MW A retirement crisis can start with a $400 emergency. It doesn't have to be that way.

By David Blanchett

We need to rethink how benefits work - not just for the long term, but for right now

American workers are expected to prepare for retirement, but more than a third say they'd struggle to cover a $400 emergency expense, according to the Federal Reserve's most recent Economic Well-Being of U.S. Households report. That disconnect isn't just personal.

It's becoming a business problem.

New research shows employees are overwhelmed by the rising cost of everyday life. They're living paycheck to paycheck, struggling with debt, and falling behind on their savings.

The reality is, you can't expect someone to save for 30 years from now when they're not sure they can pay rent next month.

More than half (56%) of workers say they are always or usually living paycheck to paycheck, according to Prudential's latest Benefits & Beyond report. And nearly 1 in 3 (27%) say the rising cost of goods is their biggest financial concern. Yet they're still being encouraged to contribute more to their 401(k)s as if budgeting apps and auto-enrollment alone will solve the problem.

We need to rethink how benefits work - not just for the long term, but for right now.

Prudential's latest report reveals a striking gap between what employers think they're offering and what employees experience. While 86% of companies believe their benefits are modern, the study found that only 59% of workers agree. And while 97% of employers say they care about employee well-being, just 69% of employees feel that support.

Read: Why few companies still offer unlimited vacation time - and what perks are replacing it

This misalignment isn't about bad intentions; it's about benefit programs that haven't evolved quickly enough to match the lives people are actually living.

We've spent decades optimizing retirement plans, offering matching contributions, automatic enrollment, and investment advice. That's important work. But it assumes a level of financial stability that many workers simply don't have.

The reality is, you can't expect someone to save for 30 years from now when they're not sure they can pay rent next month. And yet, that's the position millions of workers are in today.

Employees are under tremendous financial pressure. According to the Benefits & Beyond data, nearly half (45%) say saving for retirement is a top source of stress. But that's alongside other challenges: the cost of groceries, child care, housing, and healthcare. For younger workers in particular, short-term insecurity often outweighs long-term planning.

In fact, 63% of workers say they're stressed about their finances overall, according to the study, and 39% say they've experienced a major life event - like a medical issue or a job change - that disrupted their finances in the past year alone.

Adding to the challenge, when emergencies strike and savings are scarce, many workers turn to their retirement accounts for relief - setting back their long-term goals and compounding the very crisis employers hope to avoid.

We know that prematurely cashing out a 401(k) plan is one of the most destructive decisions a retirement saver can make: The Center for Retirement Research at Boston College reported in a study that, on average, premature withdrawals reduce overall 401(k) savings for retirement by as much as 25%.

This means the need to connect the dots between immediate financial strain and long-term outcomes is critical. Employees need help managing today before they can confidently invest in tomorrow. It also means recognizing that financial well-being isn't one-size-fits-all. Different employees face different challenges, and a benefits strategy that only addresses retirement readiness or assumes financial literacy can fall short.

Read: Most boomers and Gen X-ers are terrified about running out of money in retirement - even if they're already retired

A shared priority

So, what should employers do?

First, redefine what "modern benefits" are. That includes support for real-life needs - things like caregiver leave, supplemental health benefits, and mental health resources.

Second, close the perception gap. Benefits only work if employees know what's available and feel empowered to use them. That requires better communication, clearer guidance, and ongoing feedback. It must be more than open enrollment reminders once a year.

Finally, recognize that financial well-being is not an HR issue. It's a business risk. High stress leads to lower productivity, higher turnover and disengagement. But when employees feel financially supported, they're more likely to contribute to retirement plans, stay with their employer and plan for the future.

Read: I have $140,000 in a 401(k) and earn $45,000 a year. Can I retire in 20 years?

Financially stressed employees are more likely to miss work, disengage and leave for roles that promise greater support.

Companies that invest in employee financial health see returns in the form of reduced absenteeism, higher engagement and improved retention.

The cost to employers is real. Financial fragility isn't just an individual burden; it can ripple across teams and organizations. The retirement crisis doesn't start with retirement. It starts with workers struggling just to get by. That's why solving it must be a shared priority.

We've built sophisticated systems to help workers retire. Now it's time to help them get there.

David Blanchett, Ph.D., CFA, CFP$(R)$, is a portfolio manager and head of retirement research at PGIM DC Solutions, the retirement solutions provider of PGIM.

DISCLOSURES

All investing involves risk. The views expressed herein are those of PGIM investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.

PGIM DC Solutions LLC ("PGIM DC Solutions") is an SEC-registered investment adviser, a Delaware limited liability company, and an indirect wholly-owned subsidiary of PGIM, Inc. ("PGIM"), the principal asset management business of Prudential Financial, Inc. ("PFI") of the United States of America. PGIM DC Solutions is the retirement solutions provider of PGIM and aims to provide innovative defined contribution solutions founded on market-leading research and investment capabilities. Registration with the SEC does not imply a certain level of skill or training. PFI of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.

Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.

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-David Blanchett

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