Middle class America is expecting to push out full retirement even later due to financial worries. We’re also expecting to have to save more. Yet almost half of us haven’t worked out how long we can last on what we’ve got already.

According to Wells Fargo’s new survey:

• Almost half said that they expected to continue in the same job or a similar job of similar responsibility (expecting the same income level, we presume).
• More than half said they need to significantly cut back on spending now to save for retirement.
• More than 25% of 20-30-year-olds expect no income at all from Social Security during retirement.

Another new report, “The Financial Recovery for Retirees Continues“, released by The Society of Actuaries, LIMRA and the International Foundation for Retirement Education offers this finding:

• The number of people who have NOT yet estimated how long their assets will last in retirement INCREASED significantly (to 46% from 38% last year).

Let’s review these results.

• We know we have to work longer.
• We’re hoping to make the same pay in the same jobs well into retirement.

But,

• We haven’t worked out if we actually have enough to retire based on what we have now.
• We think we need to save more than we are managing now in order to retire comfortably.

No wonder so many of us are worried and preoccupied. Except, of course, for the ones who are just burying their heads in the sand!

Sounds like a lot of us could benefit from a Financial Assessment and some Next Steps guidance.

Start with a Financial Health Assessment

initiatives are:   (1) becoming much more comprehensive and (2) demonstrating tangible business value.

In our own experiences with HR professionals, we see the expansion every day.  Wellness strategies are evolving and many employers are looking to better understand how employee money issues are impacting the productivity of their organization.

Sound overwhelming?  Well, it doesn’t have to be.

If you’re looking for a simple and cost-effective way to get your arms around financial wellness, we recommend starting with a financial health assessment. Think of it as a biometric screening of an employee’s financial health. Once you understand which issues are impacting employee productivity the most, you can confidently introduce programs that address the highest priority problems.  And, with an annual assessment, you can measure the progress you’ve made and demonstrate value.

Here are some important qualities that you’ll want to look for in an employee financial health assessment:

1. Be sure it addresses the complete financial picture. In addition to retirement, you’ll want to dig into credit/debt, personal protection and basic cash flow and budgeting issues.  Just as important is measuring the level of financial stress that employees are under which can have damaging impacts on productivity.  The Personal Finance Employee Education Foundation offers a Personal Financial Wellness Scale (free of charge) well suited to measuring financial stress.
2. Be clear about your intentions.  When it comes to something as personal as money, many employees may be reluctant to share information with their employer.  We recommend that employers only view the data in aggregate and be clear in communications with employees about what the data is being used for.
3. Keep it short and offer an incentive.  In addition to effective communications, keeping the assessment to 10 minutes in length and offering an incentive will really help drive participation rates.  Many of our customers have seen success with gift cards, deposits into a 401(k) or HSA and of course cash works too.
4. Reporting should be actionable – for employee and employer.  Upon completion of the assessment, an employee should receive immediate and easy to understand feedback about how to improve their personal situation.  For employers, it’s important to recognize that at the end of the assessment all you’ve got is data.  The hard part is in interpreting it.  Be sure that you have a capable team working with you that can benchmark the results, prioritize issues and provide you with actionable conclusions.
5. On-ramp to a full solution.  So, 37% of your employees are struggling with debt issues.  Now what?  You may want to choose an assessment provider that can offer an easy transition to education and services.

Financial Wellness ROI

who “tough it out” and come to work but operate far below normal productivity. But, there are many types of presenteeism.  There could be any number of reasons why an employee checks out and productivity suffers.  And, while presenteeism is a relatively new term, you likely have some established policies in place for helping employees stay focused at work.  For instance, over half of US companies have blocked access to Facebook, Twitter and MySpace.  Presenteeism, in its entirety, is a huge productivity issue that far exceeds that of absenteeism.

To say that presenteeism is an ambiguous problem is certainly an understatement.  It’s impossible to measure, difficult to address and simply acknowledging that presenteeism is an issue at your organization tends to imply that the company is not well run.

But, you may find that you can take steps to address the core drivers associated with presenteeism.  And by taking steps to proactively address those core employee issues, you can solve a large portion of the problem.  Similar to the issue of employee stress, recent studies show that employee money issues are a major root cause driver of presenteeism.

Think about it for a moment.  If you were in debt trouble, on the verge of losing your home or had your retirement cut in half due to the recession, wouldn’t you spend time at work dealing with these issues? Even the model corporate citizen would have trouble answering “no” to this question.

But just how big is the problem?  Well, the Personal Finance Employee Education Foundation recently did some studies on personal financial distractions in the workplace.  You can estimate the annual cost of financial distractions at your organization with this calculation:

1. Employees in your organization: ______________
2. Divide by 4 (1 in 4 employees is in financial distress on average)
3. Multiple by 16 hours (distressed employees spend 12-20 hours per week at work on money issues)
4. Multiply by 12 months in a year
5. Multiply by average hourly wage of your employees:__________

For example, an organization of 1,000 employees has approximately 250 financially distressed employees.  The company loses 16 hours of productivity per month for each of these employees which results in 48,000 hours of total lost productivity per year.  Assuming an average annual salary of $50,000/year, this company incurs $1,200,000 per year in lost productivity from financial distractions.

