Bridge the gap: Employees need your help with retirement planning

Financial planning is a challenge for most as few have a written financial plan, a personalized retirement plan or work with a financial professional. Retirement is in the future and the present has its own demands and needs like rent, medical expenses, groceries and car payments. According to research ADP Retirement Services commissioned Retirement Insights, LLC to conduct, survey respondents believe they’re on track or ahead of their retirement goal; however, most report workplace retirement plan savings of less than $100,000.

To compound the situation, many employees – especially those in small businesses – don’t have access to a retirement plan at work. A recent AARP study found that nearly half (48%) of private sector workers between the ages of 18 – 64 aren’t offered retirement savings options from their employer. Access to an employer-sponsored retirement plan differs substantially by education, income, race, and ethnicity as well:

• 3 out of 4 workers with less than a high school diploma lack access to a plan compared to those with some college (50%) or a bachelor’s degree or higher (32%)
• 4 out of 5 (81%) with annual earnings of $50,000 or less do not have access to a plan
• Two-thirds (64%) of Hispanic workers, over half (53%) of Black workers, and 45% of Asian American workers also don’t have access to an employer-sponsored retirement plan

“Having access to a retirement plan at work is critical for building financial security later in life,” said Debra Whitman, AARP’s Executive Vice President and Chief Public Policy Officer in a recent press release. “People are much more likely to save for retirement if they can do so automatically through their paycheck.”

What’s getting in the way?

According to the Retirement Insights survey, four out of five respondents acknowledge that a written financial plan with goals is important but only 14.6% have one. Instead, almost a third (30.7%) report having general financial goals or a mental financial plan with goals and timelines (30.5%). The main obstacles to saving more money are housing expenses, student loan debt and medical expenses.

While three quarters of respondents participate in their company’s retirement plan, only 12% contribute to the plan maximum. Less than a third (30%) save 3% to 6%. A quarter save 6% to 9%. It’s clear that participants are not saving enough. Over half have under $100,000 and 39% have under $50,000 in savings. Just over a third (35%) have less than $25,000 in savings outside their workplace plan.

Yet, many believe they’re on track (41%) or ahead of (23%) their retirement savings goals. One in three think Social Security will provide up to half of their monthly income in retirement. Nearly three-quarters of retirement plan savers plan to work at least part-time in retirement for disposable income, necessities, or the feeling of purpose.

A big challenge that survey respondents cited was trying to estimate future expenses, Social Security income and where to live. In addition, concerns about outliving savings, how to replace a salary with retirement income and uncertainty about retirement lifestyle complicate planning. All of this makes it hard to calculate, and save for, the cost of retirement.

A personalized retirement plan that estimates savings needed, retirement expenses and medical costs would help solve many of these uncertainties, but unfortunately almost half don’t have one.

The need for financial wellness education

Employers have an important role to play here. Over half (56%) of respondents are aware of financial and retirement planning tools available through their employer, but only 14% use them monthly. These employees say they want more financial education from employers to help them make decisions on their own and to develop a detailed savings plan with personalized advice to guide investing decisions. Preferred methods for obtaining information about the programs are email (29.8%), websites (22.3%) and meetings (22%). This financial education is of particular interest to survey respondents under age 50—an age group that is significantly more likely to invest more conservatively for retirement than those over 50.

Improving retirement savings is a clear priority for these survey respondents and many workers today. They want more support in the form of financial education from their employer to help them with decisions about retirement.

Here’s how organizations can help workers build enduring financial wellness:

• Personalize employee experiences to make retirement planning simple and engaging.
• Provide educational content and data-driven personalized coaching to help employees develop a retirement savings strategy, build confidence in their decisions and achieve their financial goals.
• Leverage media preferences (e.g., email, websites, etc.) to drive engagement with financial and retirement planning tools.

Despite the challenges of COVID and a rocky global economy, participant retirement plan behaviors remain largely unaffected, according to a recent report from the investment firm Vanguard. Workers are motivated to save for retirement. They just need the guidance and tools to accomplish their financial goals.

Chris Magno is Senior Vice President of ADP’s Retirement Services Division.