The Retirement Magic Number

If you ask employees about their retirement confidence, you might be surprised to learn that 60% of American workers are confident in their ability to live comfortably in retirement, and 18% feel very confident, according to the 2017 Employee Benefits Research Institute (EBRI) Retirement Confidence Survey.

Yet 47% of the same workers surveyed say that they have little or no money in savings and investments. Those workers are reporting the total value of their savings and investments, excluding home value and defined benefit plans, is under $25,000. Of that 47%, 24% are reporting less than $1,000 in savings.

It’s not as though they’re trying to figure it out, either. The same EBRI survey reveals that just 41% of workers surveyed have ever tried to calculate how much they’ll need to save in order to live comfortably in retirement. Of those who have tried, 64% say they’ll need an estimated $500,000 or more in order to live well in retirement.

That gap is a wake-up call that many plan participants have yet to make. For retirement advisors, it’s an opportunity to fill a critical need for participants and help them speed their savings and find their way to financial wellness.

Review current investment portfolio. Your plan participants may be investing in safe options when aggressive ones would suit, or they could be going with higher risks at a time in their lives when lower would be better. Help participants understand the different scenarios so that they make an informed choice.

Offer retirement readiness assessments. Show your plan participants how their current investment portfolio matches their needs. Is their portfolio set up in order to replace 80 percent of their income at retirement? Examine current salary (as well as any expected raises), current rate of retirement saving, how much the employer contribution adds, current plan balances, Social Security benefits, what they estimate they’ll need, and what their income might look like during retirement. Also look at when the participant intends to retire, or for younger employees, how many years they intend to work.

Bump up plan contributions. The easiest way to get retirement savings moving in the right direction is to determine the plan participant’s current retirement contribution and help them settle on a percentage increase that makes sense given their current salary and financial obligations. Even a bump of one percent per year can make a significant impact on the participant’s overall savings.

Give plan participants the right tools. It’s easier for employees to visualize the impact of their savings if they have an online portal from which to view and manage their investments. Advisors can walk participants through the basics, and offer more personalized tutorials for those wanting more help.

Offer targeted investment information. Articles aimed at boosting savings for older workers may fall flat if the majority of your plan participants are in their 30s. Likewise, articles dealing with how to adopt an aggressive investment strategy may not fit the over-50 employees. Help plan sponsors target their communications to various segments within the employee population to ensure that all employees receive more targeted messaging.

What other methods have you used to help plan participants close the gap?