Plan Sponsors: How to Help Late-Career Participants Prepare for Retirement. Your retirement plan participants age 50 and older are in the home stretch of their careers. Many of them may be 10 to 15 years away from retirement. But are they financially prepared?
Sadly, the majority aren’t. In fact, many don’t even have half the savings they’ll need set aside for retirement. According to a recent Legg Mason survey, Baby Boomers born between 1946 and 1964 have average balances of just $263,000 in their employer-sponsored retirement accounts, when they actually need closer to $658,000. And older Boomers (65 to 74), have just $300,000 saved on average.
Sure, that may seem to paint a dismal picture of the financial preparedness —or lack thereof — of older generations of American workers. And it’s not great news. But it’s not really new news, either. We know Americans are woefully under-saved for retirement, and it’s a big problem that no one’s quite figured out how to solve yet.
But there is a bright spot. The reality is, many employees are choosing to work longer by design. A recent Bankrate survey found that 70% of workers plan to work as long as they can. And sure, some of those need the extra time to earn and save simply because they can’t afford to retire at age 65 or 67. Many others, however, are working longer because they’re just not ready to give up their careers yet. Many are full of life and vitality, and they have plenty of energy to keep contributing to their employers in meaningful ways.
That’s good news for employers, too, because it gives you the opportunity to hold on to the intellectual property of your more seasoned employees for a bit longer. It also buys you time so they can mentor younger employees and ensure a smoother knowledge transfer when they do retire.
That said, there are steps and decisions every late-career employee should be thinking about as they prepare to transition into retirement, whenever that may be. As a plan sponsor, you can help keep these steps top of mind for older retirement plan participants, and help them prepare for a smoother transition to their post-working years. It’s important to remind them early and often of what they need to do, and educate them on each aspect of the process so they can make proactive, smart decisions in the years leading up to retirement.
By the way, this gets to the idea of “just-in-time” education, which we posted about in our vlog, here. “Just-in-time” education is delivered when the participant needs it, and when it’s most relevant. It can be challenging to get the timing right, but the later-career stage is definitely an opportunity to put “just-in-time” communication into action.
So what are the steps plan participants age 50 and older should be thinking about as they prepare for retirement? Here’s a short list:
- Take stock of their current situation: The amount of savings a retiree needs depends largely on their anticipated lifestyle, expenses, and medical costs, as well as any other sources of income they might have, say, from a pension or Social Security. According to Fidelity Investments’ Retirement IQ Survey, nearly three-quarters of Americans underestimate how much they need to save for retirement, so it’s important to impress upon your participants that they should be realistic about their savings goals.
- Maximize their catch-up contributions: No matter their age or stage of life, all participants should save as much as they can for retirement as long as they can. However, if they’re behind on their retirement savings goals, pre-retirement is the time for participants to up the ante. Fortunately, those age 50 and older have the opportunity to make catch-up contributions in their retirement plan account. In 2017, retirement plan participants age 50 and over can make up to $6,000 in catch-up contributions, in addition to the regular contribution limit of $18,000. For 2018, those contribution limits increase to $6,500 and $18,5000, respectively. (Note, these contribution limits apply to 401(k) plan accounts. 403(b) and 457 plans have different provisions.)
- Assess their asset allocation: Participants should review the investment mix in their portfolios periodically, but especially as the runway to retirement gets shorter. Growth is still important at this stage, but participants should also understand that it’s important to shift to less risky investments as they approach retirement to help preserve their savings and maximize their income potential when they’re no longer collecting a paycheck.
- Check up on healthcare: The average couple in their mid-60s will need around $275,000 to cover their healthcare costs in retirement, according to Fidelity Investments. As such, it’s important for participants to fortify their finances against the unexpected today, to prevent an unforeseen illness or emergency from wiping out their savings tomorrow. Important considerations for pre-retirees include health insurance to bridge the gap to Medicare if they plan to retire before they become eligible at age 65 and long-term care insurance (the premiums are potentially lower for younger people).
These are just a few of the major decisions pre-retirees should be thinking about as their careers wind down. But how do you reach them with these messages? As with any well-rounded participant education campaign, it’s a good idea to use a mix of channels that includes email, video, one-on-one meetings, text messages, social media, etc. With workers of all generations — yes even the older ones — glued to their smartphones, it may be more desirable to go digital as much as you can.
The bottom line is that participants age 50 and older have a lot to think about as they reach the twilight of their careers. As a plan sponsor, you can help them not only determine the key decisions they need to make but also how to make the most of their remaining working years so they can create a retirement worth looking forward to.
