Five Steps to Help Employees Create Financial Independence and Plan Retirement

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Jerry Cahn, Ph.D., JD, CEO & CLO at Age Brilliant (.org). Helping proactive people create limitless leadership, lives and legacies.

Most people want to enjoy a long, healthy and fulfilling life. Thanks to the gift of longevity and science, the average lifespan in 1900 was in the mid 40; today it is around 80, and some project that will increase it to over 100 by the next century.

For some people, the extra years are “extra” retirement time; for others, their life paths have been extended and traditional age norms (e.g., getting married, having children, buying a house, starting an important career, retiring, etc.) are postponed to match the extended lifespan. Many continue to find ways to be productive into their 80s and beyond. For example, instead of having one typical career or relationship, they may have multiple careers, families, etc. throughout their lives.

Whether you add the extra years to your post-retirement phase or extend your working years for non-income-generating activities (eg passion/purpose), will you gain the financial freedom to pursue your dreams? Have you saved enough and invested wisely so that it can last more than 30 years – or, to put it more concretely, more than 10,000 days?

Unfortunately, most people don’t save enough for their future selves. The colorful fool found that the average retirement account savings for U.S. households in 2019 was $65,000. Forefront reported that the median average 401(k) balance for Americans was $141,542 — with the median balance just $35,345 — meaning 50% of people have saved less than this amount. Obviously this is not enough.

Many companies offer employee health and retirement plans to better serve the “whole” person, including financial security after retirement. The Covid pandemic has made many people aware of the rest of their lives outside of work. That’s why I think this is the perfect time for employers to step up and encourage employees to take better care of finances.

Five Steps Companies Can Take to Promote Employees’ Future Financial Independence

During the company onboarding process, employees are introduced to the company’s values ​​and practices related to culture, strategy, leadership, customers, etc. As employees fill out forms for healthcare and other benefits, employers can also help them meet the needs of their future selves.

1. Increase employees’ financial knowledge.

Unfortunately, many people lack financial skills. Even college graduates may not have learned basic skills related to budgeting, saving, spending, investing, compounding, paying off debt, etc. Offering or referring employees to financial literacy classes can give them a deeper understanding how money works and how to handle it responsibly. In addition, every six months or every year, employees are given the opportunity to review their retirement savings decisions and reintroduce the idea of ​​improving financial literacy. As income rises and lifestyle changes, people’s interests are likely to be rekindled or changed.

2. Encourage employees to start saving immediately.

In a New York Times article, “You are” Never too young for a Roth IRA,(paywall) Carrie Schwab-Pomerantz notes that “the earlier you start, the more time your money has to grow and grow.” a hypothetical example from Fidelity shows that someone who contributes $3,000 a year to a Roth from 15 to 20 years and then contributes the maximum allowed amount up to 70 years can add up to more than $3 million assuming an annual return of 7% . The same person from age 25 would accumulate about a million less. So encourage employees to start early and be consistent for future financial freedom.

3. Implement a stimulating business match.

A company that makes a contribution that matches what the employee contributes provides “extra” income to the employee. Many employees realize this and take it into account when accepting jobs. For employees who have no financial knowledge, help them: Project how much extra money they will make in five, 10, 20 years from the competition alone. Let them know that even a commitment to increase a contribution each year based on raises is a commitment to one’s future financial freedom.

4. Make it easy to get started – and with larger quantities.

The above three strategies will educate, encourage and encourage young people to start saving for retirement early. In addition, companies can use persuasion tactics discovered by social scientists to help people say yes to marketing programs. For example, researchers interested in increasing people’s consent to become organ donors found that: opt-out programs are more successful at generating agreement than opt-in. Employers can adopt this principle with pension registrations. Let people unsubscribe instead of logging in.

Another tactic is anchoring. Rather than simply sharing the range of contributions allowed by law, employers can share relevant benchmarks such as average contributions in the company or last egg after 20 to 30 years with larger versus smaller contributions.

5. Make it personal: Connect employees to their future selves.

Let’s face it, many people who start their first job are in their teens or early 20s. It’s hard to imagine their lives in 40 to 70 years. It’s even more difficult when the only role models are parents or grandparents who didn’t save as much as possible or thought about financial security for more than 100 years.

An excellent literacy course can help with that. Teaching the basics of finance and helping people see examples of people older than them enjoying a lifestyle built around financial independence can be inspiring. They need to see role models of employees with standard salaries who spent the last years of their lives doing what they wanted: traveling, becoming entrepreneurs, donating significant amounts to charities, and so on.

Another way is to make it personal. Encourage them to connect with their future selves and get excited about the opportunities they open up. Researchers conducted studies using aging software to find out whether people who saw a picture of their future selves would increase their retirement contributions. It did.

In short, employers can make a difference. Combine these five steps and you can ensure that your employees have the opportunity to lead healthy, financially secure and fulfilling lives.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.


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