Are you properly investing in your health saving account? Take a look at the this article from Benefits Pro about the importance of saving money for your healthcare by Reese Feuerman.
For all ages, it’s imperative to balance near-term and long-term savings goals, but the makeup of those savings goals has changed dramatically over the past 10 years.
With the continued rise in health care costs, and increased cost sharing between employers and employees, more employees and employers have been migrating to consumer-driven health care (CDH) to provide lower-cost alternatives.
With the increased adoption in these plans for employee cost savings purposes, employers have likewise realized similar cost savings to their bottom line. But what role does CDH play in the long term?
Republicans trying to find a way to repeal the ACA are turning to health savings accounts — new ones, called…
The Greatest Generation was able to rely on their pensions, Social Security, Medicaid, and the like as a means to support them in retirement for both medical and living expenses. However, as the Baby Boomers continue their journey towards retirement, reliance upon future proof retirement funds are fading into the sunset for coming generations. According to a 2015 study from the Government Accountability Office (GAO), 29% of American’s 55 and older do not have money set aside in a pension plan or alternative retirement plan.
To make matters worse, some experts are forecasting Social Security funding will be depleted by 2034, leaving even more retirees potentially without a plan. As such, Generation X and beyond must look for more creatives measures for savings to make up the difference.
In 1978, 401(k) plans were introduced to provide the workforce with a secondary means for retirement savings while also providing significant tax benefits. However, even when actively funded, with rising health care costs and a depleted Social Security system—the solution this workforce has paid into for their entire career—will not be enough.
According to Healthview Services, the average retiree couple will spend $288,000 for just health care expenses during retirement. This sum could easily consume one-third of total retiree savings. This is a contributing factor to the rise and rapid adoption of tax-advantage health accounts to supplement retirement savings. Introduced to the market in 2003, Health Savings Accounts (HSA) have provided employees with an option to set aside pre-tax funds to either cover current year health care expenses, like the familiar Flexible Spending Account (FSA), or carry over the funds year-over-year to pay for medical expenses later or during retirement. The pretax money employees are able to set aside in these accounts to cover health care expenses, will over time, be on par with retirement savings contributions, such as a 401(k) and 403(b), because of increasing costs and triple-tax savings.
It is important for consumers to understand these retirement options and how they could be leveraged for greater financial wealth. As a result, the Health Care Stack, an analysis authored by ConnectYourCare, acts as a life savings model and illustrates the amount of pretax money consumers can contribute for both their lifestyle and health expenses in retirement.
For illustrative purposes, according to current IRS guidelines, the average American under the age of 50 could set aside up to $24,750 each year pre-tax for retirement to cover their health care and living expenses. In this example, if a worker in his or her 30s starts to set aside the maximum contributions (based on IRS guidelines) for HSA contributions, assuming a rate of return of 3%, they would have $330,000 saved in their HSA to cover health care expenses once they reach the retirement age of 65. This number could be even greater if President Trump’s administration passes any number of proposed bills to increase the HSA contribution limits to match the maximum out-of-pocket expenses included in high deductible health plans. This allocation would not only cover average medical expenses, but also provide a triple-tax advantage for consumers from now through retirement.
In addition to the long-term retirement goals, the yearly pre-tax savings may be even greater if notional accounts are factored in, with approved IRS limits of a $2,600 per year maximum for Flexible Spending Accounts, $5,000 per year maximum for Dependent Care FSA, and $6,120 per year maximum for commuter plans. This equals $38,470 (or $44,820 if HSA contributions increase) of pre-tax contributions that consumers could save by offsetting the tax burden and could invest towards retirement.
For those consumers over the age of 50, the savings potential is even greater as they can contribute to a post retirement catch-up for their 401K plans equaling a total of $24,000, plus they may take advantage of the $6,750 HSA savings, as well as the additional $1,000 catch up. If certain proposed bills are passed, the increase could be $38,100 a year that they could set aside, in pre-tax assets, for retirement.
Not only will an individual’s expenses be covered, but there are other benefits brought forth by proper planning, including the potential to reach ones retirement savings goals early. Let’s say that after meeting with a licensed financial investor it was determined that an individual needed $1.8 million in order to retire, and according to national averages, close to $288,000 to cover health care costs.
