Employees no longer feel as though retirement is a guarantee, and it’s up to organizations and their benefit leaders to provide employees with the right solutions to improve their chances.
Nearly 59 million employees lack access to a workplace retirement plan, according to a recent study conducted by insurance company TIAA, putting their future financial security at risk. As for employees with employer-sponsored retirement plans and solutions, research from the Government Business Council found that less than half of employees feel financially prepared to retire, with only 12% stating that they feel very prepared.
“There is much uncertainty in the world regarding what and how you need to save for retirement,” says Rachel Gustafson, a certified financial planner specializing in comprehensive financial planning for women, couples and small business owners. “Effective financial planning and education are essential steps to ensure a secure future.”
Read more: Are employees getting what they need from their 401(k)s?
Currently, 49% of workers with a retirement goal in mind say it’s likely they’ll be able to save that much, down from 52% in 2023, according to financial services company Bankrate. Meanwhile, nearly half of workers with a retirement goal in mind say it’s unlikely they’ll be able to save that much, up from 45% in 2023. Much of that insecurity stems from out-dated retirement solutions, an overall misunderstanding in how to participate in traditional retirement solutions, and discrepancies in retirement coverage for workers across every industry.
“Social Security faces challenges, employer plans can be confusing and the world around us seems increasingly unpredictable,” Gustafson says. “But it’s never too early to start saving, and even a small amount is better than nothing at all.”
Options like state-sponsored auto-IRA programs, which automatically enroll employees in third-party retirement savings plans at a 3-5% contribution rate, are proving to be a good way to address accessibility challenges for organizations with part-time, freelance or independent contractors. And for employers with comprehensive retirement options, pairing it with educational resources could help boost employee engagement and savings.
Gustafson shared some insight on the state of retirement planning and explained different strategies that could help keep employees on top of their goals.
Read more: Benefits to help employees plan for life after work
How have retirement benefits changed over the years?
Most employers are seeing the benefits of offering a retirement plan, especially since many have stopped offering pensions. A common benefit is a 401(k) or 403B plan which often offer a match and more recently an auto opt-in that has employees automatically enrolled to save a percentage of their pay. This is especially helpful for those that don’t understand the value of a 401(k) since many don’t even realize it is happening. Roth IRA’s are a powerful way to save not just for retirement but potentially education or the down payment on a home.
How does financial literacy play into workplace retirement planning challenges?
I believe we’ve fallen short as a society in providing adequate financial education. Kids are leaving school not understanding what a 401(k) is, how Social Security works, what credit is or how to create a budget. The lack of these fundamentals leads to poor financial management, which in turn leads to poor retirement savings. Retirement plans offered through employers often don’t include financial education explaining what the benefits are and how to navigate them. I am often walking through these benefits with my clients and helping them understand how to utilize them in their financial planning. I have also found that younger generations in particular are struggling with how to save for their own retirement while also taking care of their children and aging parents.
How are newer strategies helping address the lack of access to retirement plans?
Right now, auto IRAs are being offered by many states to employees who do not have employer plans through their jobs. In Oregon for example, employers are required to offer a retirement plan and if they do not they are required to set up OregonSaves Roth IRAs for their employees. This helps give employees an opportunity to save for their retirement, but there are some drawbacks including a lower savings threshold, as opposed to 401(k) type plans that allow a much higher contribution amount.
What should benefit leaders be focusing on right now?
In my opinion, financial education is extremely important. Helping employees understand what they need to save versus what they can save in these plans. Educating them on what their benefits are and why they are important is crucial. This is especially important for younger generations who likely will have limited social security benefits. Social Security is a benefit that many still think they can depend on, but the reality is that the system is facing reform which could result in reduced benefits or even a later retirement eligibility age.