The Two Most Important Steps You Can Take for National “Save for Retirement” Week
posted by Fisher 401(k) October 17, 2017
It’s National “Save for Retirement” Week—perhaps no better time to take a look at what you’re doing as an employer or employee to prepare for a comfortable retirement. It may not be as fun a topic as National “Donut Day” or “Taco Day”—but there’s a good chance a comfortable retirement will be more satisfying long-term than a crazy donut.
Whether you’re an employee of a small business that offers a 401(k) plan, or an employer offering a plan to employees, there are a couple steps you can take to make sure you’re getting the most out of that plan.
Employer Step 1: Take advantage of your service provider’s support
You and your employees may be unfamiliar with investing, the difference between stocks and bonds, or any of the confusing language that the financial industry generally uses. Your service provider should have plenty of educational materials that they can give you and your employees, but it shouldn’t stop there: A-rated service providers will offer one-on-one employee sit-downs with a retirement professional to help them uncover their unique retirement savings needs—and help develop a plan to meet their goals.
Additionally, if some of your employees are unfamiliar with how 401(k) plans work, an employee help desk that allows anyone participating in the plan to call with requests or questions could also prove to be a useful benefit.
It shouldn’t stop there, either. As a business owner, some 401(k) plan processes require your action—and you may not have the time, expertise, or legal experience to know what is expected of you. That’s where your service provider comes in: Lean on them for your administrative needs.
Employer Step 2: Promote the company retirement plan
For the majority of employees, a 401(k) or other retirement plan that allows them to save is the second most sought-after employee benefit.1 So while it may not seem necessary to promote it, more employee contributions provide a larger pool of money to grow—which means there’s potential for greater investment gains. As that asset balance continues to grow, you may find that the cost of your fees drops: Many advisers charge a fee based on the size of the assets they’ll manage.
If your company has an open enrollment period for benefits, this is a great time to bring in your adviser to talk directly with your employees about the plan and how it can impact their lives.
Employee Step 1: Start contributing as soon as possible
Workers have probably heard this suggestion their whole lives—and it’s a suggestion that business owners could take to heart as well. Save early and often, and “pay yourself first” by putting away money for retirement. Although the phrase “pay yourself first” may seem odd, consider the power of compounding investment growth and the potential for increasing income through market gains: In recent history, stock gains have averaged approximately 8.2% from 1995 to 2015. The current bull market has been running since March of 2009, leading to record stock prices.2
When money gains interest, that interest also earns interest, leading to compound growth in a retirement portfolio. So in a very real sense, “paying yourself” by saving for retirement has the potential to earn an employee more in a given year than a salary raise at work.
Employee Step 2: Review your savings and investing strategy regularly
It’s a good idea for employees who’ve already set up their retirement plan contribution rate and investment strategy to review these each year. Lives change, goals change, and perspectives change—it’s important to make sure your retirement future is changing with you. Younger employees are likely to want a portfolio with high growth potential, while employees who are closer to retiring are likely to want a portfolio that is a little less volatile, but neither of these factors may change much on a yearly basis.
What may change is how much an employee has to contribute to their retirement account. Workers getting into their late 20s or early 30s may find that is the perfect time to begin boosting their savings, even if only by 1% per year. And once a worker reaches 50, contribution rates increase to allow for “catch up” savings. Many retirement advisers recommend saving 10% to 15% of salary to retire comfortably, but a worker’s specific amount will vary based on their lifestyle. A retirement calculator can help project how much that person will need.
Grab a Donut and Login to Your 401(k)
Even if you don’t follow these tips fully, this week is a great time to take a look at your current retirement savings situation and consider what you can do to make sure you’re going in the right direction. After all, you ate the donut on National “Donut Day,” right?
1Transamerica Annual Retirement Survey 2016.
2Source: S&P 500, 12/31/1995 – 12/31/2015