Employees, we have a problem! How employers can jump-start retirement savings

Many Americans find themselves in an uncomfortable position. They might never be able to afford to stop working. Preventive medicine made its debut in the health care system in the 1960’s. It’s time for employers to make the case for financial wellness to their employees. Where do you start?

As an employer, you want to know if there is a need or problem. No one develops a product when no market exists. According to research from Principal, only a third of US workers feel prepared for retirement. McKinsey presents an even bleaker story. Only 13% of American workers are retirement ready and 47% of pre-retirement US households are not at financial self-sufficiency. This establishes there is a looming problem that is not going away.

Now you know there is a need. Do your employees realize they have a problem? The answer is yes and no. Here is the “yes” component: The Principal research indicates many participants wish they started saving sooner and saved more. Now for the “No” component. You have heard the joke about the guy who jumped off the Empire State Building. As he passed the 20^th floor he said, “So far, so good.”  Put another way, our view changes depending on the perspective of our viewpoint. For younger employees, the college analogy works well:  At the start of freshman year, graduation seems far away. During senior year, you remark how quickly those four years passed.

Related: Financial facts of life: Teaching employees financial literacy basics can pay off in loyalty

How do you get employees to agree this is a problem they need to address as soon as possible? Everyone should agree financial education is the answer. This is the retirement planning version of the preventive medicine approach introduced into health care. If retirement seems a long way off to a twentysomething employee, the first step is to change the terminology. Having enough money to stop working can be rebranded as financial independence. You might also use the “Who Wants to be a Millionaire” approach, putting an attractive goal on the horizon. It works for weight loss programs!  Forbes provides the following example:  Let us assume you contribute the $6,000 maximum to an IRA account from age 25 through age 70. Their example assumes an after inflation return of 5% annually. After 45 years, you have contributed $270,000 yet with compounding, you could be up around $1,000,000. OK, so a million dollars isn’t what it used to be, but it’s still a number with the Wow factor.

That example referred to an IRA account. You are talking to employees about their 401(k) employer sponsored plan. That’s a better story because of the employer match. One of the problems faced by businesses selling on the Internet is many people assume information you access online should be free. Getting them to hand over cash to get through a paywall is tough.  Your firm is matching their 401(k) contribution up to a certain threshold. Not participating in the 401(k) is like leaving “free” money on the table. If they are resistant to paying to access content on the Internet, they should be reluctant to walk away from free money.

How can you deliver financial education? Now let us consider exercise. Once upon a time, people joined gyms and worked out on their own. Zumba made its appearance around 2003 and there was a demand for exercise classes. Fast forward to 2015 and Peloton introduced online classes that featured live instructors. People embraced online exercise classes.

The model should work for financial education too. You need to make information available through the employee’s preferred channel. Schwab retirement plan data referred in a 401k Specialist article makes the case plan sponsors can help concerning availability of different types of advice. Some employees might prefer online learning while others might prefer to interact with a live professional or a dedicated advisor.

The benefits to the employer are many including developing loyalty within the workforce. If people feel the firm is committed to helping them plan for their future, they should be motivated to build a long term career with the company.

You can raise employee awareness of the benefits of the plan offered at your firm. You can make financial education available. The employee needs to be motivated to take action. In today’s world of spending to achieve immediate gratification, you can make an excellent case for the employee to pay themselves first by saving for retirement.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.