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401k Education Helps Participants Retire with 1 Million Dollars

401k Education Helps Participants Retire

401k Education Helps Participants Retire with 1 Million Dollars

401k Education helps participants retire with 1 million dollars when the facts are on the table has a nice ring to it.  Making the correct financial moves and the help of 401k education helps participants retire with 1 million dollars, and it may be easier than you might think.  Retirement readiness is a product of workers setting aside a specific amount of money early and regularly. In fact, the earlier they start, the more financial security participants will be able to build for their post-work years. However, many employees don’t realize that dynamic, and they often put off saving for retirement early in their careers to focus on near-term financial goals, like paying off a student loan or reducing credit card debt. And in some cases, just enjoying life takes precedence. After all, isn’t that $5.00-plus, plus daily morning latte one of the best parts of waking up and heading to work?   One might ask, what does a $5.00 latte have to do with how 401k education helps participants retire with 1 million dollars?

What many individuals don’t understand is, by that deciding to start saving for retirement early, plan participants do not need to save a lot to retire with 1 million dollars.  The amount needed is likely less than they think. In fact, if most 20-to-25-year-olds brewed their coffee at home and packed a brown bag lunch to work every day, they’d hit their monthly retirement savings goals on time.

A recent study from NerdWallet, cited by CNBC, broke down just how easy it is to retire with $1 million dollars.  ($1 million dollars is the target-amount that half of Americans feel is enough for retirement.)  NerdWallet looked at how much an individual would have to save per month to retire with 1 million dollars by age 67, assuming a 6% average annual investment return. That assumed rate of return may sound low by today’s standards, but an assumed rate of return lower than historical returns is a comfortable conservative approach. A realistic outlook is that stock prices will decline in the next market downturn, and likely continue their cyclical pattern over the course of a 30- to 40-year career. That said, NerdWallet was reasonable in assuming a 6% average annual rate of return.

Here’s what an individual would have to save per month to reach that $1 million goal at age 67 if they start at age:

20: $319 per month

25: $440 per month

30: $613 per month

35: $864 per month

40: $1,240 per month

45: $1,831 per month

50: $2,831 per month

It is glaringly obvious the earlier someone starts setting money aside for retirement, the less they are required to save over the course of their career. The reasons are time is on their side, they should experience more bull markets and compound interest.   Taking advantage of the phenomenon by which money earns money on prior investment returns, and those returns, in turn, earn more over time is much simpler than “saving more.” Look at the difference in the savings rate between ages 20 and 30 — the savings rate nearly doubles for someone who waits that extra 10 years to start building wealth for retirement!  After age 30 the monthly amount needed to fund a 1-million-dollar retirement savings account increases at a staggering rate.

Even though 401k education helps participants retire with 1 million dollars, how education is delivered makes a difference.  Encouraging employees to maximize their workplace retirement plan and start saving as soon as they get their first paycheck is ideal. Also, automatic enrollment helps take some of the friction out of getting employees into the plan — especially younger ones.  Younger employees are frequently reluctant to part with their hard-earned dollars as they dig out of other, more immediate financial foibles. However, if they start setting pre-tax money aside early on, chances are, they’ll never even miss those dollars.

It can also be beneficial to illustrate for all employees how much that daily latte indulgence, or two, is really costing them in retirement dollars. Real-world scenarios are often meaningful and impactful.  When people can see visually how changing their spending habits just a tiny bit can make a huge difference, then you might be able to convince them of the importance of doing so. What’s more, work on raising awareness of any employer matching contributions your organization offers.  Emphasize the benefits for employees to save at least enough to obtain the full benefit of the employer match.

This is neither calculus nor rocket science.  The time and effort your firm spends illustrating these concepts and showing employees how saving a few dollars in their retirement plan can make a huge difference to them in the future and at retirement.  Knowing that 401k education helps participants retire with 1 million dollars, put together a strategy to connect with your plan participants. Do not just tell them.  And don’t just show them. But help your employees to understand – exactly what a significant difference saving-early does make.  By doing so, your employees will have a better chance of getting them on a solid path to a more financially secure retirement. Sometimes building long-term wealth means short-term sacrifice — like giving up that daily latte.  Or, possibly just, relegating the latter to “treat” status. However, the sacrifice is well worth it in the end, especially when it comes to helping today’s workforce achieve retirement readiness.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek

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