Employees Desperately Need Retirement Planning Education
Recent survey data shows that most employees don’t understand how Social Security works, nor have they done any analysis to see how much they need to save for retirement.
What Employees Are Saying: In August 2023, we conducted a survey, and over 70% (2,500) of 3,500 registrants representing a diverse range of organizations, demographics, and earnings responded to the following questions:
Question 1: Are you confident in determining when you will start your Social Security retirement benefits? 26% said Yes, and 74% said No.*
Question 2: Have you done any calculations or analysis to help you determine how much you need to save for retirement? 44% said Yes, and 56% said No.*
The Urgency of the Situation
These survey results are not merely numbers; they are a clear call for HR and Benefits leaders to take immediate action. These figures indicate a lack of financial literacy that hinders not only the future confidence and security of employees but also their engagement and productivity in the workplace.
The Good News: Help is On the Way
Media coverage and recent legislation (SECURE 2.0 Act) are raising awareness that most Americans are not saving enough for retirement. SECURE 2.0 Act encourages employers to expand their offerings and encourages employees to save more for their own retirement. Employers now have more opportunities to educate, incentivize, and even match employee contributions in order to grow retirement savings. Starting in 2024, employers will be able to:
- Make a 401(k) matching contribution for an employee’s student loan payment. The percent or amount of the match is determined by the employer.
- Offer emergency savings accounts as part of their retirement plan. Participants can be automatically enrolled at up to 3% of their pay (with the ability to opt out), and after-tax contributions are capped at $2,500.
The many provisions of SECURE 2.0 Act provide employers with multiple opportunities to enhance their retirement plan offerings and services to employees. However, there is a long history of low utilization of financial well-being benefits by employees, pointing to the need for compelling education to turn the tide.
The Financial Well-Being Imperative
The lack of understanding about vital financial matters, like social security and retirement planning, can lead to employees vastly underestimating how much savings they will need to sustain their retirement lifestyles. According to the Social Security Administration, Social Security benefits represent about 30% of the income of the elderly. However, 12% of men and 15% of women rely on Social Security for 90% or more of their income.¹ Understanding what one might receive in monthly Social Security benefits is a critical component of any retirement plan.
However, Social Security retirement benefits get complicated in terms of the pros and cons of receiving them when first available at age 62 versus delaying them since the benefit amount increases every year until the age of 70. It’s nice to get checks starting at age 62, but it’s also nice to get a higher monthly benefit! There is no right answer on when to start Social Security benefits. It is important to understand the many factors that can influence Social Security benefits, and the Social Security website (ssa.gov/prepare) is a great place to start.
Regardless of Age or Background, All Employees Can Benefit From Financial Education
Here are two of the most common questions employees ask with respect to social security and retirement planning:
If I’m in my 20s or 30s, why should I care about Social Security or a retirement plan? It is very difficult to prioritize retirement savings when you are in the early stages of your career or growing a family. However, money saved, properly invested, and allowed to compound over many decades, starting when a person is in their 20s and 30s, can represent a large portion of a person’s retirement savings. The St. Louis Federal Reserve has a great summary of how compound interest works and the importance of starting to save for retirement in your 20s versus your 30s: stlouisfed.org/open-vault/2018/september/how-compound-interest-works.²
If I’m in my 40s and 50s, is it too late to start saving for retirement? It is never too late to start saving for retirement! Many people are in retirement for 20-30 years. Even if you get a late start, it is important to estimate your monthly and annual retirement lifestyle budget and determine how you will generate the necessary income. If you have less savings, you might need to work longer or part-time. Given the maximum contribution limits for most employer-sponsored retirement plans ($30,000 in 2023 if someone is over 50), a person can make up a lot of ground by maximizing their contributions annually.
A Strategic Priority for HR & Benefits Professionals
As an employer, consider the following steps:
Step 1: Review your financial well-being benefits already offered to employees. To what degree are employee communications focused on specific benefit programs (such as your organization’s retirement plan) versus resources that can help employees address any financial goal or challenge?
Step 2: Consider enhancing your financial well-being benefits with an emphasis on education. Employees often need to work on goals, such as creating a budget, reducing debt, or rebuilding their credit, before they can start growing their retirement savings. Make sure the financial well-being benefit you offer to employees allows them to work on whatever personal finance challenge is causing them the greatest stress.
To learn more about the MSA financial well-being solution and how to help employees improve their overall well-being, contact us today.
*My Secure Advantage, Inc. August 2023. Based on MSA Member self-reported live event data.
¹ “Fact Sheet: Social Security.” Social Security Administration. Web. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf. Accessed 16 Aug. 2023.
² Catanzaro, Mark. “How Does Compound Interest Work?” St.Louis Federal Reserve, 12 Sept. 2018. Web. https://www.stlouisfed.org/open-vault/2018/september/how-compound-interest-works. Accessed 16 Aug. 2023.
My Secure Advantage, Inc. or any of its representatives do not endorse any of the websites or company names listed here.
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