A variety of studies are revealing a continuing shift in retirement expectations from the long-held tradition of complete retirement at or around age 65. The following is an outline of perceptions and statistics regarding retirement plans that have been identified over the course of these studies.
- Just over half (55%) of working Americans feel somewhat or very confident about retirement.
- Though workers are committed to saving, only 39 percent believe they are saving an adequate amount for their retirement needs, and 70 percent believe that working until age 65 won’t be long enough to save for an adequate retirement.
- Top reasons cited for failing to save for retirement include employer-sponsored plans not being offered, being financially unable to contribute, or saving in another way.
- More than half (57 percent) plan on working past age 65, and 54 percent plan on working at least part time even after retiring.
- Of those planning to work after age 65, just over 65 percent plan to do so for financial reasons or health care benefits while about 30 percent plan to do so for enjoyment.
- Nearly 70 percent of workers feel they don’t know as much as they should in regards to managing their retirement fund, and more than 30 percent say they know nothing about asset allocation.
- Three of every five workers indicate they look to their employer to provide information and advice on how to meet their retirement goals.
The good news is that all workers could benefit from making some contribution to a pre-tax savings plan that could accumulate until they retire, even if the amount they are able to contribute is less than what they feel they need for an adequate retirement. The accompanying article in this newsletter suggests some ways you as an employer and business owner can aid in your employees efforts to reach their retirement goals.
Workers rank employee self-funded retirement plans sponsored by employers among the highest in importance compared to other employee benefits. Are you offering some type of retirement plan and engaging your employees in participating in the plan? This article includes ideas that have been found helpful in promoting retirement readiness among employees.
1. Automate enrollment, escalation, and re-enrollment. Auto enrollment starts all new participants at a default contribution of at least 3% while auto escalation increases the contribution 1% per year up to a typical level of 10%. Once per year employees who opt out of the initial enrollment or stop contributing during the year are re-enrolled in the plan. Plans with these automated options have been found to have significantly better participation among employees than plans that are not automated.
2. Include contribution options such as Roth 401(k), extended employer match, and catch-up contributions. Roth 401(K) plans allow participants to make after-tax contributions. Extended employer matches are spread over a larger percentage of what the employee contributes to the plan. For example, the employer may choose to match 25% of the first 12% the employee contributes rather than the standard 50% of the first 6%. Catch-up contribution options allow employees age 50 and older to make additional 401(k) contributions.
3. Offer an employer match. About 94 percent of all employers who offer retirement plans for their employees are offering some kind of a match. For a plan to be successful, the employer needs to participate as well.
4. Implement appropriate investment options. Provide an index fund option for those participants who feel that is the best option for them. Provide an appropriate number of funds to choose from – most experts recommend 12 fund choices, not including the target date fund options. Also provide target date funds for participants who prefer to have their accounts managed professionally.
5. Keep employees engaged throughout the year. Periodically remind your employees about the retirement resources you are providing. Remind employees to log into their retirement online accounts to monitor fund progress. Provide information tailored to the different life stages your employees are in such as suggestions for day-to-day budgeting for early savers (age 25 to 40), optimal asset allocation for mid-career savers (age 40 to 55), and retiree medical considerations for employees age 55+.
6. Show a genuine interest and desire in helping your employees prepare for retirement. Offering retirement plan options for your employees and an employer match are great ways to demonstrate your commitment to your employees’ retirement readiness. Communicate the plan options and provide your employees with the resources they need to understand and manage their plans. Consider redirecting part of annual bonus payments to each employee’s retirement fund.
Supporting your employees in preparing for retirement demonstrates that you are vested in their well being and in helping them prepare to do something meaningful in their retirement years.
To learn more about ways you can boost engagement in your employee retirement benefits, please contact your Leavitt Group insurance consultant.