Given the proper investment strategy around contributions to both retirement and HSA plans, an individual could – theoretically -save enough to meet their retirement investment needs by the age of 60 for both lifestyle and health care expense coverage, if they started making careful investments in their 20s (assuming the worker is making $50,000 per year with a 3% annual increase).
In comparison, under current proposals, which include the increased HSA limits, retirement savings could be achieved even earlier with the coverage threshold being at 57 for the average worker. This is a tremendous opportunity to transform retirement investment programs for all American workers who would otherwise be left on their own. Talk about the American dream!
While there is not a one-size fits all strategy, it is important for everyone to understand their options and see how these pretax accounts outlined in the Health Care Stack play an important consideration in ones future retirement planning.
Taking the time now to fully understand tax-favored benefit accounts will provide him or her with the appropriate coverage to enjoy life well into their golden years. Retirement is just around the corner, are you ready?
See the original article Here.
Feuerman (2017 March 02). How are your retirement health care savings stacking up?[Web blog post]. Retrieved from address http://www.benefitspro.com/2017/03/02/how-are-your-retirement-health-care-savings-stacki?ref=hp-in-depth
Take a peek at this interesting article from Benefits Pro, about the man tools and services employers are starting to offer to pre-retirees by Marlene Y. Satter,
As their employee base ages closer to retirement, employers are adding tools to help those older employees better prepare for the big day.
That’s according to Aon Hewitt’s “2017 Hot Topics in Retirement and Financial Wellbeing” survey, which found that employers are taking action to improve employee benefits and help workers plan for a secure financial footing, not just now but when they retire.
Not only are employers focusing on enhancing both accumulation and decumulation phases for defined contribution plan participants, they’re taking a range of steps to do so—from improved education to encouraging higher savings rates.
Just 15 percent of respondents are comfortable with the average savings rate in their plan; among the rest, 62 percent are very likely to act on increasing that savings level during 2017, whether by increasing defaults, changing contribution escalation provisions, or sending targeted communications to participants.
And only 10 percent of employers are satisfied with employees’ knowledge about how much constitutes an adequate amount of retirement savings, and nearly all dissatisfied employers (87 percent) are likely to take some action this year to help workers plan to reach retirement goals.
In addition, more employers are providing options for participants to convert their balances into retirement income. Currently just over half of employers (51 percent) allow individuals to receive automatic payments from the plan over an extended period of time.
They’re also derisking through various means, whether by adopting asset portfolios that match the characteristics of the plan’s liabilities (currently 40 percent of employers use this strategy, but the prevalence is expected to grow to more than 50 percent by year end), considering the purchase of annuities for at least some participants (28 percent are considering this action) or planning to offer a lump-sum window to terminated vested participants (32 percent are in this camp).
Why are employers suddenly so interested in how well employees are financially prepared for retirement?
According to Rob Austin, director of retirement research at Aon Hewitt, not only do employees not really understand how to convert a lump sum retirement plan balance into retirement income that they can live on, and employers are also worried that employees will mishandle that lump sum when the time comes and end up broke.
So some employers are tackling the issue by folding in more information about 401(k) plans with the annual enrollment process, in an effort to get employees to think more holistically about their benefits packages.
They’re also encouraging them to consider increasing contributions to their retirement plan while they’re already enmeshed in other enrollments.
Satter M. (2017 February 13). Employers adding financial well-being tools for preretirees [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/02/13/employers-adding-financial-well-being-tools-for-pr?ref=hp-top-stories
Are you worried that your company’s retirement plan is not up to government standards? If so take a look at this article from HR Morning about what the DOL and IRS are looking for in retirement plans by Jared Bilski
Two of the most-feared government agencies for employers — the DOL and IRS — have decided there’s a real problem with the way retirement plans are being run, and they’re ramping up their audits to find out why that is.
In response to the many mistakes the agencies are seeing from retirement plan sponsors, the IRS and DOL will be increasing the frequency of their audits.
What does that mean for you? According to experts, plan sponsors can expect the feds to dig deep into the minute operations of plans. That means the unfortunate employers who find themselves in the midst of an audit can expect to be asked for heaps of plan info.
