Retirement Contributions: Boosted

For 82 percent of workers surveyed, the overwhelming consensus is they’ll have a much harder time achieving financial security than their parents’ generation did.

Nearly ten years out from the economic downturn, American workers are still in recovery mode. According to the 17th Annual Transamerica Retirement Survey, 41 percent say they have “somewhat recovered” from the recession; 20 percent believe they’ve fully recovered, and 19 percent say they weren’t impacted.

And for 13 percent of those employees surveyed, recovery hasn’t begun.

No matter which category they fall in, today’s workers are nearly all concerned about their retirement livelihood. For 82 percent of those surveyed, the overwhelming consensus is they’ll have a much harder time achieving financial security than their parents’ generation did. Also, they’re facing even more uncertainty – 77 percent are worried that Social Security won’t be there for them as they prepare to retire.

For plan sponsors, such uncertainty provides a golden opportunity to educate and inform plan participants on ways to make their retirement contributions stretch, or how to take advantage of strategies that can improve significantly their retirement portfolios. Here’s how: the Transamerica survey reveals that two-thirds of workers say they don’t know as much as they should about retirement investing – just as many workers are looking to their companies for advice and information to help them reach their goals.

Catch-up Contributions

For your plan participants over the age of 50, the IRS provisions allow participants to make annual catch-up contributions for some 401(k), 403(b), SARSEP, and governmental 457(b) plans.

It’s a provision that was enacted in 2001, yet few take advantage. According to Vanguard, 16 percent of clients aged 50 and over use the catch-up contribution. Fidelity reports just 8 percent of their customers are using catch-up contributions.

For participants using the catch-up contribution, the difference is significant – Fidelity reports that of its customers with 401(k) accounts, the average balance for those who used catch-up contributions was $417,000. Those who did not averaged $157,000.

Risk Tolerance

Plan sponsors can help their participants make smarter investing decisions by educating them on their risk tolerance. Have your employees answer these questions:

  • How old are you?
  • At what age do you plan to retire?
  • Are you ahead of or behind your investment goals? By how much?
  • How much can you afford to lose with higher-risk strategies?
  • How much risk do you need to take in order to meet your goals?

Asset Allocation Strategies

Depending on how long ago your participants made their asset allocation decisions, it is always a good idea to review those choices. Times and needs change frequently, as do market conditions. Even if your plan participant is wanting to remain with current selections, reviewing that strategy can ensure that the strategy is working the way the participant hoped.

Asset allocation strategies are not a one-size-fits-all proposition, nor does what fit ten years ago necessarily fit today. Give participants the information and the tools to conduct their own assessment of how their current allocation strategy is performing.

Incremental Increases

Encourage plan participants to think of their annual raises or cost-of-living increases as the benchmark for when to increase their contribution percentage. Earmarking even half of a salary increase to retirement can really pay off over time. Consider a worker who gets a 4-percent raise every year. If that worker sets up an automatic 2-percent annual increase in retirement investing, over the course of 10 years, that worker could conceivably be contributing at a 20-percent level without noticing.

Helping your plan participants maximize their retirement plan contributions can be the difference between a comfortable retirement and a career extended out of necessity.  As plan sponsors, you can be the resource for information that helps them boost the performance of their investment, and makes for a much more secure retirement picture.

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