It has become commonplace to describe to workers the process of saving in a retirement plan as "paying yourself."
Like the "Christmas Club" savings accounts that were once so popular, saving is about setting money aside for a future date.
Participants should be encouraged to consider setting aside a budgeted amount for retirement as every bit as important- as paying the month's rent or mortgage—and no less mandatory. Instead, all too frequently, participants set aside how much they think they can afford to save, rather than trying to figure out how much they can afford to live on in retirement. Unfortunately, after retirement, many expenses are not as "discretionary" as they are in younger years.
The focus of this month's Know How is not on how much they will need, however. Rather, it is designed to emphasize that, no matter how much you are saving now, a little bit more can make a big difference.
Our example this month involves a relatively "old" participant—one who doesn't start saving until he is 40. That's not an optimal starting point, obviously. It is, however, a point at which you might well feel that you can afford to increase your rate of savings in a way that you could not at age 25.
We also included an assumption of retiring at 67—recognizing the extended retirement age under Social Security, and realizing that emerging demographics may make that a necessity. As always, we hope you find it useful in communicating with your participants—and, as always, look forward to your feedback