Linda Canafax, a senior retirement consultant with Willis Towers Watson, put it like this:
“The DOL and IRS are truly diving deep into the operations of the plans. We have seen a deeper dive into the operations of plans, particularly with data. Plans may be asked for a full census file on the transactions for each participant. Expect the DOL and IRS to do a lot of data mining.”
Ultimately, it’s impossible to completely prevent an audit. But employers can — and should — do certain things to safeguard themselves in the event the feds come knocking.
First, a self-audit is always a good idea. It’s always better for you to discover any problems before the feds do. Next, you’ll want to be on the lookout for the types of errors that can lead the feds to your workplace in the first place.
The most common errors the IRS and the DOL are looking for:
Bilski J. (2017 January 6). DOL and IRS want a closer look at your retirement plan[Web blog post]. Retrieved from address http://www.hrmorning.com/dol-and-irs-want-to-take-a-closer-look-at-your-retirement-plan/
Is financial wellness an important part of your company culture? By promoting financial wellness among your employees’, employers can reap the benefits as well. Check out this great article from Employee Benefits Advisor about the some of the effects that promoting financial wellness can have. By Cort Olsen
Financial wellness has come to the forefront of employers’ wellbeing priorities. Looking back on previous years of participation in retirement savings programs such as 401(k)s, employers are not satisfied with participation, an Aon study shows.
As few as 15% of employers say they are satisfied with their workers’ current savings rate, according to a new report from Aon Hewitt. In response, employers are focused on increasing savings rates and will look to their advisers to help expand financial wellbeing programs.
Aon surveyed more than 250 U.S. employers representing nearly 9 million workers to determine their priorities and likely changes when it comes to retirement benefits. According to the report, employers plan to emphasize retirement readiness, focusing on financial wellbeing and refining automation as they aim to raise 401(k) savings rates for 2017.
Emphasizing retirement readiness
Nearly all employers, 90%, are concerned with their employees’ level of understanding about how much they need to save to achieve an adequate retirement savings. Those employers who said they were not satisfied with investment levels in past years, 87%, say they plan to take action this year to help workers reach their retirement goals.
“Employers are making retirement readiness one of the important parts of their financial wellbeing strategy by offering tools and modelers to help workers understand, realistically, how much they’re likely to need in order to retire,” says Rob Austin, director of retirement research at Aon Hewitt. “Some of these tools take it a step further and provide education on what specific actions workers can take to help close the savings gap and can help workers understand that even small changes, such as increasing 401(k) contributions by just two percentage points, can impact their long-term savings outlook.”
Focusing on financial wellbeing
While financial wellness has been a growing trend among employers recently, 60% of employers say its importance has increased over the past two years. This year, 92% of employers are likely to focus on the financial wellbeing of workers in a way that extends beyond retirement such as help with managing student loan debt, day-to-day budgeting and even physical and emotional wellbeing.
Currently, 58% of employers have a tool available that covers at least one aspect of financial wellness, but by the end of 2017, that percentage is expected to reach 84%, according to the Aon Hewitt report.
“Financial wellbeing programs have moved from being something that few leading-edge companies were offering to a more mainstream strategy,” Austin says. “Employers realize that offering programs that address the overall wellbeing of their workers can solve for myriad challenges that impact people’s work lives and productivity, including their physical and emotional health, financial stressors and long-term retirement savings.”
The lessons learned from automatic enrollment are being utilized to increase savings rates. In a separate Aon Hewitt report, more than half of all employees under plans with automatic enrollment default had at or above the company match threshold. Employers are also adding contribution escalation features and enrolling workers who may not have been previously enrolled in the 401(k) plan.
“Employers realize that automatic 401(k) features can be very effective when it comes to increasing participation in the plan,” Austin says. “Now they are taking an automation 2.0 approach to make it easier for workers to save more and invest better.”
Olsen C. (2017 January 16). How to encourage increased investment in financial wellbeing [Web blog post]. Retrieved from address http://www.employeebenefitadviser.com/news/how-to-encourage-increased-investment-in-financial-wellbeing?feed=00000152-1377-d1cc-a5fa-7fff0c920000
Did you know that ACA repeal could have and effect on health savings plans (HRA)? Read this interesting article from Benefits Pro about how the repeal of the ACA might affect your HRAs by Marlene Y. Satter
With the repeal of the Affordable Care Act looming, one surprising factor in paying for health care could see its star rise higher on the horizon—the retirement planning horizon, that is. That’s the Health Savings Account—and it’s likely to become more prominent depending on what replaces the ACA.
