Data & Research February 14, 2023

High Inflation Takes a Toll on Employees’ Financial Well-Being

Inflation, which remains elevated as of Tuesday's CPI report, has led to increased stress, less financial preparedness and growing debt, according to EBRI.

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Inflation contributed to an increasing number of workers expressing concern about their household’s financial well-being in 2022, according to an annual report from the Employee Benefit Research Institute and Greenwald Research.

According to researchers, 34% of employees were highly concerned about their household finances and 26% were moderately concerned, up from 29% and 20%, respectively, in 2021, according to Washington, D.C.-based EBRI’s Workplace Wellness Survey. Workers reported less overall financial preparedness, with one-quarter of individuals strongly disagreeing that they had the savings to handle a large emergency expense, a 10 percentage-point increase from 2021. Employees also stated that they have growing issues with debt, with 80% of individuals saying debt was a problem, compared to 65% in 2021.

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That trend may continue this year, with the consumer-price index report on Tuesday showing that while inflation declined for the seventh month since June, it appears to be levelling off at a relatively high level, according to Bureau of Labor Statistics data.

The EBRI report revealed that employees increasingly struggled to manage multiple financial priorities, with the percentage of respondents admitting a struggle rising to 63% in 2022 from 53% in 2021. Workers cited saving for retirement as the leading cause of stress at 45%, compared to 39% the year prior.

In a Greenleaf Financial webinar on Tuesday, financial advisers Jim Hiles and Jim Dee of First Capital Advisors Group said that it is crucial for people to save for retirement, even if they do so at a level as low as 2% to start, while managing other costs.

Hiles and Dee said workers should consider that every year in retirement will require 70% of what an individual earns in an average year. With that consideration, saving 10% of a $60,000 salary over a 40-year working life would yield $240,000, which could cover six or seven years of retirement. The advisers also suggested building a spending plan following the 50/30/20 rule: 50% toward necessities, 30% toward discretionary spending and 20% toward savings and debt repayment.

With workers now managing higher discretionary costs, due to inflation, they also reported increased stress according to EBRI’s research. When considering their financial futures in 2022, 35% of employees strongly agreed that thinking about their financial future caused them stress, up 25% from 2021.

The 2022 survey of 1,518 American workers was conducted online July 13–29, 2022, and included funding from organizations including the AARP, Cigna, Fidelity Investments, Mercer, OneDigital, and Voya Financial.

The Markets February 14, 2023

Collective Trusts Expected to Top Mutual Funds as Primary Target-Date Vehicles in 2023

Most target-date providers saw losses in 2022, with gains coming mostly from CIT-based funds. 

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Collective trusts are projected to top mutual funds as the primary target-date vehicles this year, according to the latest analysis from Sway Research.

The number of lower-cost collective investment trusts, known as CITs, in target-date funds has surged past those that are mutual-fund based, Sway found in a report released Monday. As CIT-based solutions have produced the most asset gains in non-custom TDF portfolios, providers are increasingly placing assets in collective trusts, according to the Newton, New Hampshire-based firm run by founder and principal Chris Brown.

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“Few target-date providers were spared losses for the year, with most experiencing a double-digit drop in assets,” the Sway report ‘The State of the Target-Date Market: 2023” stated. “A majority of the series that managed to produce asset gains were CIT-based, as the utilization of lower-cost collective investment trusts in Target-Date construction continues to surge.”

Assets in non-custom TDF portfolios fell from $3.25 trillion at the end of 2021 to $2.83 trillion at the end of 2022, marking a 13% drop, according to Sway’s proprietary database of 130 TDF solutions, spread across more than 6,000 mutual fund share classes and CITs. Most series that produced asset gains were CIT-based.

Meanwhile, CITs in TDFs continue to surge, while assets in mutual fund-based TDFs are still in decline. Over the last five years, assets in CIT-based solutions grew an average of 15% annually compared to 6% for those based in mutual funds, according to Sway. For each new mutual fund series, there were seven new CIT target-date series launched in 2022. 

At Vanguard, according to Sway tracking, CIT TDFs topped mutual fund-driven funds by $534 billion to $522 billion for the first time since tracking began in 2016. More than half of T. Rowe Price and JPMorgan’s target-date assets are held in CITs. Almost a quarter of Fidelity’s TDF assets under management are now held in collective trusts.

Assets in mutual fund-based TDFs in 2022 fell below the level tracked in both 2021 and 2020. At the end of 2017, the mix of MF to CIT was 63% to 37%. As 2023 started, the split was 52% to 48%. Sway’s analysts expect that CITs will surpass mutual fund-based TDFs this year. Currently there are 79 CIT products on the market, compared to 51 mutual-fund products.

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