Empower: Resilient Retirement Savers Shifting Focus to Short-Term Needs

• Savings rates only inched downwards .2% over the past 12 months.
• Inflationary pressure and sharp market declines are taking a toll on retirement savers as they are forced to prioritize short-term financial challenges over longer-term goals.
• 2 in 5 workers prefer a hybrid approach to advice.

Rising prices and inflation are certainly affecting American workers but despite the economic environment, Americans remain resilient -- and more than 63 percent of Americans are confident they are financially on track for retirement.

Today, Empower released its second annual research study Empowering America’s Financial Journey™ – How People Save, Invest and Get Advice, which analyzes the behavior of approximately 4.3 million active (primarily corporate) defined contribution participants to better understand their savings habits and levels of involvement with retirement planning, particularly during a highly challenging economic and financial environment.

“When the economy is experiencing a downturn, American workers need guidance and support to help deter them from making financial decisions that may negatively affect them down the road,” said Edmund F. Murphy III, president and CEO, Empower. “Despite the challenges our country is facing, it’s encouraging to see that most savers haven’t changed their investment approach and are still focused on saving and planning for their future.”

Here's what we’ve learned:

• Engagement continues to matter a lot. Engaged participant savings rates are 56 percent higher than rates for unengaged participants. They are also more likely to take full advantage of their plan’s employer match.
  • 48 percent of unengaged participants are not making full use of the employer match vs. 22 percent of those who are engaged.
• People who are engaged and leverage educational content; seek out advice or guidance; and/or aggregate or consolidate accounts have higher savings rates than people who are not engaged. Participants aggregating accounts – those who link multiple financial accounts in one place to create a consolidated view – have savings rates approaching 11 percent, almost double the savings rate of unengaged participants.
  • 44 percent of survey respondents feel more confident if they had a full picture of their financial situation and were able to see their financial account balances, debt and assets in one place.
• Changing demographics and the rise of Gen Z are reshaping the DC landscape. Gen Zers as a percent of Empower active participants more than doubled between 1Q20 and 3Q22 (4.0% to 8.9%). This trend will accelerate as Gen Zers are expected to account for 30 percent of the workforce by 2030.
• Advisors make a difference and help drive better outcomes. People who use an advisor compared to those who do not are more likely to:
  • Feel more confident they are saving enough in their 401(k) plan and in making investment decisions.
  • Consider themselves to have a higher level of knowledge about investing.
  • Be more confident about their retirement readiness.

• The number of participants taking out loans increased by 13 percent over the past 12 months and hardship withdrawals jumped by 24 percent. More than a quarter of surveyed respondents say they are very or somewhat likely to take a loan or hardship withdrawal in the next six months.

“Through this year’s study, we found that nearly half of Americans have cut back on daily expenses, created a budget or cut back on entertainment, and one in five baby boomers and Gen Xers postponed retirement,” said Luis Fleites, director of Thought Leadership for Empower. “I think this illustrates that while we are shifting our focus on short-term spending and planning for now, most savers are still trying to remain long-term focused.”

The objective of this analysis was to understand how participants behave and what drives that behavior and, as a result, what insights and learnings can help American workers on their journey to a secure retirement.

To accomplish this, we have overlayed two sources of data:

• Empower’s recordkeeping data of 4.3 million active participants in primarily corporate plans.
• A nationally representative survey of 2,505 working Americans.

Download the study to learn more.

About Empower

Headquartered in metro Denver, Empower administers approximately $1.2 trillion in assets¹ for more than 17 million retirement plan participants¹ and is the nation’s second-largest retirement plan recordkeeper by total participants.² Empower serves all segments of the employer-sponsored retirement plan market: government 457 plans; Taft-Hartley plans; small, mid-size and large corporate 401(k) clients; nonprofit 403 (b) entities; private-label recordkeeping clients; and IRA customers. Personal Capital, a subsidiary of Empower, is an industry-leading hybrid wealth manager. For more information please visit empower.com and connect with us on Facebook, Twitter, LinkedIn and Instagram.

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