HSAs occupy a larger role in some of the proposed replacements to the ACA put forth by Republican legislators, and with that greater exposure comes a greater likelihood that more people will rely on them more heavily to get them through other changes.
For one thing, they’ll need to boost their savings in HSAs just to pay the higher deductibles and uncovered expenses that are likely to accompany the ACA repeal.
But for another—and here’s where it gets interesting—they’ll probably become a larger part of retirement planning, since they provide a number of benefits already that could help boost retirement savings.
Contributions are already deductible from gross income, but under at least one of the proposals to replace the ACA, contributions could come with refundable tax credits—a nice perk.
Another proposal would allow HSA funds to pay for premiums on proposed new state health exchanges without a tax penalty for doing so—also beneficial. And a third would expand eligibility to have HSAs, which would be helpful.
But whether these and other possible enhancements to HSAs come to pass, there are already plenty of reasons to consider bolstering HSA savings for retirement. As workers try to navigate their way through the uncertainty that lies ahead, they’ll probably rely even more on the features these plans already offer—such as the ability to leave funds in the account (if not needed for higher medical expenses) to roll over from year to year and to grow for the future, and the fact that interest on HSA money is tax free.
But possibly the biggest benefit to an HSA for retirement is the fact that funds invested in one grow tax free as well. If you can leave the money there long enough, you can grow a sizeable nest egg against potential future health expenses or even the purchase of a long-term care policy. And, at age 65, you’re no longer penalized if you withdraw funds for nonapproved medical expenses.
And if you don’t use the money for medical expenses in retirement, but are past 65, you can use it for living expenses to supplement your 401(k). In that case, you’ll have to pay taxes on it, but there’s no penalty—it just works much like a tax-deferred situation from a regular retirement account.
Satter M. (2017 January 16). HSAs could play bigger role in retirement planning [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/01/16/hsas-could-play-bigger-role-in-retirement-planning?ref=hp-news
Interesting article from BenefitsPro about employee’s increased input into their 401(k)s by Ben Steverman
(Bloomberg) — Saving for retirement requires making sacrifices now so your future self can afford to stop working later. Someday. Maybe.
It’s not news that Americans aren’t saving enough. The typical baby boomer, whose generation is just starting to retire, has a median of $147,000 in all of his retirement accounts, according to the Transamerica Center for Retirement Studies.
And if you think that’s depressing, try this on: 1 in 3 private sector workers don’t even have a retirement plan through their job.
But the new year brings with it some good news: If people do have a 401(k) plan through their employer, there’s data showing them choosing to set aside more for their later years.
On average, workers in 2015 put 6.8 percent of their salaries into 401(k) and profit-sharing plans, according to a recent survey of more than 600 plans. That’s up from 6.2 percent in 2010, the Plan Sponsor Council of America found.
An increase in retirement savings of 0.6 percentage points might not sound like much, but it represents a 10 percent rise in the amount flowing into those plans over just five years, or billions of dollars. About $7 trillion is already invested in 401(k) and other defined contribution plans, according to the Investment Company Institute.
If Americans keep inching up their contribution rate, they could end up saving trillions of dollars more. Workers in these plans are even starting to meet the savings recommendations of retirement experts, who suggest setting aside 10 percent to 15 percent of your salary, including any employer contribution, over a career.
While workers are saving more, companies have held their financial contributions steady—at least over the past few years. Employers pitched in 4.7 percent of payroll in 2015, the same as in 2013 and 2014. Even so, it’s still more than a point above their contribution rates in the aftermath of the Great Recession.
One reason workers participating in these plans are probably saving more: They’re being signed up automatically—no extra paperwork required. Almost 58 percent of plans surveyed make their sign-up process automatic, requiring employees to take action only if they don’t want to save.
Automatic enrollment can make a big difference. In such plans, 89 percent of workers are making contributions, the survey finds, while 75 percent make 401(k) contributions under plans without auto-enrollment. Auto-enrolled employees save more, 7.2 percent of their salaries vs. 6.3 percent for those who weren’t auto-enrolled.
