A few decades ago, retirees could depend on pensions and social security benefits but pensions are virtually extinct, and social security is predicted to die out in the next few decades.Despite realization of this, Americans still have not been saving for their futures. In fact, 2 out of every 3 Americans are not contributing to retirement accounts. People aren’t saving on the job because many don’t have access to company sponsored retirement plans, and those who do can’t spare extra money.
Though a shortage of cash may seem to be the main reason people aren’t saving, there are some other surprising factors that are fueling this epidemic.
Knowledge About Employer-Sponsored Plans
A company sponsored 401(k) plan is a notable benefit offered to employees. Although offering a 401(k) is becoming a standard benefit, employees are not joining or contributing to plans.
Communication is a key factor that affects employee participation. Many employers are not making efforts to educate their employees about 401k plan coverage, which is impacting employee savings.
401(k)s and investment decisions are often intimidating for employees, so many choose to opt out of plans because they don’t understand them.
Today, the average worker is in a job for only 4.4 years. According to a study conducted by LinkedIn, job hopping has doubled over the last 20 years, specifically in the five years after college graduation. The amount of companies people have worked for in the five to ten years after graduating has shown increases as well.
With job hopping on the rise, accessing a reliable retirement savings account can be difficult, as well as a low priority for employees. Eligibility limits paired with the hassle of setting up a new plan proves to be the first obstacle employees face. Service requirements can range from three months to one year, forcing employees to rely on personal saving attempts.
Also, setting up new plans often require initiative to sign up, if the participants are not automatically enrolled. Changing jobs is hectic, and often employees just don’t get around to enrolling.
When employees leave a workplace, moving funds from accounts can be tedious and confusing, so many take the remaining balance and a penalty for early distribution.
Although job hopping is becoming a widely-accepted concept, it has caused significant obstacles for consistent 401(k) participation.
Many hear “student loans” and automatically think of Millennials fresh out of college, but even generations approaching retirement age are battling this type of debt.
While few borrowed for their own schooling, many people at the age of sixty and older acquired debt for their children or grandchildren’s education. Borrowing at an older age significantly influences one’s ability to retire; there is less time to pay debt down with a reliable source of income.
“Should I invest my money in my retirement or should I pay down my credit card debt?” This is a common question Americans are asking. Although experts suggest you do both if you are able, many are forgoing retirement savings all together to get their debt under control.
Who Cares if People Can Retire?
When employees can’t retire, the workforce is negatively impacted in multiple ways. Employees retiring opens new opportunities, both for younger employees to advance into leadership roles, and for brand new employees to join the organization and fill newly vacant roles.
With more employees working longer, these opportunities are reduced. Additionally, it can be difficult to create and maintain a company culture that is adaptable, youthful and innovative when the organizational makeup is skewed towards a greying demographic.
Poverty among retirees is on the rise, impacting the economy of America. Primarily due to poor planning for health care expenses in retirement savings, more seniors than ever are falling below poverty levels.
Employers have slowly started to shift towards prioritizing employee benefit education, giving employees opportunities for success. Providing the resources employees need can drastically change the way Americans are saving, which stimulates the economy on a long-term scale.
How Employers Can Help
1. Educate, educate, educate: Most employees rely on company-provided resources to learn about their retirement planning opportunities. Employers can host meetings educating employees about their investment options, and many 401(k) providers can send representatives specifically for this purpose. The more knowledgeable participants are about their plans, the more comfortable they are investing.
2. Offer a match: Secondary to offering a plan, matching opportunities can be a great motivator for employees to save. Key advantages of offering a match include:
- Tax deductions for the business
- A better benefit for attracting top talent
- A reduction in employee turnover
- Increased plan participation, resulting in improved retirement readiness
3. Consider automatic enrollment: Another way to initiate participation in a company sponsored 401(k) plan is to set up automatic enrollment. This essentially requires employees to opt out of your plan, increasing the chances of employees participating. With automatic enrollment, it is important to educate employees throughout the duration of their activity in the plan, so they are empowered to make sound investment choices
401(k) plans not only benefit businesses and their employees, but creates a stable workforce, leading to overall economic stability. With the support of employers, the saving epidemic in America can experience significant change.