The new year always brings out a sense of urgency in people. It seems absurd that with the dropping of a ball, we suddenly feel the need to change something, and moreover, do it to the extreme–whether it's beginning a new exercise regimen, completely changing our look, taking on a massive remodeling project, or something else that requires a lot of effort.
We all know how these "resolutions" often turn out. But in 2011, Americans face some changes to their income and benefits where a sense of urgency can be a good opportunity to better their finances. 
Plan providers can increase plan participation by communicating to clients and their employees about how to use these changes to better manage their benefits plans. Consider a big change in 2011: the payroll tax cut from Social Security.
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After long debates, politicians have decided to cut Social Security taxes–taking them from 6.2 percent to 4.2 percent in 2011. For your clients, this one-year payroll cut is an opportunity to express to employees how saving this extra 2 percent is a painless way to save for their retirement.
This sounds like a simple philosophy, but many employers miss opportunities to catch employees before they get used to the extra cash in their paychecks, and struggle to get their increased participation. Most will see the tax cut take effect within their first couple of paychecks in January, so the message is an urgent one; Take the 2 percent you didn't expect and put it away before you notice it was ever there.
| >A couple turning 65 in 2010 (both earning an average $43,100 each) will pay $581,000 in Social Security taxes over their lifetime. (Source: Urban Institute) |
Here's an example to share with clients and their employees:
An employee who is 35 years old, making $50,000 a year saves that extra 2 percent from the tax cut, putting away $1,000 for just one year in 2011. By the time the employee is 65, assuming a 6 percent rate of return on investment, they'd have added an additional $5,740 to their retirement savings.
If this employee decided to keep that 2 percent for the rest of their working years, they'd have an additional $83,800 by the time they reached age 65.
Though most of us realize this, employees often don't. In our last research report on employee financial issues, we weren't surprised when we found that only 17 percent of employees said they were confident they were on track to retire comfortably.
This year, help your clients and participants make a change that will be a lasting one–one that doesn't require extreme effort, but will better their overall finances and their futures.
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