Young Employees Pulling Back on Retirement Contributions

Employees have pulled back on retirement contributions, particularly younger workers, according to a financial benefits study from Morgan Stanley at Work, “State of the Workplace III.”

Based on this year’s survey, the third conducted, 66% of employees reduced contributions to retirement accounts, compared with 62% in 2022. Individuals cited inflation and concerns of a recession as reasons for the reduction. One-third of workers (33%) contributed less to their 401(k) plans, while 28% scaled back on emergency, long-term and short-term savings.

Younger cohorts were particularly likely to hold back on contributions, according to the workplace division of the New York-based investment firm. Seventy-eight percent of Generation Z and 80% of Millennials made cuts, while only 58% of Generation X and 40% of Baby Boomers did the same.

Yet access to financial advisers remains important to employees when choosing where to work, according to the survey. Nearly three in five employees ranked retirement planning assistance from financial professionals as a high priority, including 25% who identified it as their top priority.

Adding Value

Times of upheaval can also be times of great innovation, and retirement plan advisers can “play a central role in reshaping how the workplace interacts with retirement planning,” Anthony Bunnell, head of retirement solutions and deferred compensation at Morgan Stanley at Work, wrote in an email.

“As a fiduciary, an adviser can add tremendous value to the plan, whether it’s finding the right recordkeeper and administrator; investment selection and monitoring; or helping employees understand the value in their workplace benefit to achieve their retirement and financial goals,” he said.

Bunnell also stressed that retirement plan advisers can add deeper value by working with plan sponsors to provide more personalized financial advice and retirement education to employees.

“While it’s an understandable impulse to reduce savings while navigating uncertain economic times, employees may need help to better understand how their choices today can have a ripple effect on their future financial outcomes,” Bunnell said in an emailed response, “whether it’s around the possible tax implications of any early retirement withdrawals, the opportunity cost of leaving an employer match on the table, or how compounding interest can help even small contributions build up over a lifetime.”

He said advisers able to tap into deep knowledge bases through emerging technologies like artificial intelligence will have an advantage in plan education, engagement and planning.

Bunnell noted Morgan Stanley’s push into personalized financial education to retirement savers. The firm recently launched a Corporate Retirement Portal to give financial education to participants via an AI-based engine that also links to human advisers. He also highlighted a forthcoming OpenAI product using technology and Morgan Stanley intellectual capital to deliver content to financial advisers “in seconds, which will free up their time, and in turn, serve their clients even more efficiently.” 

Still a Benefit

Meanwhile, even if contributions have dipped slightly, employers believe a strong retirement plan still matters. Among HR leaders surveyed, 99% said offering retirement planning assistance is a priority for their retention of current employees. Likewise, 92% of employees viewed retirement planning assistance as a priority when choosing where to work.

“An adviser’s holistic, measured financial leadership can help both businesses and their employees keep focused on their goals when it comes to sensible retirement planning,” Bunnell wrote. “We have seen that the combination of an adviser, coupled with digital tools and in-person education, is a recipe for success. Offering webinars, resources, 1:1 coaching sessions and personalized financial education tools for employees are all great avenues.”

The study drew responses from 1,000 U.S. employed adults and 600 HR executives surveyed digitally between March 16 to 22 and April 6 to 12. The report is from a series of research reports from the Morgan Stanley at Work division.