retirement savings  |  august 8, 2022

Financial Stress Is a Predictor of Your Financial Wellness

Overcoming barriers to help achieve your best retirement outcomes.


Joshua Dietch

Head of Retirement Thought Leadership

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Hi – I’m Joshua Dietch, head of retirement thought leadership at T. Rowe Price.

Many people trying to save for retirement struggle to do so. According to research by T. Rowe Price, over 30% of workers have trouble sticking to a monthly budget. Meanwhile, more than a third of those with student debt have difficulty repaying it.

These challenges can lead to financial stress, which we believe is correlated to financial wellness.

Simply put, someone who is stressed about their finances is less likely to be able to save and plan for their retirement.

This financial stress affects some groups more than others.

Black and Hispanic workers, for example, are more likely to experience moderate to high levels of financial stress due to debt than white workers.

And women are more likely to experience moderate to high levels of stress about debt than men.

Despite these challenges, there are steps you can try to take to reduce your financial stress and improve your financial wellness.  

First, if you’re stressed about money, consider taking advantage of educational programs and tools that may be offered by your employer. These can help you budget your monthly living expenses to align income with both debt management and savings goals.

Second, you can reduce your financial stress by directing a specified percentage of money from your paycheck into a retirement account.

Finally, contribute to an emergency fund. Try to save $1,000 immediately, and then gradually build enough to cover three to six months of expenses.

T. Rowe Price, helping you achieve your best outcomes, not just for retirement, but for life.


Key Insights

  • Debt, particularly unsecured debt, correlates with financial stress.

  • People who report being stressed about debt are saving less for retirement than those who are not stressed.

  • Financial wellness can help reduce financial stress and may lead to greater savings and better retirement outcomes.

The path to a successful retirement is paved by financial wellness. In the context of saving for retirement, financial wellness requires successful management of day‑to‑day finances, setting and making progress toward financial goals, and believing that these actions will result in a successful retirement. In our annual Retirement Savings and Spending Study,1 T. Rowe Price found that financial stress, specifically around debt, is a primary barrier to peoples’ belief that they will be able to successfully retire.

In our study, we found that many investors saving for retirement struggle with financial wellness in a variety of ways, and this research suggests that many are deeply affected. For example:

  • One-third of respondents report that they struggle to stick to their monthly budgets

  • More than one-third of respondents with student loan debt struggle to repay it. Similarly, 20% of respondents struggle to repay other forms of debt, such as credit card or home equity

  • One-quarter of respondents believe they will have to reduce their standard of living in retirement

Debt, Budgeting, and Savings Are the Three Most Impactful Drivers of Financial Stress

(Fig. 1) Sources of financial stress segmented by household income

Debt, Budgeting, and Savings Are the Three Most Impactful Drivers of Financial Stress Bar Chart

As of August 2021.
Source: 7th annual Retirement Savings and Spending Study.

Financial Stress Often Starts With Debt

It probably comes as no surprise that financial wellness and financial stress are two sides of the same coin. What our research found is that financial stress is a predicter of poor financial wellness. However, there are multiple causes of financial stress, and they affect people differently. In our research, we focused on stress emanating from debt, budgeting, savings (both retirement and nonretirement), managing investments, and health care costs. Unsurprisingly, we found a relationship between financial wellness, debt, and their relationships to both income and retirement savings. For those who struggle with financial wellness, regression analysis reveals that stress most frequently stems from the inability to manage debt, budgeting, or lack of savings, both retirement and nonretirement.

Our research also found that moderate to high levels of stress often correlates with age. For example, younger workers (under 30 years old) are more likely to experience moderate to high levels of stress relating to budgeting compared with older workers (over 50 years old), 73% and 40%, respectively. A similar effect is seen for debt. However, younger workers are less likely to be stressed about retirement savings than those who are entering or are in the middle of their working years (30–49 years old), 50% and 65%, respectively. This demonstrates that relevance is a significant factor and that audiences have unique and often discrete needs.

Finally, it is important to state that people often feel the negative effects
of moderate to high levels of financial stress unevenly. Our research found that Black and Hispanic workers are 34% and 40% more likely than white workers to experience higher levels of debt-related stress, as reported by 56% of Black workers, 59% of Hispanic workers and 42% of white workers surveyed. We also found that women are 26% more likely than men to experience higher levels of debt-related stress, as reported by 51% of women and 41% of men surveyed. In addition to age, gender, race, and ethnicity, household debt and income are also factors as to who is affected by financial stress and why.

