Why employers should worry that employees aren’t ready for retirement

Discussions with retirement plan sponsors and participants have revealed that employee savings behavior is a concern. Some of that can be attributed to ineffective retirement programs, but that ineffectiveness has a lot to do with participants having limited time, knowledge, interest, and in many cases the ability, to plan and save for retirement.
“When it comes to retirement confidence, debt management challenges continue to dilute employee confidence and overall financial wellness,” says Sheri Kehren, vice president, program manager of financial workplace wellness at Fifth Third Bank. “In 2010, when Fifth Third began focusing on financial workplace wellness solutions, the Federal Reserve calculated American consumer debt at $2.4 trillion, and The Wall Street Journal reported that 70 percent of Americans were living paycheck to paycheck.”
While employees acknowledge they need to save for retirement, their behavior toward reaching that goal hasn’t changed.
“The economic downturn pushed some employees to stop saving because they were dealing with more immediate financial needs,” says Tony Hunter, vice president, institutional services at Fifth Third Bank.
He says, according to Fidelity Investments, during the recession, 47 percent of employees reported managing everyday finances like mortgage payments and credit card debt rather than saving for retirement.
“Fundamentally, many employers’ retirement systems aren’t working because employees don’t have money to save,” Kehren says.
Smart Business spoke with Kehren and Hunter about the growing concern over employee retirement, how that’s affecting employers and what can be done about it.
Why should employers be concerned about employee retirement planning?
Employee financial problems are employer problems since employees don’t leave their concerns at home — they bring them to work as stress and in some cases, like when creditors call them at work, their problems follow them around. That stress plays out as decreased job performance and satisfaction, increased absenteeism, reduced engagement and high turnover.
It also influences their ability to take advantage of a company retirement plan. Some 30 percent of employees are set up for inadequate retirement. And while each year employers are contributing $118 billion to retirement plans and employees are putting some $175 billion toward their retirement savings, employees are withdrawing some $70 billion of that savings for nonretirement purposes.
How can people stay on track for retirement?
To be effective, retirement programs must educate, inspire and empower employees to take control of their money and get on track. Employees need to learn how to actively manage their income instead of letting their income manage them. There’s an imperative to eliminate debt rapidly and learn how to invest successfully for the long term.
There are milestones that line the retirement path for employees. The first is to save $1,000 for an emergency fund. Second is to focus on paying off all debt. The third is to accumulate in savings the equivalent of six month’s worth of expenses. The fourth milestone is investing 15 percent of household income in a retirement plan.
How can employers help their employees get financially prepared for retirement?
Employees are looking to their employers to provide access to programs, tools and services, investment guidance, and advice to help them be better prepared to retire. Consider augmenting your current corporate wellness program or your employer-sponsored retirement plan with financial education. The programs should be easy to access while driving behavior and incorporating accountability for employees.

You can’t help employees get on track with retirement unless they’re financially fit first. Focus on behavior change and really look for programs that can demonstrate results in moving the needle.

Fifth Third Bancorp provides access to investments and investment services through various subsidiaries. Investments and Investment Services: Are Not FDIC Insured, Offer No Bank Guarantee, May Lose Value, Are Not Insured By Any Federal Government Agency, Are Not A Deposit. © 2015 Fifth Third Bank.
 
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