Improving Retirement Readiness Helps Employers Save Money
Improving Retirement Readiness is a good news story to share. The state of retirement readiness in America currently is not-so-good news. First, the bad news: according to the National Institute on Retirement Security (NIRS), as cited in a recent HRDive article, nearly 60% of typical working Americans have $0 saved for retirement (yes, more than half!). That said, those who do have money saved in an employer-sponsored 401(k) or an individual retirement account (IRA) have more than three times the income of individuals who don’t have retirement accounts. So, one might say, “Hello, Captain Obvious”: individuals who have access to retirement savings opportunities and who save more during their careers are able to generate more income, and are improving retirement readiness. Therefore, they are more financially secure, in their post-work years.
Despite this, NIRS also found that more than three-quarters of Americans fail to reach their retirement savings goals, even after researchers accounted for their estimated net worth. Among workers who had saved for retirement, HRDive noted, the average account balance was around $40,000. In addition, approximately 70% of employees age 55 to 64 have a retirement account equal to or smaller than their annual income. This definitely appears to be an opportunity for improving retirement readiness!
America’s retirement savings crisis isn’t news. However, the fact that more than half of American workers have nothing saved for retirement, and that those fast-approaching retirement ages have account balances smaller than their current annual income is more disturbing than newsworthy. Without improving retirement readiness the implications for workers are quite obvious — plan for a greater reliance on Social Security and other public, government-subsidized benefits as they try to cobble together a semi-sustainable post-career life. Unfortunately, these programs are also dependent on limited fiscal resources.
More upbeat savings data is available from Fidelity, Vanguard, and others, however, we certainly have a lot of work to do to help shore up America’s financial security in retirement and in improving retirement readiness. Current policy changes under discussion may help move the needle on this a bit, as hopefully, greater numbers of employees will have access to workplace retirement plans. When lawmakers relax the rules on multiple employer plans (MEPs) and other small business retirement plan offerings, that is a large step toward improving retirement readiness, by making it easier for smaller employers to provide such benefits.
What may be less obvious is how the nation’s lack of retirement readiness impacts employers. HRDive notes that a lack of retirement readiness for employees can create challenges for businesses. Specifically, employees who lack enough retirement savings remain on the job longer, which creates higher costs for employers, especially healthcare expenses, as aging employees need more medical attention as they get older. Lost productivity due to health issues, disabilities, and other factors is another concern, in addition to hiring challenges created by older employees who remain in the workforce, making it difficult for employers to bring in new talent. That said, there are ways employers can maximize an aging workforce, including offering phased retirement arrangements, investing in continuing education and workplace wellness programs to keep older employees’ minds sharp and their bodies healthy, and updating your organization’s diversity and inclusion policy to include aging-friendly practices.
By improving retirement readiness and supporting retirement readiness at any age, employers encourage workers to save for retirement early and often. Ideally, improving retirement readiness begins with an employee’s first paycheck. HRDive notes that one of the best and most powerful tools for getting employees to participate in workplace retirement plans sooner is automatic enrollment. Workers who are automatically enrolled are less likely to opt out of the plan, and instead of wasting valuable time due to inertia and procrastination, they’re spending those early improving retirement readiness by wisely building wealth for retirement.