Importance of Financial Resiliency

The prevalence of financial stress relating to debt, budgeting, and savings leads us to conclude that many investors lack the resiliency to overcome many common financial obstacles, such as an auto repair or a trip to the doctor. When asked how one might pay for an unexpected expense, only one-third of the investors we surveyed claimed they had an emergency fund specifically allocated to meet that need. More common is the intention to use debt such as a credit card (43%) to pay for an unexpected expense. The finding is consistent with research from the Federal Reserve that suggests that 48% of Americans either cannot pay or would have difficulty paying for an unexpected $400 expense.2

Younger Workers Have Greater Interest in Advice That Encompasses Financial Wellness

(Fig. 2) Advice that is viewed as very valuable by age

Younger Workers Have Greater Interest in Advice That Encompasses Financial Wellness Bar Chart with Text

As of August 2021.
Source: 7th annual Retirement Savings and Spending Study.

A Path to Improving Financial Wellness

The Retirement Savings and Spending Study reveals much about how financial stress, particularly stress about debt, can reduce saving for retirement. Our research also found that effects of debt manifest throughout investors’ life stages as their needs change. Fortunately, financial wellness can help investors build the capacity and capability to save by establishing budgets, managing cash flow and debt, and establishing emergency savings. Of equal if not greater importance, investors show an appetite for receiving advice as a means of improving their finances. What we found is that almost 70% of our survey respondents were either paying for advice or would consider doing so. This includes not only investment advice, but guidance on debt management, budgeting, emergency savings, and more. Moreover, our research suggests that investors are increasingly open to the potential of paying for this guidance.

Achieving financial wellness does not go unchallenged. Insights from the Retirement Savings and Spending Study demonstrate the ill effects that financial stress can have not only on day‑to‑day household finances but longer‑term goals such as saving for retirement. Some may choose to hire a financial professional or to use a service to help them reach their financial goals. However, there are practical steps that all can consider taking to help reduce financial stress and better prepare for retirement.

How can you reduce your financial stress and better prepare for retirement?

Establish a budget. A budget, or spending plan, can provide a framework to track your expenses and accommodate your savings goals. Once you understand how you’re spending your money, you can find opportunities to reduce expenses and increase your retirement savings.

Open or contribute to an emergency fund. For starters, try to save $1,000 immediately, and then gradually build up to an amount that can cover three to six months of expenses.

If available, take advantage of employer educational programs and tools that help employees budget their monthly living expenses to align income with both debt management and savings goals (e.g., emergency savings, retirement, student loans, etc.).

Automate your investing and direct money from your paycheck or bank account into savings.

  • If you participate in your employers’ retirement plan, ensure that you are at least saving enough to maximize employer matching contributions and if you can, target saving 15% of your wages, inclusive of your contributions and your employer’s matching contributions.

  • If you don’t have access to an employer plan, open or contribute to an individual retirement account (IRA) or general investing account, as appropriate to your situation, to fund your retirement savings goals.

These actions will help establish healthy savings habits and take the emotion out of investing. When you make savings a priority, you’re more likely to achieve your long‑term goals.

Increase your contributions each year. Many workplace plans offer a service that will automatically increase your retirement contributions by one or two percentage points each year. Consider signing up for this service. If you’re saving in an IRA, you may need to supplement your investments with a taxable account, since IRAs have lower contribution limits than retirement plans.

Take steps to improve financial self‑determination. If possible, consider asking for a raise or explore other alternatives to increase income. Additional income can help to reduce debts and increase savings.

Final Thoughts

Financial wellness takes on different forms at different times over life’s stages. Though saving for retirement is always present, there are more pressing, near‑term needs that can threaten to deprioritize retirement saving in the moment. Financial wellness programs and advice can play a key role in ensuring that investors achieve balance between short‑term and long‑term financial objectives, increase financial resiliency, and make the connection between the actions they take today and the outcomes that are achieved in the future.

1The T. Rowe Price Retirement Savings and Spending Study (RSS) is an annual study that has been conducted online since 2014. The study annually surveys approximately 3,000–4,000 participants who are currently contributing to a 401(k) plan or eligible to contribute and have a balance of at least $1,000. The survey also includes an additional 1,000–1,500 retirees who have retired with a Rollover IRA or left‑in‑plan balance. The study investigates saving attitudes and behaviors of plan participants and retirees. The 2021 RSS was conducted between June 9, 2021, and August 4, 2021, and included 3,844 plan participants and 1,332 retirees.
2Federal Reserve Bank of Minneapolis.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and is not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision‑making.

Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.

The views contained herein are those of the authors as of June 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. There is no assurance that any investment objective will be achieved. All charts and tables are shown for illustrative purposes only.



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