A majority of employees are dealing with inflation by reducing contributions to their savings accounts, according to a study by Morgan Stanley's worker benefits unit.
The study by Morgan Stanley at Work also found that 31% of U.S. workers have reduced their 401(k) contributions and 26% have cut back on efforts to reduce their debt.
The firm's State of the Workplace II: Financial Benefits Study found that 62% of employees have reduced contributions to both long- and short-term savings in order to compensate for inflation. It also concluded that 71% of U.S workers are experiencing financial stress that is negatively affecting both their work and their personal lives—and 84% of human resource leaders are concerned that this stress is affecting productivity.
The impact of inflation on employees’ well-being, both in the present and in the future, is not to be underestimated, said Anthony Bunnell, head of retirement at Morgan Stanley at Work.
“Yes, people are going to reduce their contributions to adjust to the increased cost of living. High inflation has increased the cost of goods in a way that doesn’t feel temporary, and people have to account for that somehow,” he said. “Most don’t have savings, so it often comes from retirement, and that’s tough.”
It’s also unclear whether employers will provide cost-of-living raises to employees, as they are similarly trying to compensate for inflation, he said. However, 90% or more of both employees and HR leaders said they thought financial benefits should be reevaluated in 2023 given inflation and rising interest rates.
The annual survey polled 1,000 U.S. adult workers and 600 HR executives in July.
One area where both employees and HR leaders were closely aligned was in the call for greater emphasis on employees understanding their financial benefits and how to maximize them—96% of HR and 89% of employees agreed that employers need to step up their support.
However, the two groups diverge 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 for assisting them with retirement planning, only 40% of HR leaders felt the same way and preferred goals-based retirement investing options or access to retirement planning tools and calculators.
“Here is where the financial advisor really adds value, because sometimes employees need additional context in making decisions. For example, is there a way to communicate with the employees who are reducing contributions to retirement savings?” Bunnell said. “The time value of money is so critical and when the market is depressed is the best time to be buying. If you’re taking out $100 a month from your contribution to buffer against inflation, what can that contribution mean when buying in a depressed market?”