Companies are also automatically hiking worker contribution rates over time, a feature called “auto-escalation” that’s still far less common than auto-enrollment. Less than a quarter of plans auto-escalate all participants, while 16 percent boost contributions only for workers who are deemed to be not saving enough.
A key appeal of automatic 401(k) plans is that they don’t require participating workers to be investing experts. Unless employees choose otherwise, their money is automatically put in a recommended investment.
And, at more and more 401(k) and profit-sharing plans, this takes the form of a target-date fund, a diversified mix of investments chosen based on a participant’s age or years until retirement. Two-thirds of plans offer target-date funds, the survey found, double the number in 2006.
The share of workers’ assets in target-date funds is up fivefold as a result.
A final piece of good news for workers is that they’re keeping more of every dollar they earn in a 401(k) account. Fees on 401(k) plans are falling, according to a recent analysis released by BrightScope and the Investment Company Institute.
The total cost of running a 401(k) plan is down 17 percent since 2009, to 0.39 percent of plan assets in 2014. The cost of the mutual funds inside 401(k)s has dropped even faster, by 28 percent to an annual expense ratio of 0.53 percent in 2015.
Steverman B. (2017 January 5). Employees putting billions more than usual in their 401(k)s [Web blog post]. Retrieved from address http://www.benefitspro.com/2017/01/05/employees-putting-billions-more-than-usual-in-thei?ref=hp-news&page_all=1
Great article from our partner, United Benefit Advisors (UBA) by
Recent research into individuals’ financial resolutions for 2017 can tell you whether your financial wellness initiatives are giving employees what they want. It can also tell you whether to expect employees to increase their retirement contributions next year.
Personal finance company LendEDU recently asked 1,001 Americans about their financial goals for 2017, as well as what their biggest concerns are. The results were published in LendEDU’s “Financial Resolution Survey & Report 2017,” which can help employers determine if their financial programs are on point.
Here are some of the more interesting Q&A’s from the research:
What’s your most important financial resolution in 2017?
Takeaway for employers: Improving savings should be front and center in any financial wellness strategy.
What’s your top financial resolution?
Takeaway for employers: Employees need the most help creating a budget they can stick to.
What’s your top financial concern?
Takeaway for employers: Helping employees manage healthcare costs can be a key add-on to any financial education program.
Do you think you’re better off financially in 2017 than in 2016?
Takeaway for employers: Employees’ financial state of mind is on the upswing, which is good. But it could make increasing participation in wellness initiatives more challenging.
Do you make financial resolutions with your spouse or significant other?
Takeaway for employers: When it comes to finances, very few people go it alone, so invite spouses to be a part of your wellness offerings.
What would make you stick to a financial resolution?
Takeaway for employers: Incremental rewards and incentives, can help drive participation and success in 2017 financial wellness initiatives.
Do you think you’ll increase your retirement savings contributions this year?
Takeaway for employers: This could be a good year to really push employees to bump up retirement plan contributions.
Author (Date). Title [Web blog post]. Retrieved from address http://www.hrmorning.com/financial-wellness-heres-what-employees-want-need-in-2017/
Worried about your future retirement? Check out this great read by Marlene Satter
Retirement as we know it may be set to disappear, as younger people look for ways to finance surviving into old age.
But extinction? Surely not.
However, according to the Merrill Edge Report 2016, that might just be in the offing, as workers change how they plan and save for retirement and how they intend to pay for it.
Millennials in particular represent a shift in attitude that includes very unretirement-like plans, although GenXers too are struggling with ways to pay their way through their golden years.
That’s tough, considering that most Americans neither know nor correctly estimate how much money they might need to keep the wolf from the door during retirement—or even to retire at all.
Here’s a look at 9 reasons why retirement as we know it today might be a terminal case—unless things change drastically, and soon.
Most Americans have no idea how much they might need to retire, which leaves them behind the eight ball when trying to figure out when or whether they can afford to do so.
Of course, it’s hardly surprising, considering how many are members of the “sandwich generation,” who find themselves caring for elderly parents while at the same time raising kids, or even trying to put those kids through college.
With soaring medical costs on one end and soaring student debt on the other, not to mention parents supporting adult children who have come home to roost, it’s hard to figure out how much they’ll need to meet all their obligations, much less try to save some of an already-stretched income to cover retirement savings as well.
