Your Employees Are Not Ready for Retirement

culled from:inc.com


The numbers speak for themselves: Nearly half of U.S. workers have put away less than $10,000 for retirement, and 70 percent admit they are behind in planning and saving. Clearly, the current state of retirement readiness is nowhere near what it should be for a big chunk of the working public, and we have reached a demographic tipping point.

"The greatest generation is disappearing, 10,000 baby boomers a day are pouring into retirement, and the generations behind them are being borne into a world of greater personal responsibility, fewer safety nets, and the prospect of working at many different jobs during their lifetime," says Jerry Patterson, senior vice president of retirement and investor services with the Principal Financial Group.

The good news is that, while the current state of retirement readiness is certainly cause for concern, Generation Y shows signs of being well equipped to deal with the changed landscape, and with a little help from their employers, younger boomers and Gen Xers have a good chance of getting back on track. "Saving for retirement tops Gen Yers' list of financial goals, which is encouraging," Patterson says. "And there are simple steps employers can take to help workers in all age groups increase their retirement savings rates and their prospects for a secure retirement."
OVERCOMING INERTIA

The Principal recommends employers adopt several key features for their 401(k) plans, starting with automatic enrollment with at least a 6 percent elective deferral and automatic escalation of at least 1 percent per year up to 10 percent. "Auto escalation is the best way to overcome employee inertia, one of the biggest stumbling blocks to successful retirement saving," Patterson says. Employers should also sweep all employees into the plan at least one time at the default deferral rate, stretch matching contributions by using a formula that incents employees to defer at higher levels to get the full match, and use asset allocation as the default investment choice.

Businesses that provide these kinds of strong employee benefits often reap a solid return on their investment, such as higher retention rates, Patterson adds. "In fact, average voluntary turnover rate among winners of the Principal 10 Best Companies (www.principal.com/10best) is less than 5 percent, compared to the national average of more than 21 percent."