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Retirement
Connecting the dots: financial and mental wellbeing
The complex relationship between financial and mental health has profound implications for workplace productivity, employee engagement and overall well-being. For plan sponsors, addressing these interconnected issues can produce a more supportive and productive work environment. To tailor effective support programs, it is essential to understand the specific financial and mental health challenges that employees face.
Here, we explore actionable, research-driven insights to promote both financial and mental well-being among employees.
Post-pandemic, there has been a rise in reported mental health symptoms, which highlights a growing crisis.1 The World Health Organization (WHO) reports that over 1 billion people globally live with mental health conditions. The percentage of adults struggling with mental health is higher in high-income countries, where it is estimated to impact about 15% of the adult population at any given time.2 Research also shows that younger working-age adults are particularly affected, with 68% of millennials and 81% of Gen Z indicating they have left their jobs due to mental health issues.3
Although there’s a growing focus on mental health among various organizations, a sizeable gap remains between employee needs and available support, particularly for traditionally disadvantaged or underserved groups. Financial stress, including debt, plays a critical role in mental health challenges, affecting personal relationships, work performance and overall well-being.
Financial health is deeply intertwined with mental health. Financial stresses contribute significantly to mental health challenges. For instance, high debt levels are associated with increased symptoms of depression, anxiety and anger.5 Poor mental health also impairs one’s capacity for evaluating financial options and risks, leading to impulsive spending and poor financial planning.6 Employers can play an outsized role in positively addressing this mutually reinforcing relationship by providing integrated education and support.
An effective support system for employees requires recognizing and addressing the unique needs of each employee, offering easily accessible services that combine mental and financial health resources, encouraging the sharing of knowledge and adopting a comprehensive approach to employee care. Developing such a program involves understanding the various factors influencing mental health and customizing solutions to meet these diverse needs.
Providing the right support to employees is critical to ensuring their well-being and thus their ability to be happy, healthy and productive at work. Financial education and planning can contribute to feeling secure and reducing stress in order to concentrate on the things that matter to employees — a worthwhile investment for employers, too.
Actionable insights for plan sponsors
Regularly conducting surveys to understand the specific financial and mental health challenges employees face can help identify common issues like student loans, high cost of living or medical expenses. Analyzing the composition and background of the employee population can also provide insights into the most effective support types that consider socioeconomic and demographic characteristics that may influence financial and mental health needs.
Offering programs that educate and assist employees in managing their finances, such as debt management, budgeting workshops retirement planning, and mental health promotion to recognize the stress and anxiety caused by financial concerns. Clearly communicating how benefits that include mental health services, such as therapy and medication, can be accessed with little or no financial obligation reduces employee concerns regarding financial barriers to care.
Providing access to financial advisors who can offer personalized advice tailored to individual circumstances helps employees develop long-term financial plans and mitigate stress. Utilizing digital tools and resources that provide ongoing education and support, such as financial calculators, planning apps and informative webinars, is also beneficial.
Establishing employee resource groups focused on mental health or shared experiences like grief, parenting and caregiving provides peer support and connections to resources. This fosters a sense of community and increases awareness of available services. Organizing regular workshops and seminars on stress management, financial planning and mental wellness helps employees manage potential issues before they become bigger problems.
Supporting the “whole person” also involves offering flexible work schedules and settings to reduce stress and improve mental health. Providing comprehensive benefits that support employee goals outside of work, such as paying off student loans, home-buying assistance, saving for a child’s college fund or emergency financial support, prevents financial problems from negatively impacting mental health and work performance. Investing in employees’ professional development can support their growth in your organization, reducing anxiety related to their job security and career progression.
Enhancing plan automation can meaningfully reduce the burden of financial decision-making for participants. Plan sponsors can implement automatic enrollment to ensure participation from the start of employment, removing initial barriers to entry and establishing consistent savings behavior. Automatic contribution increases can further help employees save more without the need for manual adjustments. Offering professionally managed default investment options, such as target-date funds that align with employees’ retirement timelines, simplifies investment decisions and reduces anxiety about managing portfolios.
Creating a smooth transition to retirement can help prevent a significant source of stress for employees. Plan sponsors can ease this transition by conducting pre-retirement planning workshops that focus on retirement readiness, covering topics such as health care, Social Security and lifestyle adjustments. Offering phased retirement options that allow employees to gradually reduce their working hours while transitioning into retirement can provide a smoother adjustment period and reduce financial stress.
Safeguarding a steady income throughout retirement is also crucial for financial security and mental well-being. Plan sponsors can work to examine and include lifetime income options in their retirement plans to provide employees with a guaranteed income stream for life, reducing the risk of outliving savings. Educating employees on various income strategies available in retirement helps them understand how to effectively manage and draw down their savings. Offering customizable retirement solutions allows employees to tailor their income plans according to their unique needs and preferences.
Implementing solutions across organizations and beyond requires understanding that mental health is influenced by individual, family, community and structural drivers. Plan sponsors should consider tailoring solutions to the diverse needs of different workforce segments, recognizing variations in age, gender, cultural background and personal circumstances. Ensuring effective communication so employees are aware of the available support through regular updates, workshops and seminars, targeting moments of onboarding or transition, is essential. Collaborating with stakeholders, including financial advisors, healthcare providers and community organizations, creates a network of support and education.
