Three ways to encourage younger generations to begin saving for retirement
If you’re anything like us, you have a love-hate relationship with your alarm clock. While we appreciate that it helps us get the day started so we can earn a paycheck, our appreciation only slightly outweighs our desire to smash it with a hammer each and every morning. But as owners of these bittersweet little machines, we do yield a great power over them…the snooze button. With nothing more than a push of a button, we’re able to forget about our morning tasks in favor of 10 more minutes of rest, which will surely make today that much better.
Unfortunately, saving money for retirement is also seemingly suffering from a snooze button, especially among younger generations. In fact, when Millennials were asked in a recent survey what—if anything—they’re saving for, retirement was the third most popular answer . That’s not so bad, right? Well, it wouldn’t be…except saving for “a vacation” was the top priority among the generation—above more financially literate decisions like putting away money for an emergency fund (number two) or retirement (number three).
Add this to the fact that half of Millennials have credit card debt, 40 percent have a car loan, and almost four in ten have student loan debt . Yikes. The lack of savings, when combined with large levels of debt and a 12.8 percent unemployment rate, showcase that young generations may have a hard time reaching retirement readiness when the time comes—unless something drastically changes . And while it may seem difficult today, trying to play catch up on savings later in life can be even more challenging. Luckily, as a retirement plan sponsor or financial advisor, there are a variety of easy ways to encourage young savers to start socking away money for the future.
Encouraging young workers to save for retirement
· Provide financial education
Gone are the days of once-popular defined benefit retirement plans, when employers bore the brunt of the responsibility for ensuring employee retirement readiness. And because the way we save for retirement has changed over the years, so should the way we talk about it. Employees went from needing to know next to nothing about their retirement plan to needing to be on top of many plan details—such as enrollment eligibility, vesting schedules, employer matching contributions, and the like.
Providing financial education to employees will not only go a long way in raising awareness of plan details but could also increase their productivity while on the clock. In fact, nearly half of employees have reported using work time to review financial statements or deal with financial issues . What’s more, only 10 percent of workers who are behind track when it comes to retirement savings report being fully productive at work. It’s clear, then, that poor retirement planning and inadequate savings affect more than just the employee.
· Showcase the value of saving early
One of the most brilliant minds in history once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” And while compound interest may not actually be a magical force, it certainly seems like it is. Compounding interest, in relation to retirement savings, is interest on savings that has started accumulating interest itself—creating somewhat of a snowballing effect. And since young savers have so much time left on their timecard before reaching full retirement age, compounding interest has plenty of time to work its wonder, just as Einstein said, and grow the nest egg.
· Put retirement savings on autopilot
Newton’s law of inertia tells us that an object at rest will stay at rest, while an object in motion will stay in motion, unless influenced by an outside force. But how does that apply to retirement savings?
Stay with us for a second.
When a new employee is hired, they are significantly less likely to enroll in a retirement savings plan if they have to go out of their way to do so than if they don’t even have to think about it. Objects at rest, right? Recent research conducted by Vanguard found that automatic enrollment nearly doubles plan participation rates among new hires and keeps higher percentages of workers enrolled in the plan long-term . Once participants are enrolled in and are contributing to the plan, employers can take retirement autopilot to the next level by implementing auto escalation—keeping contribution levels on track as employees earn raises and can afford to save a higher percentage of their income.
Helping younger generations as a whole own their retirement readiness at an early age will take more than just one plan sponsor or financial advisor, but don’t let that discourage you from trying. We can look to the future and work together to build a next-generation that thrives on saving early and often. It won’t be easy, but we think the trouble is worth it.
Just like that alarm clock, it can be tempting for younger generations to delay something with future benefits—like saving for retirement—in favor of something exciting right now. But with hard work and financial education, we can take hands off the snooze button, turn savings uncertainty into retirement reality, and convince young employees that saving for retirement should be the priority—not a vacation.