We already know most workers don’t know how much they’ll need in retirement—but it’s not just a matter of ignorance. They don’t know how to figure it out, either.
More than half—56 percent—figure they’ll be able to get by during retirement on a million dollars or less, while 9 percent overall think up to $100,000 will see them through.
And 19 percent just flat-out say they don’t know how much they’ll need.
Considering that health care costs alone can cost them a quarter of a mil during retirement, the optimists who think they can get by on $100,000 or less and even those who figure $100,000–$500,000 will do the job are way too optimistic—particularly since saving for medical costs isn’t one of their top priorities.
It’s pretty hard to get motivated about something if you think it’s not achievable—and that discourages a lot of people from saving for retirement.
Those who have a “magic number” that they think will see them through retirement aren’t all that optimistic about being able to achieve that level of savings, with 40 percent of nonretired workers saying that reaching their magic number by retirement will either be “difficult” or “virtually unattainable.”
When you don’t believe you can do it on your own, what else is left? Sheer dumb luck, to quote Professor Minerva McGonagall at Hogwarts after Harry and Ron defeated the troll.
Only instead of magic wands, 17 percent of would-be retirees are sadly (and amazingly) counting on winning the lottery to get them to their goal.
Retirement? What retirement? Millennials in particular think they’ll need side jobs in the gig economy to keep them from the cat food brigade.
In addition, exactly half of younger millennials aged 18–24 believe they need to take on a side job to reach their retirement goals, compared with only 25 percent of all respondents. They don’t believe that just one job will cut it any more.
While 83 percent of current retirees are not currently working or never have during their golden years, the majority (83 percent) of millennials plan to work in retirement—whether for income, to keep busy or to pursue a passion.
The rise of the “gig economy” has created an environment where temporary positions and short-term projects are more prevalent and employee benefits such as retirement plans are less certain. This may be why more millennials (15 percent) are likely to rank an employer’s retirement plan as the most important factor when taking a new job compared with GenXers (5 percent) and baby boomers (5 percent).
Older generations had unions to negotiate benefits for them. Millennials might realize they have to do it all themselves, but they aren’t negotiating for salaries high enough to allow them to save.
And union benefits or not, 64 percent of boomers, 79 percent of Gen Xers and even 17 percent of currently retired workers plan to work in retirement.
Lack of communications is probably not surprising, since most people won’t talk about savings anyway.
Fifty-four percent of respondents say that the only person they feel comfortable discussing their current retirement savings with is their spouse or partner. Only 36 percent would discuss the subject with family, and only 22 percent would talk with friends about it.
And as for coworkers? Just 6 percent would talk about retirement savings with colleagues—although more communication on the topic no doubt could provide quite an education on both sides of the discussion.
They won’t talk about it, but they think they do better than others at saving for retirement. How might that be, when they don’t know what others are doing about retirement?
Forty-three percent of workers say they are better at saving than their friends, while 28 percent believe they’re doing better at it than coworkers; 27 percent think they’re doing better than their spouse or partner, 27 percent say they’re doing better than their parents and 24 percent say they’re beating out their siblings.
All without talking about it.
They’re struggling to figure out how much they need, many won’t talk about retirement savings even with those closest to them and they’re anticipating working into retirement—but millennials in particular are taking a more hands-on approach to their investments.
Doing it oneself could actually be a good thing, since it could mean the 70 percent of millennials, 72 percent of GenXers and 57 percent of boomers who are taking the reins into their own hands better understand what they’re investing in and how they need to structure their portfolios.
However, doing it oneself without sufficient understanding—and millennials in particular are also most likely to describe their investment personality as “DIY,” with 32 percent making their own rules when it comes to investments, compared to 19 percent of all respondents—can be a problem.
After all, as the saying goes, “A little knowledge is a dangerous thing.”
Satter M. (2016 December 7). 9 reasons why retirement may go extinct[Web blog post]. Retrieved from address http://www.benefitspro.com/2016/12/07/9-reasons-why-retirement-may-go-extinct?ref=mostpopular&page_all=1
by Marlene Satter
Lack of confidence, lack of knowledge and lack of money all plague workers trying to save for retirement, leaving them working longer than they planned and saving considerably less than they need.
But a series of surveys from TIAA has identified three ways that plan sponsors can help to improve retirement outcomes for their employees.
