We explore the importance of understanding four fundamental concepts related to saving for retirement.
Studies show that employees who understand the need to save for retirement and the fundamentals of their employer’s plan are more likely to participate in and contribute to the plan. Receiving information on the following four topics can help participants successfully save for retirement. How many of them are covered in your employee education materials?
When To Start Saving
Ideally, employees should start contributing to their retirement plan accounts as soon as they’re eligible. The earlier an employee begins to set aside money for the future, the longer that money can benefit from potential long-term compounding. Your materials should clearly explain all of the advantages of starting early.
How Much To Save
While saving any amount is good, many employees aren’t saving enough to provide the retirement income they’ll need. One way to encourage employees to increase their contributions is to offer an employer match of up to a certain percentage of pay. If you already offer a match, you may want to review it.
Employees need to choose investments with the potential to earn returns that will help them reach their long-term goals. It’s essential to educate and inform plan participants about their investment options, diversification, risk, and the potential impact of inflation. Increasing participant knowledge of these investment concepts can help them make better retirement planning decisions.
When To Retire
Help preretirees transition from working full-time and accumulating savings to being retired and spending their retirement savings. To help employees determine when to retire, provide information about assessing retirement income needs, retirement readiness, plan distribution options and their potential tax consequences, and when to start receiving Social Security benefits.