Dr. Craig Kaplan, Founder & CEO, PredictWallStreet
Employees are not saving enough for retirement. Only 38 percent of employees currently participate in a 401(k) plan, and even those employees are not contributing as much as they should to ensure a comfortable retirement. Employers can play an important role in encouraging their workers to save more. In a recent survey, a large majority of employees said they would welcome retirement-plan advice and encouragement from their employers.
Employers should motivate employees to invest more by showing them how and why it is necessary to put savings aside. They should explain the importance of starting as early as possible and of putting aside enough money with every paycheck. Once employees are motivated to adequately fund their plans, employers can provide tools that give them the means to do so. Some of those tools will involve the way the plans are structured, but training is a critical part, too. Educating employees provides them with the concepts and information they need to successfully manage their funds.
Employers who want to teach their employees how to create a retirement account that will fund a comfortable retirement should keep the following five tips in mind:
1. Start with the basics. Many employees have little or no knowledge of investing and may feel intimidated by the choices they have in a 401(k) plan. Employees who feel intimidated or confused may choose only the most conservative investment options and miss out on the opportunity to grow their savings over time. Teaching employees basic information about the stock market can encourage them to feel more comfortable about investing, which in turn will lead them to make better investment choices.
2. Emphasize the power of compounding. Younger employees often put off investing in retirement funds, thinking they will have plenty of time later. Educating employees about how investments compound over time can encourage them to start funding their nest eggs earlier. Employers should demonstrate how much easier it will be for employees to reach their retirement goals if they start when they are young. Another persuasive demonstration is showing how their funds will grow even faster when matching employer contributions are configured.
3. Stress the importance of investing more than the minimum. Many employers’ auto-enrollment 401(k) plans require a minimum investment of only 3 percent of an employee’s income. Employees tend to look at that number as a suggested amount and think that it will be enough to adequately fund their retirement accounts. Employers should demonstrate how investing a higher percentage will provide the means for a more comfortable retirement.
4. Help employees find ways to save. Younger and lower income employees may invest little or nothing in their retirement accounts because they believe they need to spend the money now for more pressing needs. Employers can teach various savings strategies that can help. They can discuss putting aside a low percentage of income now and then gradually increasing that percentage over the years. Other strategies employers can recommend include investing all or a large portion of any unexpected windfalls, and saving a significant portion of any salary raises.
5. The personal touch works. While it is easy and efficient to provide training online or in large group settings, it is important to also provide an opportunity for personal interaction, where employees can discuss their concerns and get their questions answered. For example, employees who meet face to face with an advisor when they are setting up their plans will be more motivated to contribute to those plans later.
Employers who encourage their workers to invest more in retirement plans reap several benefits: They are being good corporate citizens, they attract better employees, and they promote a healthy turnover rate by helping to ensure that employees will have enough money to retire when they are ready to do so.
While employees are ultimately responsible for their retirement planning, input from their employers can make a significant difference. Employers can help employees see the value of saving for their retirements over the long term. When employees understand the process, they become more motivated to save. Employers can then help them overcome obstacles to saving by teaching them strategies that will help them put aside more money. It’s a true win-win situation.
About the Author
Dr. Craig Kaplan is the founder and CEO of PredictWallStreet. Dr. Kaplan is responsible for both the vision and the patented methods that process the collective intelligence of online investors to generate an edge in the stock market. Previously, Craig spent twelve years as CEO of iQ Company and has also worked at IBM and at the University of California Santa Cruz as a visiting professor in Computer Science. He holds MS and PhD degrees from Carnegie Mellon University where he co-authored papers with a Nobel-Prize winning economist.