Employees want income for life, for instance, with 49 percent saying that their retirement plan’s top goal should be providing guaranteed monthly income in retirement.
And although it’s something they badly want, 41 percent are unsure if their current plan has that as an option.
1. Employees need help figuring how much retirement income they’ll need and how to translate savings into income – Plan sponsors can help with this, said the data, by helping employees be realistic about how much income they’ll need in retirement—something few have figured out.
While 63 percent of Americans who are not retired estimate that they’ll need less than 75 percent of their current income to live comfortably, most experts recommend replacing 70–100 percent of current income in retirement.
Compounding the situation is the fact that 53 percent of employees haven’t even figured out how to translate their savings into income—while 41 percent of people who haven’t yet retired are saving less (many considerably less) than the 10–15 percent of income experts recommend.
Lifetime income options such as annuities are one way to guarantee income replacement during retirement, but most people are unaware of them or of how they work. Just 10 percent of Americans have annuities, so for the other 90 percent, they’re not an option.
2. Employees are interested in receiving financial advice – Sponsors can also offer financial advice as part of a benefits package.
While 61 percent of those who have received advice feel confident about their financial situation, just 37 percent of people who haven’t feel that way.
But the cost—or perceived cost—of seeking advice is putting them off, as is distrust of advisors in general.
Although 71 percent of Americans say they’re interested in receiving advice, more than half haven’t.
For instance, 35 percent of Americans who have not worked with a professional financial advisor say they don’t think they have enough money to justify a meeting; 51 percent say they don’t have enough money to invest (49 percent believe they need more than $50,000 in savings to get an advisor to talk with them), while 45 percent have concerns about cost and affordability.
And 34 percent don’t know whom they can trust.
3. Employees can use tools and resources early and in all stages of retirement planning – Last but not least, the study found that getting involved early in the planning process can make a difference.
Sponsors who introduce resources for all stages of the financial planning process, with customizable planning tools and tailored support based on employees’ life stages, can help employees consider what they need to do to prepare for retirement, even if that day is years away.
Such tools can make it easier for employees to evaluate their personal risk tolerance, asset allocation and the current status of Social Security and Medicare to help them better envision their future retirement and the steps they can take to make sure that their retirement is successful
Satter M.(2016 December 8). 3 ways to help employees with retirement planning[Web blog post]. Retrieved from address http://www.benefitspro.com/2016/12/08/3-ways-to-help-employees-with-retirement-planning?ref=hp-news
Are your employees prepared for retirement? See how Cath McCabe gives tips and tricks on coaching your employee for retirement.
America may be becoming the land of the free and the home of the grey as more adults are living longer lives.
According to the Administration on Aging, the number of centenarians more than doubled between 1980 and 2013. But lifespans aren’t the only thing increasing – so are the expenses that many older Americans face.
Retiree health care costs have surged exponentially – the Employee Benefits Research Institute (EBRI) estimates that the average healthy 65-year-old man will need $124,000 to handle future medical expenses. For a healthy woman of the same age, the expected amount is $140,000.
Many of these extra years – or decades – will be spent in retirement, so it’s crucial that Americans plan to have the income they need not only to retire, but to last throughout a potentially long retirement.
Since many adults use employer-sponsored retirement plans as a source of retirement funding, plan sponsors are in a key position to act as retirement “coaches” by encouraging employees to plan ahead and help them plan for their financial security in retirement.
We have found that employers are a trusted source of financial information for employees. Plan sponsors can leverage this trust to engage employees with a variety of programs and tools that help them understand their future retirement income needs.
A plan sponsor’s role as coach begins when employees begin their careers by providing financial education. Education can help new employees recognize the importance of contributing to a retirement plan and the benefits of saving early, as well as help to optimize employee participation in retirement programs. Education designed for mid-career employees, and those nearing retirement, can cover more complex topics as they encounter life events that require a change to their road map for retirement.
And if employees can get started earlier in their careers, there is an increased likelihood that employees will have a positive retirement experience. A recent survey among current TIAA retirees found that those who began retirement planning before age 30 are more likely to retire before the age of 60, and 75 percent say they are very satisfied with their retirement.
