Employees are grossly unprepared for retirement, and employers are growing increasingly concerned about the cost of delayed retirement, which is estimated to be $10,000-$50,000 per year for every year an employee postpones doing it.
The implications of this problem are huge, making it the second most pressing issue HR departments are facing, after health care.
Instead of being able to save more towards their retirement nest eggs, many employees have had to shoulder the weight of higher health care costs, while at the same time, watching their retirement account balances drop over the last several years. Our latest research found that only about 17 percent of employees reported that they were on track to retire.
When the research is broken out by gender, the results are even more dire – with only 13 percent of women reporting that they know they are on target to replace at least 80 percent of their income in retirement, which is the generally accepted rule of thumb to hit as a goal. So how can we increase the number of employees who ARE on track?
Financial education is needed
The first step is to give your workforce the tools needed to analyze where they stand. This can be in the form of an online retirement calculator (one of the most common being Financial Engines® or a retirement preparedness assessment.
An assessment of your employee base can give you the direction to go regarding providing the financial education they need to get on track.
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Are your employees skimping on their salary deferrals because of poor spending habits or high debt levels? Then basic budgeting strategies and a debt reduction plan may be the best education, but a typical retirement workshop doesn’t cover these concepts. Employees could be on the right track with their savings rate, but are uncomfortable making investment decisions. This could indicate a need for an investing workshop, or a sign that a managed account option could be a good addition to your 401(k) lineup.
Studies show that deferral rates are directly correlated with the number of times an employee uses financial education services, so the last piece of advice I have for HR and retirement benefits managers is to build a program that is ongoing and market it as an employee benefit so employees recognize the value and use it regularly.
It takes five (5) interactions on average, for employees to reach an 11 percent deferral rate — right about what financial planners would recommend the average employee save to adequately prepare for retirement.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.