For many small business owners, the conversation about retirement plans is not something that sits high on the priority list. When it comes to day-to-day business management, it’s more realistically a conversation you might have once a year. That’s not surprising. Juggling the responsibilities that come with running a business does not leave much time to be thinking about retirement – especially when it’s not even your own!
In reality, employee retirement should be a more pertinent conversation. The costs associated with failing to adequately prepare your employees to retire are generally overlooked and underestimated. Prudential Financial estimates that a one-year increase in the average retirement age can increase workforce costs anywhere from 1-1.5% annually. That number increases up to 3% by the third year an employee delays retiring. The annual employer healthcare costs for a 65-year-old worker are twice those of a worker between ages 45 and 54.
Employers tend to cite cost as the primary reason they forgo the setup of an employer-sponsored retirement plan, overlooking tax credits and savings associated with administering a plan or the multitude of plan options available. The cost employers should be cognizant of is that of the long-term impact of hiring/retaining an aging workforce. Employers pay for the hidden costs of those employees that did not adequately prepare for retirement and thus are forced to return to the workforce or delay retirement altogether. A common misconception of employer plans is that employees will not necessarily participate or utilize the plan to the fullest, however, this is not the case. In fact, according to the American Benefits Council January 2019 Fast Facts report, 88.7% of eligible participants in a defined contribution plan have a non-zero balance and 84.9% made contributions. The participation rates are even higher when you factor in newer features like auto-enroll or auto-deferral escalation.
Employees want help. Transamerica Corp. conducted a retirement survey in which more than 6,000 workers were surveyed and only 18% responded that they felt very confident that their retirement will be financially secure. Many retirement plan providers offer personal financial wellness tools for employees. Such tools include calculators that assist employees in saving for retirement through budgeting major expenses and setting up a basic emergency fund. When contemplating a retirement plan, it’s important for business owners to work with an advisor who specializes in establishing and servicing retirement plans. This not only serves to help you better navigate the regulatory environment of retirement plans but also gives employees access to a resource for financial wellness and planning. There’s no question that people are living longer and retiring later than ever before, so it’s important
that they are given the right tools in order to be financially secure throughout their lifetimes.
If you’re a business owner and you’ve considered establishing a retirement plan before, the best time to start was yesterday and the second-best time is now. If you are an employee who isn’t offered an employer-sponsored plan, consider having a conversation with your employer and ask them if they have ever considered it. Even if they haven’t, there are many other options when it comes to saving for retirement. In a world where pensions have all but disappeared, it’s important to provide the necessary tools and educate our workforce to take the appropriate steps towards ensuring their financial security throughout retirement.
