2015 is the year of the sheep according to the Chinese calendar. Here are 8 resolutions plan sponsors can adopt if they prefer not to follow the herd when it comes to retirement programs.
- Automate – Automatic enrollment is the single most effective way to get employees to participate in a 401(k) or defined contribution plan.
- Escalate – Most participants should be saving between 10% and 15% of pay and automatic escalation is a proven way to get them there.
- Motivate – Financial wellness incentives tied to a 401(k) or defined contribution plan can improve the savings habits of participants.
- Educate – Teach participants key savings concepts so they can make better decisions.
- Translate – Show participants what account balances look like in terms of lifetime income streams.
- Communicate – Let participants know how they are doing based on meeting their personal retirement goals rather than just giving them a bunch of numbers
- Investigate – Conduct a participant survey to identify ways to improve a 401(k) or defined contribution plan.
- Innovate – Adopt new technology to rejuvenate stagnant retirement programs.
And since it takes two to save, here are 8 resolutions plan participants should consider if they want to improve their prospects for a secure retirement.
- Participate – The sooner employees start saving, the better their chances are of reaching their retirement goals. 401(k) or similar defined contribution plans offered by employers are usually the best place to start saving.
- Calculate – Speaking of goals, to collect 80% of preretirement pay starting at age 65 as experts often suggest, a participant needs to save about 12 times pay. Individual goals are unique, however, and should be determined according to individual circumstances.
- Investigate – Social Security plays an important role when it comes to retirement income. Free personalized benefit estimates are available at Social Security Calculators.
- Accelerate – Participants often procrastinate or underestimate how much savings they will need to enjoy a secure retirement. A delay or pause in savings requires an increased savings rate to make up for lost time.
- Differentiate – Investments should be diversified according to participant goals and risk tolerance. Target date funds can be helpful in this regard.
- Tolerate – Investment performance varies over time. Participants should develop and stick with a sound investment strategy and not fall prey to chasing returns.
- Estimate – Periodically projecting a 401(k) or defined contribution account balance at retirement is a useful exercise. Estimating how long it will last can be equally, if not more, valuable.
- Celebrate – Milestones can serve as important reminders along the road to retirement. It’s important to set interim goals and celebrate when they are reached.
Each year the retirement readiness picture looks more bleak. Will 2015 be the year to break this trend and improve the prospects of better retirements for plan participants? Let’s hope so.
Best wishes for a prosperous New Year!