For many people, the start of another new year means the start of another round of resolutions. In addition to the usual vows—better eating habits and increased exercise–retirement plan participants should consider another resolution: ensuring a more secure financial future. While you can’t help much with the food and exercise aspirations you can help participants save.
Retirement planning is a bit easier when employees have the products, services and tools to help. Here are five savings resources:
1. Bolster Retirement Savings – Most employees readily agree they want to comfortably retire one day, but not nearly as many of them understand the necessary steps to reach the desired savings they need. A recent report from the Insured Retirement Institute found that postponing saving for retirement by as little as five to 10 years reduces total retirement income by nearly 25 percent. You can help by educating eligible employees on the benefits of saving early and saving a lot.
Even the IRS agrees participants should save more for retirement. This year they’ve increased the contribution limit from $17,500 to $18,000 and the catch-up contribution limit for employees aged 50 and over from $5,500 to $6,000.
Fortunately high contribution rates are becoming the norm. In How Much Should People Save?, the Boston Center for Retirement Research reports that on average participants should contribute 15 percent of their income. Unfortunately the national average deferral rate is only three to six percent. You can help by providing tools that let participants calculate their retirement goals and the dollars they must set aside now to meet those goals, along with easy ways to increase their contribution rate.
2. Invest Appropriately – Right along with saving more comes the need to make those dollars work harder. However, investment solutions are not one-size-fits-all. Instead, participants need to pick the appropriate investment option(s) that takes into account their age, income, risk profile, and investing timeline for the best results. For a good summary of the information participants need to take into account when making investment decisions, check out the Money Crashers’ article How to Choose the Best Investments for your 401(k) Plan.
3. Understand How Market Fluctuations Effect Savings – The unstable financial climate can scare off many employees and impede retirement savings efforts. You can help participants grasp the market dynamics by offering education, tools or workshops that explain the factors effecting interest rates, stock values, and equity returns. While education does not lessen risk, it certainly helps increase participant investment confidence and helps them understand the importance of staying invested over the long term.
4. Offset Inflation – The current 12-month Inflation rate is running at 1.7 percent, so participants must make sure their income, investments and savings are keeping up if not exceeding this rate. Otherwise, purchasing power is reduced and both current and future financial hardships are likely. The good news is you’re already helping by providing a retirement plan. For most employees, the easiest and most reliable way to beat the inflation rate is through investing in an employer-sponsored retirement savings plan.
5. Realize Full Tax Advantages – Real life examples are often the best way to show employees the tax benefits of contributing to a retirement savings plan. You can help by providing examples of yearly salaries and varying contribution rates to illustrate the associated impact on take home pay. Be sure to point out that gains from a retirement plan are tax deferred until withdrawals are made, which when done during retirement typically means a lower taxable income bracket.
New Year’s resolutions are not easy to keep. Indeed, many fizzle out before January comes to a close. Help your employees keep the resolution to improve their retirement readiness and secure a more successful financial future by providing key products, services and tools to help with the top five savings goals; consider it a belated holiday gift!