Over half of American workers are worried that they haven’t saved enough for retirement, and 31% think they’re too far behind to catch up, according to a study by Allianz Life. Although the retirement industry has worked hard to make it easier for workers to achieve financial security, the National Association of Government Defined Contribution Administrators believes it comes down to a simple truth — workers need to get involved in their own success.
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“The retirement landscape has changed dramatically over the last several decades. The bottom line for Americans—whether employees in the public or private sector—is that they must become more actively engaged in saving for retirement to achieve and maintain financial security in their post-work lives, both for their personal benefit and for the wellbeing of our nation,” Matt Petersen, NAGDCA executive director, said in a statement.
That goes beyond increasing access to plans and implementing automatic enrollment. Advisors need to help plan sponsors educate their employees about why retirement planning matters.
“Unfortunately, this isn’t a simple ‘if you build it, they will come’ situation. Engaging Americans in saving for their retirement requires a concerted awareness-raising effort; the lion’s share of this effort falls to employers,” Petersen added.
NAGDCA shared four tips for advisors and plan sponsors to get that message across.
Keep communication channels open. Communications regarding retirement planning with participants need to be responsive and relevant, and use dynamic messaging to engage them, NAGDCA suggested. A simple benefits packet isn’t enough; sponsors need to identify which tools work best for which employee groups, and develop communication strategies targeted for them.
“The end goal of all sponsor communication efforts is to enhance participant understanding of the many factors influencing successful retirement saving and utilization, spur meaningful plan engagement, boost confident and appropriate decision making, enhance appreciation and, most of all, drive optimal outcomes,” Petersen said.
Develop a plan for converting savings to income. There are two sides of retirement preparedness, noted NAGDCA: having enough money saved to cover expenses in retirement, and turning those savings into income.
BlackRock found a big jump in the percentage of people who don’t understand what their retirement savings mean in terms of monthly income: from 55% in 2018 to 62% in 2019.
“Retirement preparedness doesn’t cease with the end of our working lives,” Petersen said. “Helping employees translate earnings and savings into income in their post-work years is just as essential as helping them understand the benefits and limitations of traditional income sources.”
Continue focus on financial wellness. Over half of employers have some kind of financial wellness initiatives in place, and 25% say they are highly concerned about their workers’ well-being, according to EBRI’s 2020 Employer Financial Well-Being Survey. The survey shows retirement planning is a leading concern, with 66% of employers saying retirement either stands alone or ties with health care costs as the top priority of their programs.
Retirement planning is also a priority for workers, as indicated by a report from TIAA that found needing to save for retirement was their No. 1 financial concern.
“It’s difficult to imagine how one might attain financial security in retirement without financial stability during active working years,” Petersen said. “We’re heartened to see that employers, increasingly, are turning their attention to supporting their employees’ financial wellness.”
Increase education on HSAs and HRAs. EBRI found that a retired couple will spend an average $296,000 on medical care. Meanwhile, only 2% of Americans are aware of all the benefits of a health savings account, according to a survey by Voya Financial.
“Providing employees with health care-specific savings tools helps them achieve financial wellness during their working years—a key stepping stone to robust retirement preparedness—and helps ensure adequate funds for costs not covered by Medicare once they’re retired,” Petersen said.
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