Why Increasing Retirement Savings May Not Be Enough

a business man removing a white egg from a cartoon, and the egg has a scared face drawn on it, and the the other eggs in the cartoon have faces drawn on them that show various emotions like anger, sadness and fear

With plans to increase 401(k) matches and savings rates, more and more companies are boosting their efforts in helping employees save for retirement, but a missing element could be key to the overall success of such a plan.

Employers’ efforts to help their struggling workforce is honorable and desperately needed:  Over 50% of employees, age 35 and up, are extremely concerned about their retirement savings,1 and employees want their employers to help them.

To meet the need, almost half of employers are now matching employees’ 401(k) contributions dollar-for-dollar, and over half of employers require a 4% (or more) savings rate for enrolled employees.2

But is that enough?

Unfortunately, many employees won’t get the full benefits of an increased 401(k) match if they already have difficulty managing their finances.  The fact of the matter is that paying for essentials, unexpected expenses, and saving for retirement are major sources of financial stress.3  That’s why helping employees with their financial futures and their financial wellness requires employers’ estimable efforts go above and beyond traditional methods.

Possible Outcomes

Let’s say you increase your 401(k) match for your employees’ contributions and you require that workers contribute at least 5% if enrolled in the program.  One of your employees – we’ll call him Joe – has trouble meeting his monthly expenses but knows that he needs to save for retirement, so he does all he can to contribute 2% to his 401(k) each month.

Due to your new retirement offerings, Joe is celebrating because you’re adding more to his 401(k), but then he realizes that he has to increase his contribution to 5%.

Here’s what could happen:

  1. Joe increases his retirement contributions, but he eventually racks up debt in order to meet his other expenses. (The average household has $16,140 in credit card debt.4)  In order to pay the debt, Joe borrows from his 401(k).  (1 in 10 employees borrowed close to $10,000 from their 401(k) last year.5)  In the end, he has more financial stress, less time to save for retirement, and he’s no better at managing money.
  2. Joe knows he can’t continue to meet bills if he increases his contributions, so he stops contributing altogether, which leaves money on the table and sets him up for a poor financial future.
  3. Joe realizes his current difficulty with managing money, so he gets help from a financial professional – either on his own or through his employer, if provided.  He learns how to better manage his money, so he increases his contributions, gets the full match from his employer, and still meets his monthly expenses.

Combining Retirement Efforts with Financial Wellness

Companies are recognizing that goals for retirement plans should correspond with goals for their overall financial plans.6  A recent study for the U.S. Department of Labor found that employees are more likely to contribute to their 401(k) and increase contributions when offered financial education through their employer.  According to the report, people who receive financial guidance tend to be more financially healthy.7

Employers go above and beyond, with helping employees achieve financial success, when they introduce a financial wellness program that offers support and best practices for making the most of one’s income now and in the future.

Real Success

My Secure Advantage (MSA) is offered to many employees across the nation as an employer-funded financial wellness program.  The core of the program is the opportunity for employees to work one-on-one with a Money Coach and talk about their finances – whether good or bad, proactive or reactive.

Here are a few examples of employees who had difficulty managing their finances and decided to take advantage of the MSA Financial Wellness program in correlation with retirement efforts:

  • “Our financial situation has been of the ‘paycheck to paycheck’ variety….  Since we started working with [our Money Coach], we’ve been working on our budget [and] paying off credit cards.  He has also reviewed our 401(k) and IRA contributions to make sure we are getting the best return on our investments.”
  • “I had no plan for retirement.  [My Money Coach] got me to contribute the appropriate amount into my 401(k)….  I feel that MSA is the best company benefit I have.”
  • “[My Money Coach] helped me face my financial goals head on.  The result is that I’m debt-free, and I have funded 90% of my retirement goals – provided I stay on the path I’ve developed.  [My Coach] cares about my success in developing better financial literacy, and she wants me to develop a really good relationship with money.  She has helped me do this, and I am really grateful for all the assistance she has given me!  MSA offers a service unlike any financial service or planner.”

Matching employees’ contributions dollar-for-dollar and/or automatically enrolling employees for a particular savings rate are estimable efforts.  (Good job!)  As you continue to enrich employees’ financial lives, keep in mind that retirement contributions only go so far in procuring a good financial future.  When employees also get the opportunity to improve their financial wellness, they learn the importance of saving for retirement and how to do so without compromising current financial obligations.

Want to help your employees improve their savings for the future?  Become an exemplary employer by incorporating a financial wellness program that helps them be successful not only with their retirement contributions, but with their day-to-day money management as well.  Call 888-724-2326 today.

1 Benefits Impact: Delivering Dynamic Benefits for a Loyal Workforce.  MetLife, 2015.  Web.  12 May 2015.  PDF.

2 Gladych, Paula Aven.  “Use of Dollar-for-Dollar 401(k) Matching Grows.”  ebn.benefitnews.com.  EBN, 21 Oct. 2015.  Web.  27 Oct. 2015.

3 Stress in America™: Paying With Our Health.  APA, 4 Feb. 2015.  Web.  16 Feb. 2015.  PDF.

4 Chen, Tim.  “American Household Credit Card Debt Statistics: 2015.”  nerdwallet.com.  NerdWallet, Oct. 2015.  Web.  4 Nov. 2015.

5 Fidelity Viewpoints.  “Five Reasons to be Cautious About 401(k) Loans.”  fidelity.com.  Smithfield, RI: Fidelity Investments, 23 Jul. 2015.  Web.  4 Nov. 2015.

6 Atchison, Amy and Rob Austin, FSA, EA.  2014 Hot Topics in Retirement: Building a Strategic Focus.  Aon Hewitt, 2014.  PDF.

7 Burke, Jeremy and Angela A. Hung, Do Financial Advisers Influence Savings Behaviors?, Santa Monica, Calif.: RAND Corporation, RR-1289-DOL, 2015.  As of October 08, 2015: http://www.rand.org/pubs/research_reports/RR1289