Summary of actionable insights
The connection between financial and mental health in the workplace is a pressing issue that requires comprehensive and proactive approaches. By implementing these actionable insights, plan sponsors can create a supportive environment that promotes both financial and mental wellbeing. This not only enhances employee satisfaction and productivity but also contributes to the overall health and success of the organization.
Understanding and addressing the complex relationship between financial stress and mental health is crucial for fostering a resilient and adaptive workforce, ultimately benefiting both employees and employers. By promoting financial literacy, enhancing plan automation, smoothing the transition to retirement and offering lifetime income solutions, plan sponsors can significantly improve workplace productivity, employee engagement and overall well-being.
In this issue
It is hard to overstate the impact that the Employee Retirement Income Security Act (ERISA) has had on the course of the U.S. retirement industry
The American retirement system has long been focused on one principal aspect: getting workers to save early so they will have enough money to live on during retirement.
The U.S. retirement system faces significant challenges in ensuring adequate retirement savings for its participants.
Endnotes
1 National Institutes of Health. (2023). Mental Health During the COVID-19 Pandemic. https:// covid19.nih.gov/covid- 19-topics/mental- health#:~:text=In%20a%202021%20 study%2C%20nearly,the%20beginning%20of%20the%20pandemic.
2 World Health Organization. (2022). World Mental Health Report. https://www.who.int/teams/ mental-health-and-substance-use/world-mental-health-report
3 TIAA Institute (2024). Connecting Mental and Financial Wellbeing.
4 Drentea, P. & Reynolds, J.R. (2012). Neither a borrower nor a lender be: the relative importance of debt and SES for mental health among older adults. Journal of Aging and Health, 24(4). https://doi.org/10.1177/0898264311431304.
5 TIAA Institute (2024). Connecting Mental and Financial Wellbeing.
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The 2024 Annuity Payout Advantage is hypothetical and for illustrative purposes only. The Annuity Payout Advantage calculations use the TIAA Traditional “new money” income rate for a single life annuity (SLA) with a 10-year guarantee period at age 67 using TIAA’s standard payment method beginning income on March 1, 2024. Individual results may vary. Example: Participants A and B both had a retirement savings balance of $1 million as of March 1, 2024. Participant A withdrew 4% ($40,000) in year 1. Participant B made a one-time transfer to TIAA Traditional and selected an SLA with a guarantee period of 10 years at age 67, starting on March 1, 2024. Participant B received an income rate of 7.8% ($26,000) on $333,333 annuitized in year 1; Participant B also withdrew 4% ($26,667) from the $666,667 remaining saving balance in year 1. The result ($52,667) is initial income for Participant B in year 1 that is 32% higher than the initial income of Participant A ($40,000). Income rates for TIAA Traditional annuitizations are subject to change monthly. TIAA Traditional Annuity income benefits include guaranteed amounts plus additional amounts as may be declared on a year-by-year basis by the TIAA Board of Trustees. The additional amounts, when declared, remain in effect through the “declaration year”, which begins each January 1 for payout annuities. Additional amounts are not guaranteed beyond the period for which they are declared. TIAA has paid more in lifetime income than its guaranteed minimum amount every year since 1949. Over the past 30 years, TIAA has given 19 income increases to existing annuitants (as of January 2024). Past performance is not a guarantee of future results. An annuity is a product issued by an insurance company. It is an agreement that comes with a contract outlining certain guarantees. Fixed annuities guarantee a minimum rate of interest while you save and, if you choose lifetime income, a minimum monthly amount in retirement. Converting some or all of your savings to income benefits (referred to as “annuitization”) is a permanent decision. Once income benefit payments have begun, you are unable to change to another option.
TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY. This point of view is designed to be a starting point for the retirement income conversation. It is not a recommendation. Annuity contracts may contain terms for keeping them in force. TIAA can provide you with costs and complete details. TIAA Traditional is a fixed annuity product issued through these contracts: Form series including but not limited to: 1000.24; G-1000.4; IGRS-01- 84-ACC; IGRSP-01-84-ACC; 6008.8. Not all contracts are available in all states or currently issued. Paycheck is the annuity income received in retirement. Guarantees of fixed monthly payments are only associated with TIAA’s fixed annuities. Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability. TIAA Traditional is a guaranteed insurance contract and not an investment for federal securities law purposes. TIAA may provide a Loyalty Bonus that is only available when electing lifetime income. The amount of the bonus is discretionary and determined annually. Your Loyalty Bonus percentage is the additional amount of lifetime income you would receive at the time of annuitization compared to a new contributor who annuitizes an equal amount at the same time. Converting some or all of your savings to income benefits (referred to as “annuitization”) is a permanent decision. Once income benefit payments have begun, you are unable to change to another option. This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision. Annuities are designed for retirement or other long-term goals, and offer a variety of income options, including lifetime income. Performance data shown represents past performance and does not predict or guarantee future results. TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA), New York, NY.
