KnowHow Archive

Plan Sponsor Guide Participant Guide

Needs Analysis

The financial planning industry has invested enormous amounts of time and money developing sophisticated financial planning calculators. Odds are you currently make one or more of these tools available to workers as part of your retirement education. Even if you do not, there are what appear to be an endless number of tools available to individuals to help them figure out that most essential of retirement planning questions: How much do I need to save?

Yet, as vital as those tools are, they appear to do a disservice to many participants. Even the most basic tools take just a few bits of information—current pay, assumed rate of inflation and/or pay increases, and desired age of retirement—and then purport to tell participants how much they will need to meet their retirement "goals."
These tools are a vital component of retirement planning education—but, for some, the financial "alchemy" of taking an assortment of basic facts and creating a financial forecast for a period decades away that may last decades more may do more to obscure the path than to light it. Basically, by making a complicated determination process appear simple, many workers have no real comprehension of how the answer is derived, or what the result means.
Many employer-based savings programs are presented based on the notion that setting money aside for retirement is a way of employees paying themselves first. In its simplest form, retirement represents a period of life where we will continue to incur a regular stream of living expenses without the benefit of a paycheck coming in every so often.
This month, Know How offers workers a chance to get at the heart of the retirement needs calculation. The assumption is simple: Take how much you earn in a year, and multiply that by the number of years in retirement. 
We realize that that ignores many of the more "sophisticated" elements of financial planning, all of which we try to enumerate in the following participant piece but, once participants can gain a foothold on the basics of the calculation, we think they will be ready for the more "advanced" program. As always, we would love to know your experience.