An Advisor Action Plan for Encouraging Retirement Savings
The data on retirement savings tells a frightening story. According to the 2017 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), 6 in 10 American workers feel confident in their ability to retire comfortably, yet only 18 percent feel very confident. What’s even more concerning? Just 41 percent of American workers report they or their spouses have attempted to calculate how much money they need to live a comfortable retirement.
There’s just no getting around it: saving is the single most critical step that individuals can take to prepare for retirement. But as you’ve no doubt witnessed with your own clients, most Americans need some guidance. To help you be part of the solution, here you'll find an advisor action plan for encouraging retirement savings. Let’s start by taking a look at what’s working (and what’s not) for many Americans when it comes to funding their retirement.
The first step in encouraging retirement savings is to take stock of what is and is not working in terms of savings options.
Individual savings. Did you know that nearly 7 in 10 Americans have less than $1,000 in their savings account? And an astounding 46 percent admit to being ill prepared to handle a $400 emergency expense. So, why aren’t they saving? The answer is the power of spending.
Personal consumption accounts for 70 percent of the nation’s gross domestic product. Spending is more emotionally satisfying than putting aside money for a future need. Remind your clients that all it would take to save enough to cover the aforementioned $400 emergency would be to save $20 per week for five months.
Employer-sponsored plans. Now for some good news. When workplace retirement plans are factored into the savings equation, we find encouraging signs of progress. Up to 73 percent of employed workers are offered these plans, and 83 percent say they contribute money to them. Further, workers who are closer to retirement have achieved significant savings success using 401(k) plans—the average account balance among participants in their 60s who’ve been working for more than 30 years is nearly $275,000.
Social security and Medicare. The 2017 Office of the Chief Actuary Trustees Report indicates that social security will be exhausted by 2034. Only 37 percent of workers are very or somewhat confident that social security will continue to provide benefits equal to the value of what’s available today, but most still view social security as a source of income in retirement. As for Medicare, only 38 percent of Americans have confidence that the Medicare system will continue to provide benefits on par with what today’s retirees receive. Reliance on these programs is a dangerous game—and your clients need to be educated on the odds.
Ensuring that you are synchronized with your clients on their retirement vision is essential. Ask them to e-mail you a few images of what they envision as a satisfying retirement. Some may want to settle into a serene lakeside cottage, for example. Others might like to hit the open road in an RV. Whatever their dream, once you are in tune, you can begin setting expectations and constructing a plan to meet their retirement goals.
Here, you’ll want to keep in mind that there is a misalignment of when workers expect to retire and when they actually retire. Many workers delay retirement because:
- They can’t afford it.
- They lack faith in the social security system.
- They are worried about rising health care costs.