Helping employees plan for retirement requires more than just having a 401(k) ticking over in a portfolio or moving investments around chasing a higher rate of return. Rather, it should be about the retirement readiness for both participants and their employers.
For plan sponsors, retirement readiness means understanding the current situation of a participant, outlining what retirement will truly look like for them, and then providing the necessary steps for pursuing their long-term financial goals. Retirement readiness needs to help plan participants better understand how they should plan for a confident retirement by setting a personalized target, seeing where the shortfalls are and then taking action on specific steps to work towards financial well-being.
Employers who help their employees with retirement readiness can potentially help create a more efficient company retirement program, save time and money with plan design and increase employee engagement and loyalty. Plus, there may be additional long-term cost savings on employee benefit programs such as health care by having employees retire on time instead of prolonging their length of employment.
Making it Easier for Participants
Making financial decisions about retirement can be confusing and overwhelming for some participants. Many employees aren’t properly prepared for retirement because they are inundated with too much information regarding retirement tools available in the marketplace. It’s time to simplify retirement.
The industry has spent millions on developing great websites, planning tools and education programs to encourage participation, yet industry statistics say that roughly 70% of workers do not actively login to their online account to view or manage their retirement plans. This information overload may lead to indecision and dissuasion and, as those in the retirement planning industry know all too well, many participants spend more time planning their vacations every year than they do their retirement.
Some employees don’t understand that available retirement programs may potentially be powerful wealth-building and security-enhancing tools. They also may not fully appreciate the significant investment that their employers are making for their personal well-being and the impact this investment can have on their long-term financial goals.
Plan sponsors can help improve the retirement planning process by helping participants be more proactive and spend some time to educate themselves about the resources and investment options offered in their plans. Participants can also meet with retirement plan advisers—often provided by their company or employer—to discuss plans and investment options.
Plan sponsors should consider working with retirement plan specialists who can make it easier for participants by keeping information tailored to their needs, and providing it in ways that are simple to understand and act upon. Retirement plan consultants should be able to provide simple, easy strategies and tools that will help participants prepare for retirement by reducing guesswork and putting their own specialized plan into a clear, simple guidance report that is actionable.
Retirement readiness begins with participants having access to simple-to-use analysis tools that help them determine if they are financially on track for the type of retirement they want. If they aren’t, the tools—together with retirement plan specialists—can recommend key actions they can implement to help create better results for tomorrow. Through individual retirement-readiness analysis, employees are then provided with a personalized retirement plan tailored to their own unique needs.
Plans may include:
- Personalized retirement wealth targets,
- Analysis of potential opportunities to seek those targets,
- Any possible shortfall at retirement, and
- Specific changes to make in investment allocation or savings contribution to manage any potential retirement shortfall.
By using this type of analysis, participants can quickly gain insight into their current financial situation and immediately begin adapting their retirement plans for future success.
Plan Sponsors Gain with Analysis
Companies that provide retirement readiness strategies for their employees often enjoy a distinct advantage. By using analysis tools, they can take a close, hard look at the results of their current retirement plans, map the results to the plan design, aggregate details at the plan level and adjust accordingly to create more effective and successful retirement programs.
By leveraging an overall report based on their employees’ insights, plan sponsors can find plan-specific information on their employees’ engagement in a retirement plan such as the following:
- Probability analysis,
- Contribution rate analysis,
- Employee shortfall or surplus analysis,
- Projected income and wealth analysis,
- Investment risk analysis, and
- Plan factors and assumptions.
By gaining this insight from their own retirement programs, employers will improve their chances of reaching their objectives as plan sponsors and fiduciaries. They can drive higher levels of employee engagement within their own workforce and improve retirement plan outcomes, efficiencies and cost savings. Plan sponsors will find their retirement plans become more effective and efficient with retirement readiness.
Going Beyond Investments
Retirement readiness requires genuine care and a customized strategy for both plan participants and sponsors. Not only is it about implementing an investment strategy, it’s about gaining the right knowledge of each and every employee, in order for an employer to maximize their retirement plans. With this insight, human resources departments can work with plan consultants to create an effective retirement plan that combines technology and personal interaction into financial and educational services, and gain maximum participation and effectiveness for a retirement program.
By partnering with experienced retirement plan consultants, HR representatives and CFOs have access to professionals who will take the time to explain and clarify the retirement plan process and help define individual goals for employees.
Retirement readiness is about taking a different planning approach that benefits both the employee and the employer, by gaining personalized insight and then creating a valuable retirement plan that can be tracked and adjusted to add true value to both parties. By preparing participants for their retirement through analysis, one-on-one planning meetings, personal financial reviews and overall clear and concise communication, an employer’s retirement plan may be much more likely to meet an employee’s investment objectives.
Larry Deatherage is a principal at Retirement Benefits Group and Registered Representative with, and securities offered through, LPL Financial, Member FINRA/SIPC. Investment advice offered through Retirement Benefits Group, a registered investment adviser and separate entity from LPL Financial.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.