You’ve heard me say it before and you’ll definitely hear me say it again. There’s a retirement crisis in this country. Not enough people have access to 401k plans. Of those that do have access not enough are actually participating in the plan. And, those that are participating don’t contribute enough.
In 2013, the average savings rate for Americans was 4.5%. Compared to Germany’s 9.9% or France’s 15.4%, we are clearly in the back of the pack in this race. In fact, as a nation, we aren’t even saving half of the the minimum recommended. Most economists recommend saving at least 10%.
Something needs to change, and I believe we need to start with participant education. For financial advisors and their staff, the emphasis should shift from explaining the inner workings of SmallCap, MidCap and LargeCap mutual funds to the general power of saving. It’s time to start teaching people to be savers not investors.
In a recent survey, 62% of Americans say they could use help with financial planning. But only 25% of those have actually received the help they need. Every participant in 401k should have access to a financial advisor.
So, why are they not getting the education they need to make sound financial decisions? How can we change this?
Increases in government incentives for retirement planning and autoenroll and autoincrease plans are two important parts of the solution. But, the missing piece of the puzzle lies in participant education. Specifically, financial advisors need to reach out to businesses, both large and small, to provide educational tools that are tailored to their employees. A one size fits all approach to participant education is not going to cut it.
According to the 2010 census, there were 18,500 companies in the United States with 500 or more employees. However, during that same time period, there were 27.9 million small businesses. Approximately, 99.7% of all businesses are classified as small businesses, and this group employs over 120 million Americans. According to recent Government Accountability Office testimony, only 14% of small employers with fewer than 100 employees sponsor a plan in which workers can save for retirement.
Let’s Change the Statistics
STEP 1: Establish an EPS – Education Policy Statement
Most businesses already have an IPS Investment Policy Statement in place, why not develop a similar plan that lays out how the company plans to help its employees learn about investing?
When your Junior turns 16, you don’t just hand him the keys to the BMW and turn him loose. You spend time with him explaining the rules of the road. The same is true of learning to successfully save for your future. If more companies had an EPS, America would have much more successful rates of retirement savings.
STEP 2: Set Up Mandatory Quarterly Enrollment Meetings.
Have financial advisors standing by to answer questions from employees, enroll new members, and review investment strategies. Many employees don’t realize they have access to advisors through their companies 401k plans.
STEP 3: Game Theory – Interactive apps that bring game play into the learning process.
We need games and apps for every age range, not just for kids. How many people do you know who don’t have at least one game on their phone? Not many. Why not create games for learning to save and invest? People retain more information through games than any other learning method.
The discussion must focus on successful OUTCOMES. Some of that comes from more engaged advisors, but one of the real keys to better outcomes is better participant education.
Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.
MBA, QKA, CBC