Many Americans need help in setting and achieving their retirement goals – a recent survey found that 29 percent of Americans are saving nothing at all for retirement. It’s important to develop a retirement coaching strategy that can help put participants in the right frame of mind and offers the resources they need to establish clear retirement goals and a road map for achieving those goals.
Many people think about their retirement savings in terms of accumulation – how much of a “nest egg” they’re able to build to fund their retirement. But employers should help their employees think about their retirement savings in terms of the amount of income they will have each month to cover their living expenses. Having a source of guaranteed lifetime income can help employees mitigate the risk of outliving their retirement savings.
As a rule of thumb, most employees will need between 70 percent and 100 percent of their pre-retirement income. If employees find they are not on track to meet this ratio, plan sponsors can help identify the necessary actions to increase the chance of success. For example, employees may need to increase their savings rate. Plan sponsors can help by encouraging employees to save enough of their own dollars to get the full employer match. If employees already are saving enough to get the full match, they then should aim to increase their contributions each year until they are saving the maximum amount allowed. Many employees older than 50 also can take advantage of catch-up provisions to save additional funds.
Perhaps the most important function of education is to drive employees to receive personalized advice from a licensed financial consultant supporting the employer’s retirement plan. This is where the road map is created, with the advisor providing turn-by-turn guidance. For most employees, an annual meeting can help keep them on track.
Why is it important to “coach” employees to create the road map? Simply put, it can improve both plan outcomes and the employees’ retirement outcomes. Advice is proven to positively correlate with positive action – enrolling, saving or increasing saving or optimizing allocations. (See this Retirement Readiness research for more information). Individuals who have discussed retirement with an advisor are much more likely to “run the numbers” and calculate how much income they’ll need in retirement – 79 percent versus only 32 percent who have not met with an advisor.
Helping employees along the road to retirement is a win-win for employees and plan sponsors, even beyond the fiduciary requirements. A 2015 EBRI report found that 54 percent of employees who are extremely satisfied with their benefits, such as their retirement plan and health insurance, also are extremely satisfied with their current job. Similarly, a 2013-2014 Towers Watson study revealed that nearly half (45 percent) of American workers agree that their retirement plan is an important reason why they choose to stay with their current employer. Establishing strong connections between employees and their retirement plans may aid employers’ retention efforts.
Once employees have a better sense of the actions they need to take, plan sponsors can provide additional support by highlighting the investment choices that may help employees achieve their desired level of income. Many employees may understand how to save, but they are far less familiar with how and when to withdraw and use their savings after they have stopped working. Offering access to lifetime income options, such as low-cost annuities, through the plan’s investment menu can help employees create a monthly retirement “paycheck” that they can’t outlive.
The peace of mind that these solutions offer can last a lifetime, too. A survey among TIAA retirees found that those who have incorporated lifetime income solutions into their retirement have been satisfied with that decision. Among the retirees with a fixed or variable annuity, 92 percent are satisfied with their decision to annuitize.
Employers also should set a benchmark for regularly evaluating employees’ progress toward their retirement goals. This will allow employees to monitor their retirement outlook and identify opportunities to adjust their savings strategy so they don’t veer off their retirement road map.
In addition to the financial aspects of retirement planning, it’s important to factor in emotional considerations. Offering a mentoring program, one-on-one advice and guidance sessions, or workshops and seminars to guide people on how to navigate this major milestone could be helpful for new retirees.
For some employees, going from working full time to not working at all may be a too abrupt change. Employers may want to consider offering a phased approach to retirement that gives employees the opportunity to work part time or consult to help ease the transition. An alumni program that offers occasional reunions or other programming can help retirees still feel connected to their organization for many years after they stop working.
Employers are uniquely positioned to guide employees through the retirement planning process, from early in their careers to their last day in the office – and beyond. It’s not enough to simply get employees to retirement: Plan sponsors need to help them get through retirement as well. Establishing a coaching mindset can be an effective way to actively engage employees in retirement planning and help them see that the end of their working careers can be the beginning of a wonderful new stage of life.
See the Original Post from BenefitsPro.com Here.
McCabe, C. (2016, August 04). Adopting a coaching mindset to help employees plan for retirement [Web log post]. Retrieved from http://www.benefitspro.com/2016/08/04/adopting-a-coaching-mindset-to-help-employees-plan?slreturn=1472491323&page_all=1