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How To Solve the Looming Retirement Readiness Crisis

Fewer than one in five employees are on track to retire. Here’s why that’s a problem–and what employers can do about it.

How To Solve the Looming Retirement Readiness Crisis
[Photo: Flickr user frankieleon]

When it comes to retirement, U.S. employees have a problem. According to the State of U.S. Employee Retirement Readiness 2015, a new report by El Segundo, California, financial literacy consulting firm Financial Finesse, fewer than one in five U.S. employees are confident they’re on track to retire. Of those that are not on track, more than three-quarters have never checked a retirement calculator about their needs, and only 47% have taken a risk tolerance assessment to determine how they should invest for retirement.

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The Bureau of Labor Statistics reports that roughly 66% of U.S. workers have access to an employer-sponsored retirement plan. And while some employers might think that’s enough to help employees help themselves plan a secure retirement, there’s a case for doing more, says Bill Charyk, president of the Institutional Retirement Income Council (IRIC), a membership organization for retirement plan sponsors, financial institutions, and others. If senior employees don’t retire because they can’t support themselves, you might risk losing younger talent because there is less room for advancement in the company, he says.

“You have younger talent who can’t really move up and show the potential that they have because the positions are blocked by individuals who don’t want to retire, and will stay on as long as they possibly can because they don’t have retirement savings,” he says.

Not being able to retire when they want to is a concern for 40% of employees who participated in the PwC 2015 Employee Financial Wellness Survey. In addition, financial pressures are distracting. The survey also found that one in five employees report that personal finance issues have been a distraction at work, and 37% report spending three or more hours a week dealing with their personal finance issues.

But employers can make a difference in their employees’ overall financial wellness, as well as their retirement readiness. Beyond offering a 401(k) plan and matching contribution, consider these five strategies to help employees better prepare for retirement.

Talking About Retirement Planning Early

Your company should start discussing retirement planning during the onboarding process, says Liz Davidson, CEO of Financial Finesse, and a former hedge-fund company CEO. Young employees just starting their careers “may not be equipped to have this paycheck and have these benefits decisions to make,” she says.

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However, even more experienced employees may not have ever had someone explain different benefits, investing options, and other financial planning and wellness matters to them, so it’s a good idea to have a comprehensive introduction to all that your company offers, as well as general financial literacy, she says.

Defuse The Fear

One of the major barriers to getting employees to take action about their retirement planning is fear, Charyk says. They may see the big numbers they need to save and become fearful or fall into despair, especially if they haven’t begun to save for retirement until later in their careers. So, focusing on possibilities is also important. For example, there are a number of ways to increase Social Security benefits, such as delaying filing until after age 66 or later, or filing based on a spouse’s income if it’s more than your own. Illustrating how retirement savings can work in tandem with Social Security and, perhaps, part-time work or consulting, can be an effective way to motivate employees to save and invest.

Provide A List Of Resources

Certified financial planner and former human resources executive Jean Marie Dillon says that personalized advice can dramatically improve retirement readiness. Employees will have different circumstances that will affect their situations. Some may have lower incomes and student loan debt, while others may be paying college tuition for their children. So finding appropriate counsel is important, she says.

Provide a list of resources to help with various financial needs. For example, a list of fee-only or pro bono certified financial planners can be found on the CFP Board’s website. Your community may have nonprofit tax, financial planning, or credit counseling services as well, Dillon says. Check with your state’s consumer affairs office. The U.S. Department of Justice also publishes a list of approved credit counseling agencies.

Protect Employer Contributions

Dillon also suggests working with your legal counsel and benefits provider to remove employees’ ability to borrow against employer contributions to retirement plans. While employees may make withdrawals or take loans from their own contributions, she advises making the employer match off-limits.

“Often, employees are too tempted to use the company’s match as a revolving line of credit or windfall,” she says. Removing the option eliminates that temptation and keeps that money working for them.

Emphasize Overall Financial Security And Wellness

Retirement planning has to fit into the context of an individual’s overall financial circumstances, Dillon says. She suggests holding onsite informational seminars on financial and retirement planning topics. Provide incentives for attendance, such as a free lunch. In addition, your retirement plan provider may have resources you can tap into. Dillon suggests reframing the conversation to be more aspirational—here’s how you can do things better—instead of need-based.

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“I think you can reframe education and say, ‘Hey, here’s some things you might not have thought about. How you can manage your credit. How you can tackle certain kinds of debt. What are priorities, what are not priorities.’ You can create a [more effective] environment of learning and education,” she says.

About the author

Gwen Moran writes about business, money and assorted other topics for leading publications and web sites. She was named a Small Business Influencer Awards Top 100 Champion in 2015, 2014, and 2012 and is the co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010), and several other books.

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