Helping Employees Prepare for Retirement

Quick look: It’s October, meaning it’s both “spooky season” and National Retirement Security Month. In this post, review the current state of retirement, including changing benefits expectations, how surging inflation affects retirement planning, opportunities to foster a more welcoming culture to employees of all ages—and how a PEO can help SMBs conquer it all.

October is National Retirement Security Month, a time that is officially dedicated to “acknowledging the need to raise public awareness of a variety of tax-preferred retirement vehicles.” Retirement planning has always been a top source of financial stress for Americans, and as an employer, you tend to be closely intertwined with (and capable of influencing the success of) these topics.

To honor National Retirement Security Month, let’s explore current retirement benefits, savings, and demographic trends. We’ll also dive into how employers can construct a workplace conducive to their employees’ long-term success.

The state of retirement today

2022 is an interesting time for those actively retiring and those preparing for their financial futures. For instance, the competitive labor market is sparking employers to revisit their benefits packages and rising inflation is causing some people to alter or delay their retirement plans. Here we’ll discuss in detail what’s shaping the state of retirement this year.

Changing benefits

The employee benefits landscape has greatly evolved over the past few years. TransAmerica Institute recently reported that 56% of employers have reassessed their health, retirement, and other benefits since the pandemic began. This figure includes 83% of medium-sized businesses (100-499 employees) and 81% of large companies (500 or more employees). The top three reasons for this reevaluation are aligning with employees’ current needs (30%), becoming more competitive (25%), and reducing costs (22%).

However, there appears to be room for improvement when considering small businesses’ retirement offerings. The same TransAmerica Institute study found that just 46% of small companies (fewer than 100 employees) offer a 401(k) (or similar) retirement plan. Meanwhile, 92% of large and 89% of medium businesses do.  But that discrepancy doesn’t mean small companies don’t plan on offering retirement benefits—43% of employers not currently offering a plan claim they will likely start to in the next two years.

Inflation worries

In August 2022, inflation was up over 8% year-over-year, and price increases in food, energy, and housing have affected many people’s wallets.

These rising costs have also impacted retirement plans. BlackRock’s Read on Retirement Survey found that 56% of those saving for retirement feel they are on track, down from 63% a year ago. The survey also reveals that almost 90% of participants are concerned about inflation eroding their savings. Similarly, 48% of workers planning to retire in 2022 are reconsidering or have changed plans due to inflation, a declining stock market, and increased interest rates, according to a June 2022 survey from Quicken Inc.

Room for cultural improvement

Those approaching retirement tend to be older than other colleagues, and this lends an opportunity to build an even more inclusive culture.

The TransAmerica Institute survey mentioned above found that while 84% of employers feel their organizations are age-friendly, only 65% of employees felt the same. Another study conducted by the AARP found that 78% of workers ages 40-65 witnessed or experienced workplace age discrimination in 2020 alone.

These findings are disappointing but hold great opportunity for business leaders to further envelop ageism into their diversity, equity, and inclusion (DEI) practices.

Who wants to retire, and when?

Today’s workforce is multigenerational, and to best meet their employees’ needs, small- and medium-sized business (SMB) employers should understand what retirement goals each generation tends to have.

Recent research from ConsumerAffairs found that the following percentages of each generation want to retire at age 60 or younger:

• Baby boomers: 25%
• Gen X: 48%
• Millennials: 57%
• Gen Z: 66%

On the other hand, the following numbers represent what portion of each generation hopes to retire at age 61 or older:

• Baby boomers: 75%
• Gen X: 52%
• Millennials: 43%
• Gen Z: 35%

Lastly, these percentages demonstrate how confident each generation is in their ability to retire at their preferred age:

• Baby boomers: 44%
• Gen X: 40%
• Millennials: 57%
• Gen Z: 56%

4 ways SMBs can help employees prepare for retirement

Successfully supporting employees as they ready themselves for retirement requires a multifaceted approach. While some workers may be on the cusp of kicking off their golden years, many are still decades away—but those early years are crucial to reaching their retirement goals.

