I recently had a conversation with a young professional woman around thirty years old. She bought a house in the past year and has found it difficult to save beyond her 401(k) plan at work while making her mortgage payment and furnishing the house.
But she hasn’t stopped her 401(k) contributions of ten percent of her income. I told her she was on the right track.
She explained how she planned to resume her deposits to her savings account, and I told her she was on an even better track.
I wish I saw more young employees with this mentality about the importance of savings.
That’s why I was interested to read “401(k)s With ‘Automatic’ Steering Drive Savings Success,” by Patty Kujawa, July 2, 2014, in Workforce Magazine online. Employers can do a lot for their employees’ future financial health by automatically deducting a portion of their wages and depositing it into a 401(k) account.
Most young workers don’t think about retirement. It’s not that they don’t want to save, it’s that they don’t spend any time worrying about what financial resources they will need thirty or more years out.
Employers can help by setting up automatic deductions. Inertia will keep most young workers in their 401(k) accounts, which means most employees will save without any effort on their parts, and will be better off in the future for doing so.
New York Life published an infographic showing how 401(k) plans can grow, based on a variety of assumptions about employee contributions and how automatic enrollment features can encourage employees to save.
Accounting Degree Review has another good infographic showing the power of compounding interest. (And, no, you don’t need an accounting degree to understand it.)
Employers committed to best practices will also educate their workers about the importance of savings and match a portion of their employees’ contributions.
The best thing that employers can do is provide a company match in 401(k) plans. But even those that cannot afford a match can talk to their employees about how participating in the 401(k) plan can jumpstart their retirement income.
One of my previous employers stressed during frequent employee discussions about retirement planning how (1) Social Security, (2) employee and employer contributions to 401(k) plans, and (3) outside savings provided three sources of income in retirement—and together these three sources could provide financial security.
Now that I’m almost ready to tap these retirement income sources, I appreciate the lessons I learned, and that is what I hope my young friend learns also.
How do you educate employees about retirement planning?