Though we may not realize it, saving enough money to retire is one of the reasons many of us show up to work every day in the first place. After all, if you had the money you needed right now to cover all of your expenses for the rest of your life, would you continue to work? Of course many of us enjoy our jobs and would still want to continue working in some capacity, but the point is to recognize how important it is to prepare for your retirement and that your future depends on the choices you make today.
As someone who audits many retirement plans, it has come to my attention that many employees aren’t saving enough early on to prepare for their retirement. When I speak to plan participants, they will often say they contribute just enough to get the employer match, but no more than that. On average, their elective contribution deferral is 5%, when the recommended contribution is closer to 10-15%.
These same employees often admit to not knowing much about the funds that they are invested in. They also are not aware of the different ways to contribute to a plan (Roth vs. Pre-tax for example). I believe this is due to a failure to educate employees on just how much will be required for them to live a comfortable life without their W2 income. For company leaders, your employees are your most important asset, and taking the time to care for them will help pay back dividends. So why not help your employees become educated and secure the future they deserve?
There are plenty of ways to educate your employees on why it important to save for retirement as well as educate them on the most effective ways to save based on their specific life circumstances. These include, but are not limited to, holding annual or semi-annual education meetings on the retirement plan or bringing in a financial advisor to talk about what funds are a better fit for people closer to and further from the normal retirement age and the importance of compounding interest. There are many free retirement calculators online that employees can review to consider all their options. Taking this step for your employees will give them more of a reason to appreciate the company they work for.
It is also important to note that for those of you whose company’s retirement plan is subject to audit, educating your employees is indicative of the company fulfilling its fiduciary responsibilities toward its employees. This can help protect you against any potential legal issues that come up related to the plan.
If we take care of our people, they will take care of us. It is disappointing for me, as an auditor, to see an employee who has the ability to prepare for retirement, simply not take the necessary steps to get there. Unfortunately, when employers do not educate their employees about the retirement process, the employees are in danger of not optimizing their retirement savings, typically leaving them with far less financial security than they will need.
The good news is that there is a wealth of readily available resources for employees to help them better understand effective ways to prepare for their retirement. A simple conversation with employees is a great way to start the process! I would encourage everyone to assess their own situation and ensure that they have a strong plan for their future retirement.