My work gives me the opportunity to talk with plan sponsors across all industries, and it’s clear that employers are increasingly concerned about their employees’ welfare. These conversations are my favorite part of my job because I get to hear firsthand what you and your employees are thinking and experiencing. Of course, with COVID-19 touching virtually every aspect of daily life, it’s a strange and difficult time for all of us. The isolation and fear of the pandemic, economic uncertainty, and societal unrest, including the uprisings last summer and January violence in Washington, D.C., tested our spirits.
In a recent survey, about 63% of Americans polled said they have been living paycheck to paycheck since the pandemic.1 We also know that just 55% of investors responding to another study had a dedicated emergency savings fund going into the pandemic. Of that group, only a third had enough to meet expenses for two months or less.2 Conditions have caused about 8% of Americans to stop or postpone contributing to their retirement account.3
Yet, despite all of this, I’m optimistic about 2021 and beyond. Many employers believe now is the time to do more to help their employees achieve wellness, including financial wellness. They recognize that better financial wellness is good for employees and good for business.
Financial well-being includes financial and emotional outcomes
We think financial wellness programs should address an individual’s unique needs and circumstances as they journey both to retirement and through retirement. We like to call it “financial well-being.” More than just retirement saving, we believe a focus on financial well-being should produce positive outcomes that are both financial and emotional, including the emotional security of having financial freedom in the present and in the future.
Financial wellness programs improve worker satisfaction, employee productivity, and recruiting and retention, and they reduce stress in the workplace.4 Our own research quantified the value of financial advice and found that the value of emotional outcomes is significant—about 45% of perceived total value. Portfolio and financial outcomes make up the remaining 55%.5
Most U.S. companies have a financial wellness strategy
We’re seeing many employers respond to their employees’ needs by reevaluating their companies’ benefits programs, including financial wellness benefits. When employers were asked to identify the top three sources of stress that their financial wellness initiatives were designed to address, they selected financial stress, work stress, and personal stress.6
Ninety percent of U.S. companies either have a financial wellness strategy or are developing one.7 However, while workplace support programs were growing, perceptions of financial wellness declined. The number of employees who grade their financial wellness as “good” or “excellent” declined from 61% in 2018 to just 49% in 2020.8
We’ve also observed that most Americans, 62%, are now managing their finances more closely.9 Last year underscored that we all face competing financial priorities throughout our lives, including housing costs, health care expenses, saving for emergencies, and funding our retirement.
How we plan to get there
At Vanguard, we’re doubling down to offer highly personalized investments, services, and client experiences. Our commitment extends to helping all investors enjoy comprehensive financial well-being to take them years into retirement.
Today, target-date funds are the key investment for millions of defined contribution plan participants. Vanguard Target Retirement Funds employ what we call purposeful design based on deep, investor-focused research. This gives us the ability to combine portfolio construction best practices with behavioral insights to inform the whole.
We are enhancing our underlying financial well-being solutions in three important ways in 2021:
- We’re reviewing our entire Target Retirement Funds lineup in 2021 with an eye on serving investors during retirement by providing a source of retirement income.
- We’re expanding access to personalized advice and guidance. By continuing to keep advice affordable and relevant to each individual, we can make it accessible to more plan participants.
- We’re also introducing a reimagined participant experience. Our hyper-relevant approach to personalization enables us to meet investors wherever they are in their financial journey. In 2021, participants will benefit from a responsive new website powered by an updated interface and underlying technology.
Our commitment to you
I invite you to share my hope and enthusiasm for 2021 and our approach to financial well-being. I know we still have a rough road ahead of us, but I’m feeling totally raring to go at the top of this brand new year. You can trust that we’re committed to helping you and your employees negotiate current challenges and future uncertainty. Reach out to me, or your Vanguard relationship manager, to talk about your concerns and your employees’ needs. I’d say the best outcome is for us all to be able to sleep more peacefully each night. That’s the true meaning of financial well-being.
1 Spending Habits During COVID-19 Survey. Highland, November 2020.
2 Emergency Savings Tools and Education. Corporate Insight, Retirement Plan Monitor, 2020.
3 Generational views on financial advice, investing, and retirement. Vanguard, August 2020.
4 Financial Wellbeing Employer Survey. Employee Benefit Research Institute, 2020.
5 The value of advice: Assessing the role of emotions. Vanguard, January 2020.
6 Financial Wellbeing Employer Survey. Employee Benefit Research Institute, 2020.
7 Financial Wellbeing Employer Survey. Employee Benefit Research Institute, 2020.
8 Bank of America Workplace Benefits Report. CNBC, 2020.
9 Financial Wellbeing Employer Survey. Employee Benefit Research Institute, 2020.
- All investing is subject to risk, including the possible loss of the money you invest.
- Diversification does not ensure a profit or protect against a loss.
- Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
- Advice services offered through Vanguard Institutional Advisory Services® are provided by Vanguard Advisers, Inc., a registered investment advisor.