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Competing Priorities Impact Retirement Preparedness

Franklin Templeton’s 2020 US Retirement Income Strategies and Expectations survey revealed the importance of having a plan to help reduce financial-related stress—particularly relevant amid today’s uncertainties. Our Felix Touchard discusses some findings of the survey, and how respondents feel about their financial future.

The uncertainty and financial hardship related to COVID-19 has caused many individuals to reconsider their short- and long-term financial priorities. Individuals without adequate savings may not only need to curb everyday spending, but also delay their retirement or other long-term goals. The virus has put the spotlight on financial preparedness, and the importance of having a strategy to cope with unforeseen events or things generally beyond our control. 

The Importance of Emergency Savings

Franklin Templeton’s 2020 US Retirement Income Strategies and Expectations (RISE) survey was conducted before the coronavirus triggered lockdowns across the world, but the survey’s findings are perhaps even more relevant today. Across all age groups surveyed, one’s ability to handle unforeseen expenses ranked as a top-three driver of moderate or significant stress.1

When asked to choose from a list of 14 specific areas one would like financial resources or tools to help support, the top three answers among the youngest groups were similar. For those aged 18-24, “manage my debt” (34%), “save for emergency expenses” (32%), and “create and manage a budget” (31%) were most cited. Among those aged 25-34, tops were “manage my debt” (29%) and “create and manage a budget” (25%), followed by “save for emergency expenses” (24%). “Manage my debt” and “save for emergency expenses” remained in the top three among the next two demographic groups, ages 35-44 and 45-54.

Meanwhile, when asked to choose from a list of seven different current financial goals or priorities, “having sufficient emergency savings to cover unexpected expenses” was cited more frequently than saving for a home or for retirement when looking across nearly all age groups surveyed. It’s clear many individuals need help balancing urgent needs, while still preparing for long-term goals such as retirement.

Of course, if an individual is struggling to make ends meet, it’s hard to think about saving enough for an emergency fund—one that can cover several months of expenses—let alone retirement. Even in 2018, when US unemployment was at its lowest level in several decades, a Federal Reserve survey found that roughly four in 10 Americans said they would have difficulty covering an unexpected $400 expense.2

So, how can people better prepare for both short- and long-term income needs? Some employers are thinking about ways to do just that. For those who are working, employers can play an important role, through emergency savings programs, thoughtful retirement plan matching structures, student loan repayment programs, health savings accounts and other resources.

In its 2019 Employer Approaches to Financial Wellbeing Solutions survey, the Employee Benefit Research Institute (EBRI) examined responses from “emergency-fund-focused employers” that said they offer or plan to offer an emergency fund or employee hardship assistance as a financial wellness initiative.

More than four in 10 (43.6%) employers in the EBRI survey that expressed at least some interest in offering financial wellness programs said they offer (28.2%) or plan to offer (15.3%) an emergency fund/employee hardship assistance as a financial wellness initiative.3

While emergency or hardship funds may not be a common workplace benefit today, one that is perhaps more widespread is a defined contribution plan—where a percentage of one’s paycheck is set aside in a retirement account, often matched by an additional employer cash contribution. Many workers overlook this benefit, but it can represent “free money” from your employer, in addition to any potential tax-exempt growth over time of one’s own contributions. Over a long period of time, even setting aside a very small amount can add up to a more secure future.

Planning Can Inspire Confidence

Thinking about finances can certainly be stressful for many, but Franklin Templeton’s RISE survey found that having a strategy to accomplish one’s savings goals led to increased confidence. When asked how confident one was in terms of understanding whether or not they were on track to meet their goals, 93% of those with a plan said they were “very confident” or “somewhat confident,” while 62% of those with no plan said the same. This is where we think working with a financial professional can really help. A financial professional can teach you how to build an appropriate nest egg for short-term needs, devise strategies to tackle debt, and transition toward longer-term goals.

And, given that individuals tend to take action when they are emotionally motivated to make a change, financial professionals who meet people where they are emotionally (i.e., stressed about ability to handle unforeseen expenses) will have more success at getting them to take positive action. These actions could help establish habits that could transcend the current situation and extend to a lifetime of other goal successes—and ultimately a feeling of financial security.

In order to help achieve overall financial wellbeing, we believe it’s important to help people feel more empowered. Setting good financial habits early like saving regularly for a goal is important—but it’s never too late to develop a financial plan. Competing priorities call for a holistic and highly personalized approach, and even small changes can help reduce stress and anxiety, should an unexpected shock occur.

Additional survey information and retirement planning resources can be found on Franklin Templeton’s website.

This information is intended for US residents only.

Important Legal Information

RISE Survey Methodology

The Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey was conducted online among a sample of 2,004 adults comprising 1,002 men and 1,002 women 18 years of age or older. The survey was administered between January 31 and February 11, 2020, by ENGINE’s Online CARAVAN®, which is not affiliated with Franklin Templeton. Data is weighted to gender, age, geographic region, education and race. The custom-designed weighting program assigns a weighting factor to the data based on current population statistics from the U.S. Census Bureau.

All financial decisions and investments involve risks, including possible loss of principal.

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial advisor for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Franklin Templeton does not provide legal or tax advice. Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Franklin Templeton Distributors, Inc. cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Data from third party sources may have been used in the preparation of this material and FTI has not independently verified, validated or audited such data. FTI accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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1. Source: The 2020 Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey.

2. Source: US Federal Reserve, “Report on the Economic Well-Being of US Households in 2018,” May 2019.

3. Source: Source: EBRI, “Emergency-Fund-Focused Employers: Goals, Motivations, and Challenges,” February 13, 2020.

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