Competing financial responsibilities hinder U.S. employees’ retirement savings: Goldman Sachs

A recent survey by Goldman Sachs Asset Management reveals that US employees’ retirement savings are significantly impacted by a ‘financial vortex’ of competing financial responsibilities, including credit card debt, student loan repayments, college savings and caregiving costs. The report, published on Tuesday, highlights that unexpected financial challenges can reduce an employee’s retirement savings by up to 37%.

The survey, titled “Diving Deeper into the Financial Vortex: A Way Forward,” found that the financial vortex has worsened over the past year despite more U.S. employees increasing their savings and feeling more confident about meeting their retirement goals. The survey included responses from 3,673 working individuals and 1,588 retirees aged 50 to 75.

Among the participants, 44% admitted to cashing out retirement savings at least once upon changing jobs, a slight increase from 42% in 2022. Furthermore, 42% had to halt saving for retirement due to financial hardship (up from 33% in 2022), and 39% left the workforce to provide caregiving for someone close to them (up from 22%).

About 29% of respondents anticipate that rising interest rates, high inflation and market volatility will delay their retirement by one to three years. Half of the retirees surveyed retired earlier than expected, with 47% retiring for reasons beyond their control, such as caregiving or poor health.

The survey also discovered that only 36% of U.S. workers have at least three months of income saved for emergencies. Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, highlighted these concerns at a webinar discussing the report’s findings.

Although many employees manage their retirement savings independently, only 13% correctly answered the “big five” standardized financial literacy questions testing understanding of interest, inflation, compounding and diversification principles. Those who answered correctly were less likely to report their retirement savings being affected by the financial vortex.

The survey also indicated that having a solid financial plan for retirement is crucial. 79% of workers with a plan reported their retirement savings as on-track or ahead of schedule, compared to 34% without a plan.

In terms of retirement income, Goldman found that 42% of retirees have an income in retirement that is 50% or less of their pre-retirement income, including Social Security. Only 53% said they are satisfied with their income level in retirement.

Among potential solutions to ease the impact of competing financial priorities, Goldman suggested increased emergency savings, better financial literacy, personalized financial plans for retirement and multiple sources of income in retirement.

Kathleen Barber, vice president and head of corporate benefits and compensation at Goldman Sachs, noted that although the SECURE 2.0 Act of 2022 allows companies to implement optional emergency savings features, she has not heard from the companies Goldman works with about implementing these features. However, some companies are giving employees access to special savings accounts and allowing for payroll deductions for emergency savings.

While the SECURE 2.0 Act of 2022 was focused on improving defined contribution plans, it also contained several provisions related to defined benefit plans. One such provision, Section 606, eased the requirements for overfunded pensions that make transfers to a 401(h) plan for retiree medical benefits, known as 420 transfers (for Section 420 of the Internal Revenue Code that permits them). Despite this easing, few pension funds are likely to take advantage.

Chris Lyon, head of defined contribution for Goldman Sachs, emphasized the importance of employers providing workers and retirees with more integrated, personalized and effective solutions to support their retirement goals.

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