For those of us who weren’t born to immensely wealthy guardians, work has always been a part of our lives. And for those who’ve worked more than a few days, retirement is another constant. Without the white light of retirement beckoning, it would be tough for a lot of us to make it through the day, much less through the end of our career.
And yet the median retirement account balance for all working-age individuals in America is $0. Similarly, of those currently employed, 60 percent of workers have $0 in retirement assets. Even those who work and have a defined contribution plan, such as a 401(k), aren’t saving as much they should.
According to a new study from Northwestern University, nearly three-fourths of U.S. workers with defined contribution plans aren’t putting enough into retirement savings to maintain their standard of living later in life.
So, as an employer, what are you supposed to do to help your employees prepare for retirement? Keep reading this article to learn what you can do to help your employees who are saving for retirement, and why this action matters for both your employees and your business as a whole.
Saving for Retirement
There are several methods your organization can use to promote financial literacy and financial wellness among your employees. Here are five tips your firm can use to help employees who are saving for retirement.
1. Financial Education
Instituting a financial education plan for every employee is vital to your staff’s success when saving for retirement. The simple fact is many Americans don’t have the necessary understanding to make even basic financial decisions. A recent FINRA Foundation study found two-thirds of Americans would fail a financial literacy test.
And if you don’t address this financial illiteracy, it will have a significant, adverse impact on your staff according to The Atlantic. Per the article, individuals with lower levels of debt literacy are more likely to do things that result in higher fees and charges. In fact, The National Bureau of Economic Research estimated one-third of the world’s income inequality could be accounted for by disparities in financial knowledge.
2. Emphasize the Importance of Compounding
This tip is related to the first, financial education. As a part of your financial education curriculum, make sure to emphasize the value of compounding growth. Compound growth is the average rate of growth experienced by an investment over a multi-year period. It’s so essential because even a single percentage point increase in a worker’s contribution rate increased by what they’d have at 65 by over $30,000.
3. Get Real About Social Security
By now we all know Social Security is in trouble. Last year, a survey by the Nationwide Retirement Institute found 62 percent of clients frequently tell advisors they’re concerned about when they should start to collect Social Security. Unfortunately, there isn’t a lot of good news when it comes to Social Security. In fact, this year is the first in many in which Social Security will pay out more money than it takes in.
And, just recently, The Senior Citizens League forecasted roughly half of the Social Security cost-of-living adjustment for 2020 would be wiped out for the average retiree due to the increase in Medicare Part B premiums that year. Subsequently, roughly four million Social Security retirees could be at risk of seeing no growth in their net Social Security benefits in 2020 after the deduction for Part B premium increases.
Educate your staff about the new realities of Social Security. This system was never meant to replace retiree’s income, only to supplement it. And, as evidenced by the recent past, it’s a system that is becoming only less reliable. Push your employees to become financially independent by the time they retire, so they don’t have to count on cashing in Social Security.
4. Automatic Plan Features
Automatic retirement plan features include auto-enrollment and auto-escalation. Auto-enrollment means every new employee, upon hire, is automatically enrolled in the company retirement plan, unless they elect otherwise. Auto-escalation automatically increases your contribution level at a set, regular interval until it reaches a preset maximum. Each of these features helps push your staff to save more.
But, if you’re hesitant to implement these features, don’t be. A 2018 JP Morgan survey found 82 and 80 percent of participants are either in favor of or neutral toward auto-enrollment and auto-escalation, respectively.
Similarly, 95 percent of those who were auto-enrolled are happy about it, and 97 percent of those who were auto-escalated are pleased with the results. So, let these numbers bolster your support of implementing automatic plan features. Your employees will thank you later.
5. Think About Your Health
When contemplating retirement, it’s essential to think about your health. Does longevity run in your family? Do you have any current medical conditions that will likely make your retirement years more expensive?
Healthcare remains one of the most substantial expenditures in the U.S. The National Health Expenditure Accounts (NHEA) claimed healthcare spending grew 3.9 percent in 2017 to reach $3.5 trillion or $10,739 per person.
While planning your retirement, it’s vital you account for your present and possible future health. It’s unlikely our tangled-web of a healthcare system will get fixed entirely by the time you retire. So, ensure you take potential healthcare costs into your retirement planning.
It feels like more people are worried about retirement than ever. But with the five tips listed above, your organization can push employees to save more and worry less. And, for an in-depth exploration of your retirement plan, contact one of our Retirement Consultants today.