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Financial Wellness and Retirement Savings Come After Housing Expenditures

Financial Wellness and Retirement Savings

Financial Wellness and Retirement Savings Come After Housing Expenditures

Financial wellness and retirement savings have a formidable foe in the form of housing.  The high cost of renting in many U.S. cities presents a very real obstacle to many workers’ ability to achieve financial wellness and save for retirement.

That hampers many employers’ efforts to improve healthcare, financial wellness, and retirement savings benefits. Financial wellness and retirement planning can reduce workers’ stress, enhance productivity and provide advancement opportunities for younger employees, according to a recent article in BenefitsPro.

It seems the high cost of rent is becoming prohibitively expensive from coast to coast, creating affordability and budgeting problems for workers, especially younger employees. Exorbitant rents are getting in the way of employees’ ability to achieve financial wellness or security, especially when it comes to their being able to save for retirement. According to a Huffington Post report cited in BenefitsPro, “‘There’s not a single state, metropolitan area or county in the U.S. where a full-time worker earning the minimum wage can afford the rent for a modest two-bedroom apartment.’” That is cause for concern.

Paying the rent is creating quite a challenge for employees.  High rents are impacting employers who promote financial wellness and retirement savings programs. In addition, employee stress related to finances is manifesting itself in the workplace. Stress not only undermines employers’ financial wellness efforts; it also impacts the bottom line. Financial stresses have resulted in a 34% increase in absenteeism and tardiness, according to the Society for Human Resource Management (SHRM). And financially stressed employees miss almost twice as many days (3.5) per year compared to their unstressed peers, as one study from the Center for Retirement Research at Boston College uncovered.

In addition, financial stress distracts employees from getting their work done. Thirty-four percent of Generation X, 16% of Baby Boomers, and 37% of Millennials say their finances derail their productivity at work, according to a PricewaterhouseCoopers Employee Wellness Survey. PwC also found that nearly half of employees get distracted by their financial stress more than three hours per week. These are all factors that again, disrupt employers’ best efforts at creating an environment of financial wellness and retirement savings for their workforce. Financial stress is also playing a significant role in rising healthcare costs. According to the American Psychological Association, 1 in 5 people put off or consider skipping health care visits due to the cost. Financial stress further impairs financial wellness and retirement savings. Retirement Savings often takes a backseat to a workers’ obligation to meet day-to-day expenses, such as paying rent and keeping a roof over their heads.

Housing insecurity, particularly for lower-paid workers, as rent isn’t likely to become more affordable in the near future.

According to the Huffington Post report, per BenefitsPro, “‘The median wage for eight of America’s 10 largest occupations—from retail salespeople to fast-food workers to home health aides—is not enough to cover a one-bedroom rental. And these are the jobs that are likely to see the biggest growth over the next decade, further entrenching the disparity between wages and housing costs.’”

Most financial experts recommend individuals spend about 30% of their gross monthly income on housing. Paying more than this eats into other standard monthly expenses, such as food, clothing, computing, and utilities — leaving virtually nothing left over to put towards retirement savings. However, while the debate rages on about increasing the minimum wage, at the current minimum wage rate, a worker would have to have three full-time minimum wage jobs and work nearly 127 hours a week to be able to rent a two-bedroom apartment and not pay more than 30% of their income to do so, according to the National Low Income Housing Coalition’s annual Out of Reach report, again cited in BenefitsPro. The same worker would have to work around 103 hours a week to afford a one-bedroom apartment at “fair market rent.”  The financial wellness and retirement savings crisis in America is very real.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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