Retirement Plans Play a Big Role in Retirement Readiness
How much of a role do employers play in their employees' retirement readiness? A big one, according to the findings of the Employee Benefit Research Institute's (EBRI) 2015 Retirement Confidence Survey. In fact, the survey supports that employers and their plans to help workers retire are vital to success:
- Workers with access to a workplace plan to retire are in a far better position than those without one as they are more likely to save, and save more, for the future.
- Ninety percent of households with access to a plan to retire use it, and 60 percent have saved $25,000 or more.
- Just 20 percent of workers without a plan are saving for the future, and only 9 percent have savings above $25,000.
Retirement planning skills are lacking. Fewer than half of workers have calculated their savings need, and a substantial number – 39 percent – guess at this amount.
- Workers could be saving more. Seven out of ten workers stated they could save $25 more per week, and are willing to make lifestyle changes to do so.
- Automatic plan design is viewed positively. Workers are very comfortable with automatic enrollment and deferral increase solutions – even at higher default rates. When enrolled at a higher rate, such as 6 percent, 3 out of four stated they would keep or increase the default contribution. Similar results were found with auto escalation – many would allow their contribution to rise to 10 percent or more.
- Many plan to work longer. More workers expect to retire at age 70 or older. This number has risen since 1991 from 9 to 26 percent. However, half of retirees leave the workforce sooner than planned due to changes in health or employment, which could mean a significant shortfall in savings and security.
How can employers address the challenges of preparing for the future and better meet employee needs? A well-built retirement plan can meet the challenge:
- Make a retirement plan available to your workforce. Almost half (46%) of workers consider an employer sponsored retirement plan to be their major source of income when they're ready to retire.
- Implement automatic plan design and target higher defaults. Saving more is a sound strategy for future financial success. Auto features are well accepted and get results in helping employees accumulate more savings.
- Give employees meaningful information. Personalized retirement income statements and calculators provide concrete information employees need to estimate a savings target, determine whether they are on track, and make decisions that can lead to better retirement outcomes. Almost all (88%) workers find them helpful.
- Offer a variety of planning tools. Communicating regularly, and in a variety of media can appeal to the preferences of all generations. Effective communications give employees answers, motivate them to save more, and establish realistic plans and expectations for the future.
Employers are well positioned to play a significant role in employees' retirement readiness. And a well-built retirement plan also offers significant rewards for employers too: in attracting and retaining talent, improving employee satisfaction, loyalty and engagement, and allowing for healthy turnover as older employees transition into retirement.