A majority of employees cope with inflation by reducing contributions to their savings accounts, according to a study by Morgan Stanley’s benefits unit.
The Morgan Stanley at Work study also found that 31% of American workers have reduced their 401(k) contributions and 26% have reduced their efforts to reduce their debt.
The company’s State of the Workplace II: Financial Benefits study found that 62% of employees reduced their contributions to long-term and short-term savings to offset inflation. It also found that 71% of American workers experience financial stress that negatively affects both their work and personal life, and 84% of human resources managers fear that this stress will affect productivity.
The impact of inflation on employee well-being, both now and in the future, should not be underestimated, said Anthony Bunnell, chief retirement officer at Morgan Stanley at Work.
“Yes, people will reduce their contributions to adapt to the increase in the cost of living. High inflation has raised the cost of goods in a way that doesn’t seem temporary, and people have to take that into account somehow,” he said. “Most don’t have any savings, so it often comes from retirement, and that’s hard.”
It’s also unclear whether employers will give cost-of-living increases to employees, as they also try to offset inflation, he said. However, 90% or more of employees and HR managers said they believe financial benefits should be reassessed in 2023 in light of inflation and rising interest rates.
The annual survey polled 1,000 US adult workers and 600 HR executives in July.
One area where employees and HR leaders were closely aligned was the call for a greater focus on employees to understand their financial benefits and how to maximize them – 96% of HR and 89% of employees agreed that employers should strengthen their support.
However, the two groups differ on the importance of a relationship with a financial advisor for the big issue of retirement planning. While 52% of employees said access to a financial advisor was their top choice to help them plan for retirement, only 40% of HR leaders felt the same way and preferred retirement investment options based on goals or access to retirement planning tools and calculators.
“This is where the financial advisor really adds value, because sometimes employees need the extra context to make decisions. For example, is there a way to contact employees who are reducing retirement savings contributions? Bunnel said. “The time value of money is so critical and when the market is depressed, that’s the best time to buy. If you withdraw $100 a month from your contribution to hedge against inflation, what can that contribution mean? when buying in a depressed market?”