We understand and analyze not only the barriers to saving for retirement but the impediments to saving for other needs as well, because it must be addressed holistically.
The industry throws around the “10 percent to 12 percent per paycheck” figure (or more) when saving for retirement, yet the median home price in our area, Marin County, is $630,000. So, we’re more sensitive to the difficulty of doing that for many participants, and therefore more realistic in how we approach savings behavior.
We work with clients to diagnose their needs through financial wellness assessments to identify pain points. One company, in particular, had a low retirement plan participation rate, just 22 percent. During our initial client interviews, the company’s human resources department blamed it on the high cost of living in the San Francisco Bay area. However, our investigation revealed that 50 percent of employees believed they were too busy to begin saving for retirement, and another 30 percent said the process is too complicated.
The obvious answer was to streamline the process with technology, put certain auto features in place and generally make it as easy as possible. The result was a jump from the initial 22 percent participation rate to 55 percent after one year.
We now use these stats with clients who are hesitant to install behavioral-based processes. And just because we’re in a high-rent district, it doesn’t mean housing pressures are always the reason for delayed retirement saving. We therefore always diagnose the issue, and don’t make assumptions.
We also use gamification techniques, and incorporate elements of fun competition, which has also been a big success. We’ve found people will do amazing things in return for something as small as a gift card. I actually had a participant just recently increase their salary deferral by $300 per paycheck in exchange for a $10 Starbucks card. It takes surprisingly little to get participants to take action, the nudge just has to happen in the right way.
By that, I mean that there is, to a large extent, a guilt factor in not saving. People think they’re the only ones not doing it. It’s like going to the gym, and they need to know that there are other people out there like them. When they realize it, there is a relief factor, and it positively influences behavior. This is where technology can play a huge part. For instance, Empower Retirement has a new app where people can compare themselves to their peers.
Most people are not saving not because of debt, but because they are not deliberate about where their dollars are going. If we see that a budget is implemented, it means they’re monitoring their finances, which is directly correlated to better participant outcomes.
It all begins with financial wellness programs, and as an industry, we’re getting more effective at communicating that it’s the least costly benefit with the greatest impact.
Kristina Keck is vice president of retirement plans with Woodruff-Sawyer & Co.