Small Steps, Big Potential to Retire Ready:
Take Advantage of National Save for Retirement Week
posted by Fisher 401(k) 10/17/2016
This is it—National Save for Retirement Week, also known as National Retirement Security Week, is here. At Fisher Investments 401(k) Solutions, we’d like to encourage all of our readers—employers and employees alike—to take advantage of this week to get serious about financial security. Just a few small steps can make a real difference in your ability to retire when you want and with the life you want. We are sharing five easy steps you and your employees can take, one for each day of this week, to make a big difference in your employees’ retirement readiness.
If you’re an employer and you offer a 401(k) plan to your employees, you’ll want to consider the Employer steps. But don’t forget, you’re also a plan participant—so be sure to follow the steps for employees, too.
Employees: Now’s the time to get on the path toward a successful retirement. Follow the daily Employee steps, and you’ll be well on your way.
Now, let’s get going.
Employer Step: Schedule regular on-site meetings with your 401(k) service provider for your employees.
Help your employees by making sure they have every opportunity to join the plan and really understand how it can benefit them. Schedule an on-site employee educational session with your provider at least once a year. Providers should be willing to do this at no cost, and ideally allow time for one-on-one sessions with interested employees. Employees often feel more comfortable asking questions in a private setting. By regularly holding such meetings, you may help employees who already participate to save more, and encourage employees who aren’t yet enrolled to sign up.
Employee Step: Open (or get familiar with) your 401(k) account.
Have you set up your online 401(k) access? Today is a great day to take that first step. If you already have access, log in and get familiar with the available tools and functions. If you don’t have access, find out how to update your password and contact information. Once logged in, make sure your statements are sent in the way that works best for you, whether that’s by mail or electronically. Check your beneficiary designations: Are they up-to-date? And spend a little time with the retirement calculators. These handy tools can give you the information (and the inspiration) you need to reach retirement successfully – but only if you use them!
Employer Step: Explore plan features that can encourage more saving and participation.
How is your plan doing? Ask your 401(k) service provider to compare your plan against others of similar size, industry, demographics, or other benchmarks.
- What percentage of your employees are participating? According the U.S. Department of Labor, approximately 30% of eligible workers do not participate in their employer’s 401(k) type plan.1
- On average, what percentage of pay are employees contributing to the plan? An annual survey from Deloitte shows that, in 2015, the median actual deferral percentage for non-highly compensated employees was 5.9% of pay.2
If your plan’s statistics don’t impress, plan feature changes may help. Certain plan features can encourage participation and savings rates, and may even help the plan pass (or avoid) compliance testing. For instance, auto-enrollment or an employer match can help increase participation, and auto escalation can improve contribution rates. If your provider isn’t able to give you this kind of consultation, or isn’t providing it proactively during an annual plan review, it might be time to find a new provider.
Employee Step: Take a good look at your budget for ways to cut spending.
Finding the cash to save may be as simple as understanding where your money goes—not where you think those sneaky dollars go, but where they really go. The best way to figure it out is by tracking your spending. Jot down all of your spending for a week or two, and see for yourself.
Then, pay special attention for potential savings opportunities. Look first to the things you’re spending money on that really aren’t that important to you. Sacrificing there won’t feel like a big deal. For example, if you’re paying for 200 TV channels but don’t watch very much, it might make sense to explore other entertainment options. Are you still paying for a land line when you really only need your cell phone?
Now, create a realistic budget. Being realistic is important, because if you design a bare-bones, no-fun spending plan, you probably won’t stick to it. But cutting the spending you don’t really care about should help you get on the road to budgeting success.
Employer Step: Remind your employees of the 401(k) support and services available.
Employees should always know how to find the answers to their 401(k) questions. Regularly remind them of the resources that are offered through your 401(k) service provider to help them, whether it’s an 800-line help desk staffed with people who are familiar with your plan, scheduled in-person meetings with the provider, or a direct phone number to the plan’s provider. By choosing a provider that makes this kind of access available to employees, you can give your employees a better chance to save enough to retire comfortably.
Employee Step: Set your savings rate.
Now that you know more about the tools available to you on the website and you have a better feel for your spending habits, it’s time to evaluate your savings rate and make changes (if not, review the steps from Day 1 and 2). If the retirement calculator online tells you you’re on track for a secure retirement, great. If not, use the results it gives you as a target goal. In general, the retirement industry recommends saving 10% to 15% of your pay in order to save enough.3 However, our specialists suggest a more personal approach, one that considers your unique situation and goals. If your goal savings rate feels too high, start with a more modest one. The retirement calculator can help you play with different scenarios. For instance, what would happen if you moved your savings rate up just a percentage or two?
