Getting younger employees to save for retirement is right up there with getting a finicky child to eat their vegetables. Sure, it's good for them, but it's not always what they want.
Participation rates and average deferral rates in voluntary enrollment plans for workers younger than 35 are well below those of other age groups, indicating that HR teams may need to take extra steps to reach this segment of their employee base, according to data from Vanguard, a leading 401(k) provider.
HR professionals are uniquely positioned to best assist younger workers. The best tack for HR experts to take with millennials in regard to retirement saving is to point out some of the mistakes their parents' generation has made in that area.
These five points listed below can help your younger workforce be better retirement savers than those in their parents’ generation.
Help employees understand the destination
When it comes to saving for retirement, a lot of older workers are clearly lost. Younger workers have an opportunity to do a better job of staying on track.
Vanguard’s data show the average 401(k) participant within 10 years of retirement age (i.e., between ages 55 and 64) has a plan balance of just $69,097.
That may not provide much help over a retirement of 10 or 20 years.
Caution young staff members that one reason older workers are so badly behind in retirement saving is that they haven't checked first to see where they're going.
A MoneyRates retirement plan survey finds that 71% of workers within 20 years of retirement age still have not done a calculation of how well their savings will hold up over their retirement years.
Encourage your workforce to determine what enough savings is. Inform your staff that it only takes a few minutes to use a retirement calculator to see how much to put aside to meet savings goals. That way, your employees will know where their retirement plan is heading.
Educate employees on how to get debt under control
Saving for retirement is undermined when employees are also building up debt at the same time.
Stress that debt costs more than retirement investments are likely to earn, a dollar in debt can more than counteract the benefit of a dollar in savings.
According to the Federal Reserve's Survey of Consumer Finances, the typical household still has $69,000 in debt by the time the head of that household is within 10 years of retirement.
Notice that this figure almost exactly matches the previously-mentioned amount that the average 401(k) participant in that age group has. In other words, debt can effectively wipe out a person's 401(k) savings.
So, your team’s first step toward educating workers about building a more secure retirement should be to do something many in their parents' generation failed to do: get debt under control.
Teach employees how to spread savings to make the burden lighter
Retirement saving is a big job, but younger workers have something very important on their side: time. Emphasize that spreading retirement savings out over 25 to 40 years makes the job much easier.
It gets tougher if young workers do what many of their parents' generation have done--wait and then try to catch up in the last ten years or so until retirement.
The golden rule: Don't leave free money on the table
When employers provide a 401(k) match, all staff should understand there's a direct financial incentive to start saving now. Every time employees put money into their 401(k) plan, the employer kicks in some on their behalf.
If employees don't contribute money into the plan, they don't get this money from the employer. There's no going back in future years and reclaiming that extra money the employer would have put in on the worker’s behalf.
The only way not to miss out on this free money is to contribute each and every year— and to contribute enough to get the maximum employer match available.
Show employees the benefits of saving
A dollar saved today can equal $10 at retirement age.
Saving money is hard work, but HR professionals can show their employees that it gets easier when they let their investments do the work for them.
The investment returns earned become much more powerful when compounded over a long period of time. Compounding means earning a return not just on the original money invested, but also on the returns earned in other years.
Younger workers must recognize that a dollar invested today could be worth much more than a dollar invested toward the end of their career.
There are many people of older generations who would be a lot better off today if they absorbed each of these five lessons when they were younger.
