6 ways HR can persuade millennials to get real about retirement planning
It's an obligation but also an opportunity -- here's how to make the case for your younger employees about why they should save for retirement.
Millennial employees can be the toughest audience for retirement benefit communications. They may also be the most important audience to reach.
Naturally, retirement seems a long way off to employees in their 20s. On top of that, people early in their careers generally have less extra room in their paychecks to direct toward retirement savings.
It’s equally natural for HR professionals to view older employees as the key audience for retirement benefit discussions. After all, they are closest to retirement age, and most likely to be asking questions and expressing concerns about retirement benefits.
While that older segment is very important, HR teams should also make a strong effort at appealing to younger employees. The mission: Encourage millennials to get real about retirement planning now.
Doing this can be viewed as part obligation, and part opportunity. The obligation is to help employees make informed decisions about their retirement benefits. The opportunity is to enhance employee retention and morale.
Below are six reasons why HR should encourage millennials to get real about retirement planning:
1. Spreading the load makes the savings burden easier.
Perhaps the simplest way to make the case for millennials to start saving for retirement now is that the sooner you start, the easier the job is. Everyone likes easy!
Most people can expect to work for about forty years. Somewhere during that career you have to save for retirement.
If you spread that saving out over the full forty years, the burden is a little lighter each year. If you wait and have to cram all your retirement saving into fewer years, the burden gets much heavier.
2. Getting people to think long-term makes them better employees.
HR professionals generally choose their line of work because they are genuinely concerned about the welfare of their co-workers.
In addition, there is a benefit to the organization from helping young people begin to think of long-term goals like retirement saving.
Working toward long-term goals rather than just living paycheck to paycheck encourages employees to be more career-minded. Improving skills and finding new ways to add value is a win-win for employees and the organization.
Also, working toward retirement goals makes employees more aware of the value of sticking to a career rather than drifting in and out of jobs every time they have a few dollars saved up.
What all this amounts to is a more engaged workforce with less turnover.
3. Missed matching contributions can never be reclaimed.
If your company’s 401(k) or other defined contribution plan has an employer match, you have an especially powerful case to make for why employees should start saving for retirement as soon as possible.
According to Vanguard, 86% of defined contribution plans make employer matching contributions. These matching contributions are a powerful incentive for employee participation. Just over two-thirds of participants in plans with matches contribute at least enough to maximize the matching dollars available to them.
However, it takes a while for younger employees to get the message. Vanguard data show that both participation rates and average deferral rates are lowest for employees in their 20s and then ramp up steadily from there.
The thing is though, there is no going back and reclaiming matching contributions you failed to get in your early years. So, HR teams can appeal to their younger employees’ fear of missing out (FOMO): if you don’t participate and contribute enough to qualify for the full employer match, you are leaving free money on the table.
4. Early saving yields the greatest rewards.
Here’s another great reason you can give younger employees for getting real about retirement saving: a dollar you contribute now can be worth more than five times a dollar contributed later in your career.
This is the result of allowing investment returns on contributions to compound over a longer time. Inexperienced investors often don’t appreciate the power of compounding, but you can demonstrate it with a simple picture.
The chart below shows the value that $50,000 contributed to a retirement plan can grow to by the time an employee reaches age 65. The difference in values at age 65 depends on when the money is contributed.
If an employee contributes $5,000 a year from ages 25 to 34, at a 6% average annual return that money would grow to $389,874 by age 65. Each subsequent decade of the same contributions at the same rate of return will have progressively less value at age 65. The difference is fewer years of compounded growth.
The takeaway for a young employee is this: the dollar you contribute today is likely to be the most valuable dollar you’ll ever put into the retirement plan.
5. Saving is painless before spending habits grow.
Okay, so a young person has a lot to gain by contributing to the company-defined contribution plan. The obstacle is that there’s some pain involved in setting aside part of every paycheck.
No one likes to take a step back in lifestyle, and spending less to save for the future is especially unappealing to people who are a long way from retirement.
So, the trick is not to have to cut spending. The way to do that is to bank your raise.
If you put part of every raise toward increasing your retirement plan contribution, you can ramp up saving without cutting spending. After all, you can’t miss what you never had.
This is good general advice to give younger employees, and it might be especially timely to suggest an increase in retirement contributions whenever an employee is notified of a raise in pay.
6. Demonstrating the value of benefits aids employee retention.
Emphasizing the long-term value of retirement saving can give younger employees an incentive to ramp up their contributions to the company-defined contribution plan. It also underscores the value of the retirement benefit the company is providing.
Younger employees tend to be more oriented toward their take-home pay than the value of their benefits. The more you can get them to appreciate the value of the company’s retirement plan, the less likely they may be to jump ship for a little salary bump.
There’s a lot to be gained by younger workers getting serious about retirement planning – for both employees and their employers alike.
