Dive Brief:
- Employers' use of automatic features, such as automatic enrollment and contribution rate escalators, has boosted retirement plan participation, but employees still aren’t saving enough.
- Even with 88% of employees participating in their employers’ 401(k) plans, they are overall still massively underprepared for retirement, with only 19% of employees surveyed on track to reach their retirement goals, according to a survey from Financial Finesse, in El Segundo, CA.
- The percentage of underprepared employees drops even lower for certain demographics—with African Americans, Latinos and women at highest risk for not achieving a comfortable retirement, the survey, titled State of U.S. Employee Retirement Preparedness 2015, found.
Dive Insight:
To help counter that trend, Financial Finesse has developed a Retirement Preparedness Model designed to address employee needs using principles of behavioral finance that have been proven to dramatically improve savings rates as well as investment behavior.
The model starts with prompting every single employee to run a retirement estimate so that they can see where they stand, and then sets employees up for success through automatically enrolling them into the plan at a high savings rate, and escalating that rate annually in small increments. It also provides benefits education and financial wellness programs to employees, which alone have been shown to increase retirement preparedness by 77%.
“The reality is that a holistic approach is far more successful. Tools alone can’t resolve the problem; employees have to fundamentally change their behavior and that requires a very strong support system," says Greg Ward, the firm's Think Tank director.
