educating employees about the value of their retirement benefits while also doing what they can to help employees start saving as early as possible.

Additionally, when employers set the deferral percentage for auto enrollment and the rate of their matching contribution, they should be mindful of implicit messages employees may interpret from those decisions. Our research indicates that in many cases employees incorrectly believe the deferral and matching contribution percentages set by their employers will be sufficient for them to achieve retirement success. However, we know that is rarely the case. A good rule of thumb for the average working American is to save at least 15% of their annual income when including the employer match, and very few employers have auto deferral and matching contribution rates that produce that amount.

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Q: What can employers do to specifically help female workers who are more pessimistic about retirement?

A: There should be a concerted commitment to ensuring women are accessing the tools and resources that help them protect and grow their financial well-being. According to the findings from this year’s Principal Global Financial Inclusion Index, women continue to feel less financially included than men across nearly all measures of financial inclusion. Two of the biggest gaps are centered around access to high-quality investment products and financial planning strategies personalized for women. The effect this can have on the long-term financial goals of women can be damaging, especially with only 39% saying they feel capable of meeting financial obligations today while saving or investing for retirement.

Across most surveys we’ve conducted, women tend to respond to these questions more cautiously. However, there’s still a gap to close and employers should have engagement strategies that are personalized to the varying demographics and distinct needs of their workforce. It can be a simple, yet powerful way to tailor communications, infuse education and advice, and position benefits that help meet an individuals’ holistic financial goals.

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Q: Are there financial tools/programs that employers can provide to help employees feel more secure financially?

A: When Principal surveys workers, we are consistently told they want help with holistic financial planning, not just retirement savings. Holistic financial planning includes establishing a budget, setting savings goals, managing debt, etc. These are vital topics to support as we help Americans balance their short-term financial needs with saving for their future.
But, to go a step further, personalized advice has become necessary to help people balance their present day priorities with long-term goals. The unique needs of individuals and their evolving financial situations result in life moments when they may not feel confident making financial decisions, which is when point-in-time advice enters the equation. As an example, in a recent Principal survey, 50% of Generation Z employees indicated they need personalized financial advice the most when significant life events occur.

Therefore, to be effective, employer-sponsored financial wellness programs must start with a deeper understanding of the diverse needs of your workforce in order to provide benefits they want.

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Q: Are there any changes to retirement plan design that employers/plan sponsors can make to increase retirement savings for employees?

A: One of the most meaningful things employers can do is adopt automated features in their plan design – auto-enrollment, auto increase of an employee’s contribution rate coincident with salary increases, and periodic auto-reenrollment for employees who opt out – to leverage the significant improvement these features can have on participation and savings. Based on Principal proprietary data, plans using auto enrollment are at least twice as likely to achieve 90% participation versus plans that do not automatically enroll participants. And, importantly, 94% of individuals who were automatically enrolled remain in the plan. A second change would be implementing a hybrid, or dual, qualified default investment alternative (QDIA).

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Related: Longer life expectancy, early retirement pose savings challenges

Many working Americans are feeling financially stressed and overwhelmed. They want help and are increasingly seeking guidance – somebody to tell them what to do or someone to do it for them. Having a hybrid QDIA that starts workers in a target date fund before transitioning them into a more personalized service like a managed account as they get closer to retirement can meet that need and may create better retirement outcomes. In a recent Principal employer survey, more than one-third (35%) said they planned to consider a hybrid QDIA the next time they evaluated their QDIA options.

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Q: Should employers provide more in-plan options that would provide guaranteed income for retirees?

A: While in-plan income solutions have come a long way in the last several years, employers have been more reticent to add them to their plans. Today, we believe there are a few important considerations for employers aiming to provide in-plan education, advice, or services to help people better understand and prepare for their income needs in retirement.
Individuals’ needs for retirement income are highly personalized. Every person who enters retirement has a unique set of circumstances that will dictate different levels of need for guaranteed income. It will not work to offer solutions that are one-size-fits-all. Instead, they must be personalized to help navigate a host of factors such as total household assets and debt commitments, caregiving obligations, tax considerations, Social Security, and other benefits like health care.

Retirement income solutions need to consider all the assets available, not just those in a particular retirement plan. Without a holistic view of how much an individual – and their spouse or domestic partner – have saved outside a workplace retirement plan, it can be difficult to help determine if enough assets have been accumulated or the best ways to convert their savings into a stable source of income in retirement.