Life involves risk. One of them is retirement, and whether the money we save to fund it will last. Do your employees understand their risk, and actions they can take now to manage it?
A recent survey found that retirement security may be threatened by these four risk factors: longevity, behavior, market conditions and inflation. The survey found a disconnect between each of these risks and participants’ actions. While that’s a concern, it’s also an opportunity to structure communications to clarify the connection.
Risk #1: Longevity
In 2020, life expectancy for the average American is roughly 79 years. However, many can expect to live into their 80s, 90s or more. Social Security may provide a minimal income, leaving a gap that must be filled through personal savings. Are your employees confident that their 401(k) balance and other savings will last 20, 30 or even 40 years?
Risk #2: Behavior
Considering the risk of outliving one’s savings, it is generally wise to begin making significant retirement contributions as soon as one enters the workforce. Then, leave the money in the plan and invest it appropriately. While intentions are good, many people don’t follow this course of wisdom. Instead, they delay starting, contribute little, and take a distribution when changing jobs. The result of these behaviors can be a significant hit to their ultimate account balances, and a serious, long-term impact on retirement security.
Risk #3: Market conditions
The market goes up and the market goes down. No one can stop the fluctuations, but people can manage their reactions to them. Understanding that concept may encourage participants to stick to an appropriate long-term investing strategy, providing some protection against the storm. Instead of reacting emotionally to market fluctuations (see Risk #2!), they may feel prepared to ride out the bumps.
Risk #4: Inflation
Some investors are so nervous about the stock market that they believe their money is safer in a cash equivalent fund, like a money market. They don’t realize that their earnings may not be keeping up with inflation, thus rendering their money less valuable as each day passes. Education can help them see that an extremely conservative investment may not be as safe as they believe it to be.
For More Information
Educating your employees and making a commitment to their overall financial wellbeing is incredibly important to help them achieve their financial goals – today and in the future. If you are interested in learning how you can enhance your benefits package to incorporate wellbeing, you can contact one of our specialists here.
The information and statistics included in this article were extracted from the 1st Quarter 2021 Plan Sponsor Outlook by Kmotion, Inc.
CBIZ Retirement Plan Services is a trade name under which certain subsidiaries of CBIZ, Inc. (NYSE Listed: CBZ) market investment advisory, investment management, third party administration, actuarial and other retirement plan services. Investments, investment advisory and investment management services offered through CBIZ Financial Solutions, Inc., Member FINRA, SIPC and Registered Investment Adviser, dba CBIZ Retirement Plan Advisory Services. Investment advisory and investment management services may also be offered through CBIZ Investment Advisory Services, LLC, Registered Investment Adviser. Third party administration, actuarial and other consulting services offered through CBIZ Benefits & Insurance Services, Inc.