Current data shows that many people are trying to spend less and save more. ADP's recent report on savings trends revealed 41% of employees ages 20-24 are saving at least some money and that number increases with age.
Yet more can be done to close the retirement savings gap, and this is where employers have an opportunity (and an increased responsibility) to help employees shape their financial well-being. Investing in a retirement plan is actually in the best interest of employers, as it can help them strike a more efficient balance in the workplace.
As older workers transition into retirement and leave the company, other employees will have more room to move and advance within the organization. Employers may also experience some level of savings in the form of reduced salary and insurance costs once retirement-age employees begin to transition out of the company. Offering a retirement plan is ultimately a win-win proposition that can help ensure employees are taking positive steps to secure a healthier financial future while allowing businesses to invest in talent while controlling costs.
For employees to retire when they think it's best for them, saving early and establishing good financial habits are key. As with most financial strategies, one size does not fit all, and there is a significant need for customization for each employee based on lifestyle factors and other considerations.
Here are some tips and general advice employers should keep in mind as they think about how to communicate proven savings habits to all employees, no matter their career stage:
• Start saving now to take advantage of compound earnings; don't wait until college loans are paid off.
• Establish good money management habits; focus on saving, smart budgeting and planning for emergencies.
• Actively plan for retirement. Even though a retirement plan may be offered by an employer, it's up to the individual to take charge of his or her financial security.
• Maximize savings early. If available through the plan, participants may elect to automatically increase their retirement plan contribution every year.
• Consider contributing to a Roth 401(k), which may permit the withdrawal of funds during retirement tax-free.
For Gen X:
• Don't wait to reach the catch-up contribution age of 50. It's important to save more now to take advantage of compounding earnings.
• Maximize savings during prime earning years by choosing to automatically increase retirement plan contributions every year. Check with an employer to see if the company's retirement plan offers this feature.
• Save for retirement first. Gen X-ers should remember that they can borrow for their child's college education, and can purchase long-term care insurance for elderly parents. But it's not a good idea to borrow for retirement.
• Get an annual financial health check-up to assess personal savings, life insurance, investments, credit card debt, mortgage and retirement savings.
For baby boomers:
• If you're not saving, start! It's better to have some money at retirement than nothing at all. It's never too late.
• Practice living on anticipated retirement income. By putting away more of each paycheck toward retirement savings, add to your nest egg while adjusting to a new income level in retirement.
• If you're over age 50, take advantage of catch-up contributions.
• Be sure to regularly review asset allocations and ensure investments are appropriate for your age and tolerance for risk.
As an employer, offering a retirement plan will demonstrate to your employees that you value their financial well-being. In return, your employees can focus on being productive on the job and free from the stress financial worries can bring. This mutually beneficial investment will allow your team to drive the kind of performance and business results that will keep your company running at top speed.
Joe DeSilva is senior vice president and general manager of ADP Retirement Services.