February 21-28, 2022 marks America Saves Week, an annual tradition that brings national attention to…
September 6 marks this year’s annual 401k Day. While saving for retirement can be challenging in the current economic climate, almost half of working Americans (46%) say they are saving the same amount of money as they did in 2018, according to August’s Financial Security Poll by Bankrate. Only 29% have increased their retirement savings contribution rate compared to last year, and 16% percent are saving less than last year, a figure that’s held relatively consistent between 13 percent and 18 percent since 2012.
Those numbers might look good on the surface. But the average 401(k) balance as of March 2019 at the largest defined contribution recordkeeper was only $103,700. That’s the average, which is skewed by outliers like the comparative handful of 401k millionaires. One in three Americans have no retirement savings at all. The median, which represents the middle balance between the highs and lows, is a mere $24,500. At a 4% withdrawal rate, that’s $980 annually, or $81.66 a month. Add that to the average monthly Social Security benefit of $1,409.91, and a retired worker’s income is still barely above poverty level.
Clearly, employees need to save more. But it’s hard for people to know how much to contribute, by when, and what actions they need to take in their current financial lives to make that feasible. Comprehensive financial wellness programs offered as part of an employee benefit package have been shown to help. The philosophy is to think of a financial wellness program as an umbrella, inclusive of every part of a person’s financial life from retirement and budgeting to debt and emergency funds. Here are a few tips for any employer who wants to implement a successful financial wellness program.
Use a multichannel approach that combines the scalability and efficiency of technology with the human guidance necessary for behavior change. Employees should be able to access the program online on their own, or engage with a coach or advisor via chat or by phone. Some will prefer to meet in-person or attend an onsite workshop.
Don’t expect a one-time, short-term fix to solve long-standing financial problems. A payday loan alternative for employees won’t solve the bigger problem of not knowing how to budget or failing to save an adequate emergency fund. Employees need a comprehensive approach to change financial behaviors and meet changing financial goals throughout their careers. Some employees will be more focused on reducing student loan debt, for example, while others may have very different goals, such as saving for a downpayment or making catchup retirement contributions.
Meet employees where they are. Personalization is key to changing financial behaviors. No one likes being told what they should be doing. Instead of boring employees with the same old ‘sage on the stage’ financial education on the same old topics, ask employees what their goals are and use that information to engage them and encourage them to take responsibility for finding ways to reach those goals. While coaching can help, employees are ultimately the ones who know their situation best and will be responsible for carrying out a financial plan. And they are more likely to follow through when they have a role in creating that plan.
Cash management, debt problems, and increasing health care costs are three of the biggest barriers to saving for retirement. A comprehensive financial wellness program integrated into a benefits package can encourage employees to make better use of all their available benefits, and make progress towards retirement readiness. After all, you wouldn’t want to open an umbrella on a rainy day to find only half of it there, would you?