This article was updated on September 11, 2018.
Retirement planning for millennials might not seem like a task that needs to be immediately addressed, but it's something that's likely on the minds of anyone between the ages of 20 and 37. Sixty-eight percent of millennial respondents to a 2015 study by the Insured Retirement Institute (IRI) and the Center for Generational Kinetics (CFGK) said they save for retirement. However, only 29 percent said they're actively planning for it.
If you employ staffers in this age range, here are a few tips to help encourage them to plan for retirement, even though it may be decades before they'll stop working.
Get Real About Retirement Costs
Seventy percent of millennial respondents to the IRI/GFGK study said they expect to live on less than $36,000 each year in retirement, but the Bureau of Labor Statistics' Consumer Expenditure survey found that retirees aged 65 and older spent an average of more than $43,000 annually. This is a shortfall of more than $7,000 per year.
When providing information about your company's retirement plan, it can be helpful to provide some context for millennial employees who may not understand the potential costs of retirement. Using data or infographics to help explain what their future needs may be can help them get serious about financial planning and start contributing to retirement savings.
Make It Automatic
One easy way to encourage retirement planning for millennials in your company is to simplify the process by automating retirement contribution increases. This is the goal of Save More Tomorrow™ (SMarT), a retirement strategy designed by Professors Richard H. Thaler and Shlomo Benartzi at the UCLA Anderson School of Management. The program involves automating retirement plan contribution increases to occur one month after a raise, repeating with each annual raise until a predetermined total annual contribution is met. Employees have the option to withdraw from the program at any time. When tested, SMarT tripled savings rates over a 28-month period.
For more information on automatic enrollment options for small business, visit the Department of Labor's Automatic Enrollment 401(k) Plans for Small Businesses.
Make It Easy
Make the investment selection process easy for millennial workers by signing them up for a retirement plan as part of the onboarding process. If new employees are automatically enrolled in a business retirement plan, they may be less likely to opt out.
Offering contribution matching automatically through a plan like a Simple IRA is another way to encourage your millennial staff to save for retirement. It may also be a useful hiring and retention tool. Offering employer match contributions as a percentage of employee contributions to a retirement plan may attract strong millennial job candidates.
Encouraging your millennial staff to plan for a retirement that seems far away may require creativity, but they'll thank you in the long run.