Many Americans are unprepared for retirement and do not have realistic expectations for how much money they need to have a stable, happy retirement. I have spoken to employees who have as little as $50,000 saved for their retirement and believe that they are set up for success. While this may be a large sum of money in general, it is nowhere near enough income to last most of them 20 or 30 years without a paycheck.
The changing retirement landscape is the primary reason many baby boomers and Gen Xers struggle with retirement savings. As defined benefit plans were phased out and replaced with 401(k)s, many baby boomers did not adjust their savings strategies. In addition, many of the employees who are approaching retirement age don’t understand that Social Security is not meant to be their main source of income moving forward.
On the other hand, younger employees are eager to save, but might not have access to the resources or professional advice they need to confidently make investment choices. For example, millennials tend to panic if there is a market correction and try to alter their investments. This is because they don’t have much experience in the market and therefore have not gained context or knowledge to know the correction will likely balance back in their favor and they should ride it out.
Visualizing savings
Overall, the biggest missed opportunity for young investors is that they fail to take advantage of their retirement savings plans early in their careers. Starting early can build savings at a greater rate than waiting until they’re older, but they fear setting aside large sums of money for something that seems so far in the future. Even when they do participate in their retirement savings plans, they tend to save too little, due to their lack of investment confidence.
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To help employees invest properly and prevent these blunders, take time to sit down with them and talk through the next steps in their journey to retirement. These check-ins will allow you to ensure all individuals, especially those who are approaching retirement age, are on track and are not taking too many risks with their money.
You can help employees visualize their retirement savings by using software that creates charts and graphs of how their savings will last over the years. Setting aside days to talk to employees one-on-one will generate greater value for your clients and ensure that each employee knows there is someone they can talk to about their financial concerns.
Small steps to help manage expectations in retirement can create a large impact on people’s lives. Even a seemingly minor suggestion, like encouraging an employee to work for an extra year or two, can correct their portfolio and put them in a drastically better place for retirement. Better yet, you have the opportunity to work with young employees and set them up for success from the get-go to have a healthy financial future.
Investment Advice through Resource 1, Inc. Securities offered through Ceros Financial Services, Inc. (not affiliated with Resource 1, Inc.). Member FINRA/SIPC.