This is just one of several important issues that drive the need for financial wellness in the workplace.  If you take the time to sit down with the numbers, you will likely find that introducing these types of programs may be one of the higher ROI initiatives you have available to you.

Employee financial issues a central theme in this year's survey

years, the themes of employee financial security and benefits communications played a more prominent role than ever before.  This was a natural emphasis given the backdrop of economic volatility and a renewed employer focus on benefits cost control.

We wanted to highlight and provide my perspective on three key points that came out of this year’s study:

There is a Health-Wealth Connection.  MetLife’s survey work, which is consistent with other studies we’ve seen, revealed a connection between an employee’s physical and financial health.  Put simply, those employees who assessed their medical health as “fair to poor,” were much more likely to report financial concerns.  MetLife therefore concluded that an employee’s health status impacts an employee’s financial situation.  Our conclusion would be a different one.  Given our experience with employee financial stress and the studies that have been done in this area, we believe strongly that it is an employee’s money issues that leads to poor health and NOT the other way around.  Stress has long been referred to as America’s #1 health problem and virtually every study you read points to money issues as the leading cause of stress (and it’s not close).

Benefits Communications Effectiveness on the Decline.  Each year, MetLife surveys employers and employees on their perception of benefits communication effectiveness.  This is one of those areas of true disconnect.  Over the past three years, employers believe they have made slight improvements to their benefits communications.  Employees, on the other hand, rate benefits communications as less effective than the year before.  In fact, this year only a third of employees rated their benefits communications as effective vs. 40% in 2007.  Just in the last three years, there have been such dramatic changes in the way that employees access information and learn.  And yet, too many employers have stuck to dated and ineffective forms of communications that have been in place for decades.

Personal Financial Distractions Drain Productivity.  In the past 12 months, 12% of employees surveyed took unexpected time off to deal with a financial issue and 17% reported that they spend more time at work on personal financial issues than they think they should.  Personal financial distractions are and have been an expensive problem for some time now.  What is encouraging, is that almost two-thirds of employers have now recognized personal financial issues as a drain on productivity and 45% acknowledge financial education as an effective solution.

Key takeaways:

• The financial health of employees may be one of the largest determinants of their medical health.  Your health wellness strategy should include a financial wellness component.
• You can improve employee understanding of benefits but you need a modern approach to the way that you communicate them.  This does not need to be an expensive undertaking – improving benefits communications will cost you a tiny fraction of the benefits themselves.
• Employee money issues cost your company each day.  Providing your employees with programs that help them help themselves will increase productivity and employee loyalty.

And so what exactly are the folks in Washington trying to accomplish by dedicating an entire month to financial literacy?  Well, it’s quite simple actually.  See, the government recognizes that a key to restoring confidence in our financial system and maintaining America’s competitive advantage in the world is to provide financial education in our schools and workplaces.  And, while what we do in our schools is critical over the long-term, the best way to impact America’s reality today involves getting employers, or more specifically HR, to rally around the issue and help employees with their money.

Make the Most of Financial Literacy Month

In fact, those in Washington view the workplace as so critical to solving the financial literacy problem that recommendations have been made to extend tax incentives to employers that provide financial education (we’ll keep you updated on progress there).

You knew your job was tough, but seriously?  In addition to implementing that new talent management system, you have to restore confidence in America’s financial system?  Sounds like a lot of work.  Well, let’s take this one step at a time.  Here are some ideas for dipping your toe in the water and trying some things out come April:

• Hold a “Creative Savers” contest.  Have employees submit creative ways they personally employ to consistently live within their means and save for the future. It will be great for those who are struggling in this area to learn practical, everyday financial ideas that are making a positive difference in their co-workers lives.  And likely, while these ideas and practices can be quite creative, they will also tend to be relatively minor spending and/or saving tweaks that can be replicated in most budgets.  Have the 401(k) committee select the top three ideas, award some cool prizes to the winners and let the rest of the workforce benefit from their money magic.
• Do a survey.  Financial Literacy month is a good time to take the money pulse of employees in your organization.  A well designed survey can help employees assess their financial situation and allow you to get a glimpse of the financial stress in your organization.  If you’re looking for a credible survey, I highly recommend the Personal Financial Wellness Scale which was built based on the research of Dr. E. ThomasGarman.  Uniquely, this scale allows employees (and HR) to compare results against national norms.
• Do some seminars. Financial literacy month offers a great reason to reach out to your vendors.  You may want to start by calling your 401(k) administrator for retirement and investing related topics.  But don’t stop there.  There are a number of organizations that provide onsite financial workshops.  Some of these organizations are fee only, while others have programs where fees may be waived altogether.  If you are considering a no cost seminar provider, be sure that you understand the goals and objectives of the vendor.
• Hold a fair.  Nothing like a little free food and drink to get the attention of your workforce.  These days, so many of your employees get the majority of their financial and health products from you.   Invite your vendors and have them come with thoughtful ideas about how to help employees improve their financial health – this may include topics such as saving for retirement, how to cut health care expenses or keys to a rock solid income protection plan.  In addition, make members of your benefits and compensation staff available for one-on-one discussions.

