401k participant outcomes is quickly gaining on “financial wellness” as the phase du jour for providers and advisors, and a new study from Natixis Global Asset Management sheds like on what can be done to boost retirement success.
The study, which also finds younger workers want mandatory 401ks that require employers to match contributions, offers the following suggestions:
1) Financial Advice
Workers who receive professional financial advice have saved on average 10 percent more of total retirement savings than those who go it alone, and 17 percent said they would save more if they had access to professional advice.
Natixis notes that with the U.S. Department of Labor’s fiduciary standard scheduled to take effect in April, some workers could lose access to an advisor through their retirement accounts. Employers could “step up” by offering access to financial advice in their workplace savings plan, it adds. Just 30 percent of active plan participants surveyed say they are offered that service by their employer.
2) Start from Day One
“The power of participation is in plan features that overcome savings inertia,” Natixis argues. “Allowing plan participation from the first day of employment may help improve participation rates and increase employee contributions–81 percent said they would save more if they could start on the first day they joined a new employer.”
Automatic escalation features also serve to seamlessly increase contributions, with 23 percent indicating that would incentivize them to save more.
3) Financial Education
Education is needed for plan participants and even more so for non-participants, Natixis says. The survey found that almost half (45 percent) of all respondents, including 38 percent of plan participants and 60 percent of non-participants, don’t know how much they need to save annually in order to meet their future retirement goals.
“There is work to be done on the financial literacy front, too. Just over half of respondents (55 percent) knew the correct answer to a survey question about compounding interest.”
4) Customized Approaches
Employers need to look closely at the generational differences in savings behaviors, the motivations to save and the barriers to savings. The survey found that respondents are holding back for various reasons, including rising healthcare costs (35 percent) and saving for children’s college funds (20 percent).
For Millennials, 33 percent said student loans are an obstacle. Offering programs such as Health Savings Accounts, student loan forgiveness and higher education savings plans would relieve pressure for many and enable them to save more.
“Employers have a crucial role to play to help more Americans achieve a financially secure retirement,” Ed Farrington, Natixis’ Executive Vice President for Retirement Strategies, said in a statement. “Our research shows that, with or without mandates, employers can meaningfully improve their employees’ prospects for retirement security through thoughtful plan design. But the first step to driving participation is making retirement plans more accessible by providing education and advice that helps employees take full advantage of all that their retirement plan has to offer.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.