When you went through the budgeting exercise from step 2, you may have found some extra money. Even if the amount is small, contributing the savings to your 401(k) account can make a big difference later. Every bit—even $25 or $30 a month—can really add up over time.
Lastly, if you can, take advantage of any matching contribution your company provides. Think of it as extra “interest” on your account and don’t leave that free money behind.
Employer Step: Review the plan’s investment options.
Discuss the plan’s investments with your 401(k) service provider to make sure the menu is appropriate for your particular workforce. The menu should not include too many options, which can overwhelm investors, but it should offer enough to meet the needs of a diverse group. Does the menu have stock funds—US, international, and blend—along with bond fund options and cash equivalents? Does your lineup include a default investment for automatically enrolled employees and do you understand how it works? Take the time to speak with your 401(k) adviser, because the plan’s fund mix can make a big difference in your employees’ futures.
It’s also important for your employees to understand the investing strategies available to them, from the “no action” default investments to the “I’ll do it” hands-on investments. Ask your 401(k) provider for information that tells employees, in an easy to understand way, about their investment options. Ask your provider to discuss investment concepts to help employees better understand them during regular on-site meetings.
Employee Step: Review your investments so they meet your goals.
Today’s tip is to make sure your asset allocation is appropriate. Asset allocation is investing your money in a variety of different investment classes, such as stocks, bonds and cash equivalents. The right asset allocation can improve the chances of higher earnings and help protect against risk.
As you review your asset allocation, keep these tips in mind:
- Use the online tools and calculators you found on Day 1.
- Strive for diversity in your investments by putting your money into a mix of stock funds, bond funds, and a small percentage of cash equivalents. In general, younger investors who have a long time to recover from any drops in stock value, can afford to take on more risk (and possibly earn higher returns) by investing more in stock funds. Older investors may accept lower returns in exchange for less risk generally found in bond funds.
- Take advantage of international investments by putting some portion of your account into funds that invest globally.
- Pay attention to the indexes against which your funds are benchmarked. If they are the same, your funds may not be different enough from one another to give you real diversification.
Employer Step: Understand your 401(k) plan fees.
As a plan sponsor and fiduciary, one of your biggest responsibilities is to make sure the plan is getting value for the fees paid. You don’t need to find the lowest fees but you do need to be sure the fees are not excessive for the services rendered. Fees can take a significant bite out of investment returns, and that can impact the long-term retirement security of your employees.
It can be challenging to understand fees within a retirement plan. You can review your contract and statements, and ask your 401(k) service provider to help you understand what you see. Pay special attention to any revenue sharing arrangements. Does the fund lineup include retail or institutional class share funds? There is a difference in the pricing, depending upon which share classes you use. Ask your provider to give you an analysis of your fees along with industry average information, or seek a second opinion from another provider. If your fees don’t look reasonable, ask for an explanation. Consider renegotiating with your provider, or conduct a search for a new one.
Employee Step: Schedule regular reviews.
Once you’re on track for retirement, you’ll need to stay on track. We suggest a periodic review of your strategy and progress. Every one to three years, review your contribution amounts, re-run a retirement calculator, go through your budget—essentially, update your plan as suggested in this article. Why not pick a date now and set a calendar reminder? And, if you’ve had a major life change such as marriage, divorce, or birth, don’t wait for the next scheduled review; do it now.
Reviewing your plan doesn’t mean changing everything, though. If you have set a retirement strategy, remember that it’s long-term. Investors who react to every economic event—pulling their money out of the stock market and putting everything in cash, for example—tend to lose out on significant investment returns. So keep a long-term focus, remember your goals, and seek expert help when you’re unsure. By following these steps, your retirement is off to a good start—whether that’s 25 years, or just a few years, away.
We hope this information is helpful for your long-term goals. Take one step each day and make progress toward retirement. When you reassess next National Save for Retirement Week, we think you will be a more confident, successful plan sponsor or investor—or both.
1 United States. U.S. Department of Labor and the Internal Revenue Service. Automatic Enrollment 401(k) Plans for Small Businesses. Nov. 2013. Web.
2 Annual Defined Contribution Benchmarking Survey Ease of Use Drives Engagement in Saving for Retirement. 2015 Edition. Deloitte Consulting LLP, 2015. Web.
3 Mercado, Darla. "Retirement Readiness: 15% Salary Deferrals Are the New 10% for 401(k)s." InvestmentNews, Jan. 5, 2015. Web.