While many employees understand the importance of saving for retirement and wish to make stronger efforts to do so, they are hampered by a lack of knowledge.
Participants in defined contribution plans may know what they want to accomplish but often do not know how to effectively pursue the goal of a secure retirement, according to a survey released by State Street Global Advisors (SSgA). The study revealed that almost 80 percent of respondents know it is important to determine how much they should save, but only about one-third believe they know how to make an estimate.
Most of them indicated they would be willing and able to increase their savings rate to about 10 percent if their employer instituted automatic 1 percent increases each year. Respondents said that they could save more by reducing their household budgets, in most cases.
Willingness and resources are not enough, however. More than half of those surveyed indicated they do not even know what a target-date fund is. Similarly, many were unclear on the nature of many investments common to most 401(k) plans, and had little concept of how to evaluate the risks associated with the different options. Additionally, most had little notion of how to adjust their investment strategy over time, although they understood it is important to do so in a general sense.
Helping employees take action
Employee benefit plan administration duties may have to include a heavier emphasis on education to close this knowledge gap and help workers take meaningful action. SSgA has amassed evidence that financial management courses can have an impact on workers, improving participation rates and monthly contributions. With more employees saving and their investments growing, retirement security becomes more widespread.
One expert suggested that education could be offered during lunch or break hours, making attendance convenient without cutting into work hours. Some workers might learn better over the internet or using alternative methods rather than classroom instruction, making that another option worth considering.
SSgA also noted that it might be best to keep educational efforts focused on basic and intermediate concepts and developing a core understanding of investment and the nature of the defined contribution plan participants are enrolled in. Those doing the teaching can then offer advice or provide clarification if anyone wants to learn more or has trouble. Trying to go too deeply into the subject matter could end up confusing employees, rather than helping them.
