Employers can help prevent shortfalls in their employees retirement
Old age is inevitable. We march toward it every day. And yet as much as everyone knows this to be true, properly preparing for the future seems to be one of the most challenging tasks for the average household or individual to accomplish.
According to a recent study performed by the Center for Retirement Research at Boston College, the majority of households (more than 50%) with individuals still in the workforce may need to reduce their standard of living in retirement due to unmet savings goals.
Even more astonishing, the ING Group International Resourcefulness Consumer Study also notes that 1 in 5 workers “do not know what will constitute their income in retirement.”
Of those that are striving to address their impending retirement, 42% have not yet socked away even $10,000.
The lesson is clear; most of us could be doing better.
Experts say these short comings have several explanations:
1. The cost of living has increased faster than worker’s pay. This creates less room in the household budget to set aside savings.
2. Those who have calculated the cost of retirement choose to bury their heads in the sand since the goal numbers are overwhelming.
3. Most consumers struggle to understand where they should keep retirement savings and how they should manage and maximize its growth. As a result, company supplied plans are underutilized.
4. Some workers are unaware of the importance of taking advantage of compound interest as early as possible and therefore delay retirement contributions until circumstances are “ideal”.
5. If young workers lack basic financial education, a retirement contribution may seem difficult to accommodate with lower incomes.
6. It’s a common perception that the stock market should be feared for its ongoing volatility.
While human resource departments often work tirelessly to educate staff on solutions during benefit enrollment, employees would be more thoroughly served and supported by having financial resources available year round.
Providing access to a financial wellness program can do just this and more. Employees should expect to:
- Have questions answered about how common retirement programs such as 401(k), 403(b), and Individual Retirement Accounts work.
- Understand what they should strive to contribute in order to sustain their current lifestyle through retirement and to retire in their chosen timeline.
- Learn tips to increase retirement savings to effective amounts with minimal sacrifice.
- Receive budget counsel that helps employees create and continue a habit of savings that ensures financial stability all along the way to retirement.
There is a growing amount of evidence that financial wellness programs offered in the workplace have the power to alter the trajectory of employee lives for the better.
The ripple effects of delivering basic financial education alone are undeniable. When employees are financially literate, they reduce their cost of credit. This money saved from poor interest rates can make a huge difference in building a nest egg.
With guidance, employees can create a plan and prepare for home ownership. Building equity in a home can also play a key part in a smooth retirement.
While there are other examples of how financial wellness programs indirectly improve the likelihood of a successful retirement, there are more obvious impacts as well.
A well-rounded program would deliver increases to employee participation in their defined contribution plans such as a 401(k) or 403(b) and enrollment in Flexible Spending and Health Savings Accounts (a tool growing in popularity for retirement savings).
Those who are currently enrolled in benefit programs, after receiving further financial education, often opt to raise their contribution amount and are better able to balance their investment plans.
What’s more, having established sustainable financial practices that are nurtured through financial wellness programs, employees are far less likely to dip into or completely cash out their retirement savings.
With proper knowledge, encouragement, and access to an abundance of resources, employees are equipped to set a plan in motion that allows them to confidently march toward the horizon.