If you implement one or more of these ideas, you may be surprised at what you learn about your employees.  Employee financial distress is pervasive and you may decide that this April cause deserves a year round effort.

Using credit for money

Just last week, the Senate approved legislation increasing the federal government’s borrowing limit by $1.9 trillion.  When signed into law the federal government will be able to borrow more money than at any time in our country’s history, making our total national debt a mind numbing $14.3 trillion.  And this will only allow us to pay our bills through 2010!

Putting this into perspective, according to the Heritage Foundation the federal government will take in an estimated $2.19 trillion of taxes in 2009.  Simple math tells us that owing $14.3T while collecting “only”$2.19T is not a recipe for fiscal health. So last week’s vote was essentially the Senate’s way of literally, passing the buck.  Recent groundbreaking election results indicate that American’s are telling elected officials to stop this madness.

But maybe leading by personal example is the best way to initiate national change. Instead of raising our personal credit card limits and unsecured debt as many Americans have done in the last decade; let’s consider taking a retro approach to plastic. Prior to the introduction of the binge inducing revolving card, the standard plastic issued was known as a “charge card”.  And now this concept is coming back.

What’s the difference? As opposed to revolving credit cards, most charge cards require payment in full at the end of each month.  If you can’t pay, typically a late fee is charged.  So while old habits are hard to break, after a few late fees you start to think long and hard before putting something in the shopping cart.

Charge cards can be less risky for both consumers and card issuers.  For the consumer, it’s obviously more difficult and painful to accumulate debt. Issuers like them because there’s less chance than with a revolving card that someone will be unable to repay them. There’s a much shorter leash.

So go ahead, buy anything you want and put it on the charge card, as long as you can pay for it by the end of the month. And then call your Senator to convey clear grass roots message…”I’m not buying stuff that I can’t pay for in 30 days, repeat after me!”

Poor employee financial health is having a negative impact on organizational objectives and productivity. Four out of five employees in financial distress spend time at work dealing with such financial issues – resulting in a 12 to 20 hour drain on productivity – each month.

“The Need for Financial Wellness” webcast is scheduled for Tuesday, December 8 at 11:00 a.m. PST. John Wolff, vice president of business development, will discuss the issues of employee financial health, and ways employers can address this growing problem.

Registration for the complementary webcast is at https://www1.gotomeeting.com/register/438311969.

Forward-thinking companies that implement financial wellness initiatives can expect a return on investment of over 3:1, according to recent studies.

In its new white paper, “The Need for Financial Wellness,” experts from GuideSpark (formerly ThriveOn) discuss the advantages available to companies that take ownership of the financial health and wellness of their employees.

When 401(k) plans were first rolled out in 1981, the income tax rates and bracket structure were very different than today.    The top federal tax rate was nearly 70% and there were 15 different income tax brackets separated by just a few thousand dollars of income (See Tax History).  Given those conditions 401(k) contributions presented a great opportunity to both avoid high current rates and reduce W-2 income in the contribution year just enough to move into a lower bracket.  So it seemed like a double win, lower taxes in the contribution year and in the future, when the Plan was accessed during retirement.

Since 1981 the sustained effects of “Reaganomics” led to a steady decline of both tax rates (highest federal bracket from 70% to 35%) and the number of brackets (from 15 to 6). During this period, with few exceptions, the US economy experienced robust economic growth.  401(k) Plans got even better as a result. To attract and retain employees, employers with healthy bottom lines began to offer generous matching incentives linked to 401(k) participation.

But the length and depth of the current recession is now changing the outlook for today’s 401(k) savers in two significant ways. First and most importantly, the government funded stimulus packages and propensity to grow overall government spending must be paid for at some point. This future “balance due” can only offset by higher taxes or a devaluing of the dollar (inflation).  The second effect of the current recession is that many companies have cut back or eliminated matching 401(k) contributions.

So the question for the employee now becomes, “if I no longer receive any company matching, and I may have to pay higher taxes on withdrawals in the future, is the 401(k) still the right way to save?”

Enter sound savings principles and the Roth 401(k) to the rescue.  Match or no match, automation and consistency are two key factors in any saving’s strategy.  401(k) plans are still great because the money is automatically deducted from every paycheck before it can get spent.  The recently introduced Roth 401(k) addresses the more daunting issue of higher taxes in the future by allowing after tax contributions now and tax free retirement withdrawals in retirement.

So rather focusing on the now suspect virtues of tax deferral, maybe it’s time to pitch the 401(k) as primarily a great way to save, period.  Wise portfolio allocations and a balanced approach between the Traditional 401(k) and the Roth 401(k) will address the constant winds of change that remain outside of the investor’s control.