What will the average age of your workforce be in ten years? This is a question that many forward-thinking business owners and executives are asking themselves. The reality is that many so-called “older” employees, or employees beyond what is considered average retirement age, will be forced to stay in the workplace longer due to a lack of sufficient retirement savings.
A recently published U.S. Government Accountability Office (GAO) analysis of a 2013 Survey of Consumer Finances found that 41 percent of U.S. households age 55 – 64 have no retirement savings. 61 percent have less than $50,000 saved for retirement and only 9 percent have more than $500,000 in retirement savings. In fact, the GAO calculated that of the 59 percent that has money saved for retirement, the median amount saved is $104,000.1 This equates to about $310 per month in an inflation-protected annuity for the average 60 year old person. These are startling statistics and most likely mean that a majority of your workforce may have to continue working past their normal retirement age.
What does this mean to your organization? Higher average wages? Higher health insurance premiums? Higher health claims experience? As you can see, preparing employees to retire at an age-appropriate time by saving for retirement is becoming critical to long-term business success. The problem is highlighted by the fact that the average annual personal savings rate for Americans is currently 5.7 percent, down from a historical average of 8.3 percent (U.S. Bureau of Economic Analysis statistics 1959-2017).2 Even when coupled with an average employer contribution of around 3 percent, Americans simply are not saving enough for retirement, and most industry experts suggest savings rates between 15 and 20 percent to ensure a financially successful retirement.
There are many obstacles Americans claim prevent them from saving for retirement: credit card debt, student loan debt, low wages, the need to save for a child’s college education, and the list goes on. So what can you do to help your employees save for retirement? An excellent first step is ensuring your employees are properly educated about what it will take to secure a financially successful retirement. This education is typically delivered through your 401(k) plan provider and all employees should have access to enough information to be able to answer the following three basic questions:
1) Where are they now? In other words, how much do they have saved for retirement?
2) Where do they want or need to be? When do they anticipate retiring and what kind of lifestyle do they want to lead in retirement?
3) How will they get there? Spend less (do they have a budget?), save more, factor in a lower than desired lifestyle in retirement, invest more aggressively, or work longer? Most, unfortunately, will be forced to work longer.
Steps employers can take to help employees save for retirement:
- As mentioned above, perhaps most important is to provide enhanced education – education is key in helping employees understand what measures to take (for them personally) to ensure a financially successful retirement.
- Regularly review a participant outcomes analysis – your retirement plan provider should be providing a detailed analysis of the likelihood of success on a per participant basis.
- Regularly review a participant allocation analysis – are your employees’ investments in the retirement plan allocated properly? Proper allocation is critical to investment success.
- Utilize automatic enrollment – participation rates at companies that have auto-enroll plans stands at 82 percent, compared with 55 percent at companies with plans that don’t auto-enroll.
- Utilize automatic Increase – while not as widely accepted as the auto-enrollment feature, this feature can be effective in helping employees reach the necessary level of savings.
Taking action sooner rather than later can help you, as an employer, to save money now and in the future, while also providing your workforce with the peace of mind that they are proactively working to ensure a financially successful retirement.
If you’re a business owner, we encourage you to contact us about ways you can help ensure a timely and financially successful retirement for your employees. Contact Bryan Webster, CCM Director of Institutional Client Services at email@example.com or 952.230.6709.