Improving your financial well-being is often a tried-and-tested New Year’s resolution, and while getting out of debt, saving a little more, and getting all the unpaid bills under control are admirable goals, there is one area of financial planning that has tend to be thought of last: retirement planning.
When your current financial situation is somewhat precarious, saving for a time when you won’t be working might not seem like a priority, says Mark Williams, CEO of Brokers International, an insurance marketing company. This is where employers can step in and help employees cross the finish line.
“The first thing employers can do is provide financial education“, explains Williams. “It is essential to provide a very good understanding of the advantages offered by this company.
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And getting that education now can help reverse the lack of savings for many: A quarter of employees have no retirement savings, according to a PwC study, and only 36% believe their retirement planning is on track. the right path.
But even employees who are actively saving for retirement may not be saving enough. PwC estimates that a median Pension saving $120,000 account for those approaching retirement will likely provide less than $1,000 per month over a 15-year retirement period. To help fill those accounts, Williams recently connected with Employee Benefits News to discuss how employers can offer support and what employees need to do to take control of their financial future.
How have employers mobilized to help employees achieve a financially secure retirement?
We’ve seen a trend for employers to expand the financial solutions they offer their employees — which could include a 401(k), medical spending accounts, and flexible spending accounts. Many employers offer special savings vehicles or employee savings accounts, such as a money market account.
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Employers should start with a broader offer to employees and then follow up with greater education. We see big companies offering free educational courses, on company time. They will use a financial expert, usually tied to some of their benefit plans. So if they offer a Fidelity 401(k), they may offer classes taught by a Fidelity representative. These educational courses are really designed to help people understand which options to choose from among their benefits. But the easiest way for an employer to help an employee is to provide some kind of 401(k) correspondence.
According to the Bureau of Labor Statistics, only 41% of employers offer a 401(k) match between 0% and 6%. Why are some employers reluctant to provide it?
Well, it’s an expense for the business. Each type of financial vehicle has some sort of administration fee. The employer pays someone to administer this benefit. A consideration is money that is given to the employee, it is part of the payroll and it is expensive. So for some employers, it’s an expense and a perk they’re not willing to offer. Alternatively, some employers will choose not to offer these benefits and instead pay employees a bit more and put them in charge of implementing retirement accounts like an IRA or a Roth IRA.
We’ve talked a lot about what employers can do, but what steps can employees take themselves to improve their future financial well-being?
There are a lot of things. Let’s talk about work first. It is essential to enjoy a match in any type of retirement account. It’s free money, and what a lot of people don’t understand is that if you contribute to your 401(k), that money comes from your taxable income that year, so it reduces your tax to pay. So, for example, if you earn $40,000 a year and set aside $2,000, you are only taxed on that $38,000.
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The other thing is to take advantage of medical spending accounts. Employees can choose the dollar amount up to $2,750 per year and then use their pre-tax money to pay for things they would normally pay with after-tax dollars. That’s a huge plus when it comes to co-pays, dentist visits, and eyeglasses. There are many ways for employees to purchase the items they need before taxes. Employees must ensure that they take advantage of each taxable option or pre-tax option offered by the employer.
The other thing employees can do, and this is going to sound really goofy, is stay healthy.
Why do you say that?
People out of work for health reasons cost companies money. As an employer, I obviously want all of my employees to be healthy and happy. But from a financial point of view, it costs me money when employees are sick. First, I pay for work that isn’t done. And, there is an added burden for employees who are in the office and have to do the work of a sick employee.
As an employer, how do you ensure the financial and physical health of your employees?
One of the things we’ve done in our business is we now have flexible hours. We were full time in the office before the pandemic. Now we’re giving people multiple days at home and multiple days at the office each week. And many of the jobs we have now, depending on the position, are full-time remote. That’s a huge benefit, even if you’re only looking at travel costs for some people, especially if they’re in a city and take the bus every day and it costs two or three dollars to travel. Well, now they have the ability to save $6 a day and I’ll tell you what, multiplied by 22 days a month, that’s a lot of money people are saving. So there are things like that, which are definitely driven by the pandemic.
We also offer fresh fruit at our office instead of junk food. People tend not to buy fresh fruit, but if I have some to offer, they will eat it. We also offer ergonomic furniture and whole BOSU balls rather than chairs. Promote health and wellness and provide financial grants for health and wellbeing goes a long way in supporting employee peace of mind, workplace culture and results in healthy employees overall.