The following tactics can help SMB leaders as they reinforce their benefits and workplace culture to better support retiring employees, and those just beginning their retirement planning strategies.

1. Provide financial wellness training

Knowledge is power, and employers can equip their workers for success by providing benefits focused on financial wellness, like training on budgeting, investing, planning a retirement income stream, and more.

And employees want this information. A recent survey from Principal Financial Group found that while one-third of U.S. workers are comfortable handling their investments independently, over half want professional assistance. Another third of workers are unaware of where their money is invested, and the research showed that people’s investment confidence rose to 85% when they enlisted the help of experts. Employer-hosted training that educates and connects employees with financial advisors can raise workers’ confidence.

Another essential piece of information employers can help employees understand is the overall value of saving for retirement. The ConsumerAffairs research mentioned above found that almost 40% of retirees regret not saving more of their income, and 51% regret not saving sooner. The right employer-provided resources can help staff avoid this remorse down the road.

2. Review your 401(k) offering

In a competitive labor market where retirement is on the minds of even the youngest workers, a 401(k) retirement plan (with company contribution, if possible) is a must-have benefit offering. TIAA reports that 77% of employees say retirement benefits are highly important when considering switching jobs.

And offering a savings plan is just the beginning. Employers must also regularly communicate about the plan to ensure workers understand and make the most of their benefits. This communication is especially valuable when you consider the following, according to TIAA:

• Only 16% of surveyed employees received information about their retirement plan before being hired
• Just 42% reported their benefits were communicated to them when they first started their job
• 54% claim they received information during open enrollment
• Approximately 70% want more information about their retirement plan and believe educational resources would be very or extremely helpful

Educating employees on other benefits that may lead to more comfortable and affordable retirement years (like a bundled life insurance/long-term care policy) may also be beneficial.

3. Consider an HSA

Healthcare is expensive, even more so for older adults. Gallup reports that one-third of adults aged 50 and older have gone without basics like food to pay for their medical needs, and some older Americans decline care and medication due to cost.

Typically paired with a high-deductible health plan (HDHP), a health savings account (HSA) can protect workers against this hardship. HSA funds roll over each year, earn interest, and remain with the employee even if they retire or leave the company for other reasons. Accumulated money in an HSA account can be used to pay for healthcare expenses in retirement, which can be especially helpful, considering a couple retiring at 65 will require over $300,000 to cover their medical bills.

4. Encourage an accepting culture

Unfortunately, ageism has a presence in many workplaces. But there are a few ways employers can combat this and make work more comfortable for older employees.

To start, SMB leaders can include age in their DEI policies, provide de-bias training to their talent acquisition teams, and provide anti-bias training to all employees.

Involving employees on the brink of retirement in succession planning and mentoring and cross-training employees can help them feel they made a lasting impact on their workplace. Including them in these practices can also ensure the business retains valuable insight and holds on to the full breadth of its institutional knowledge.

And while some retiring employees may leave the workforce cold turkey, others may prefer a more phased approach. In these instances, it can be helpful for SMB leaders to offer soon-to-be retirees a flexible schedule, offering options like part-time work to those who want to enter retirement gradually.

Partner up to power employees’ preparations

Supporting workers as they prepare for retirement is a multi-pronged endeavor. Between providing the right financial benefits and ensuring your culture is accepting of staff in all seasons of life, SMB leaders have their hands full.

That’s where a professional employer organization (PEO) can be a vital resource. PEOs, like ExtensisHR, offer a comprehensive approach to all things HR, including the benefits and guidance you need to support your staff’s retirement plans. For example, ExtensisHR offers:

• 401(k) retirement plans
• Hybrid life insurance/long-term care policies
• Health insurance plans with HSA options
• Access to a DEI Dashboard that provides real-time data on multiple demographics and trends
• Guidance from a dedicated HR Manager
• Expert unbiased recruiting services (at no additional cost)
• And more

Are you looking for extra knowledge and resources to help prep your staff for their golden years? Contact ExtensisHR today to get started.