BY DIMITRI POLIAK, CONSULTANT, INVESTMENT & RETIREMENT
If you’ve discovered concerns in your employees’ savings strategies, the time to act is now.
Have you had the retirement conversation with your employees? If you have, you might have a good idea about whether or not your employees are on track to have savings that will deliver on their visions of retirement.
Maybe you’ve performed the analytics on your plan – factoring in your members’ contributions, withdrawals prior to retirement, the amount of time they have before they retire and the long-term performance of their investments – and have determined that your employees’ retirement readiness is not where it needs to be. That’s perfectly understandable.
But the news isn’t all bad. Congratulate yourself for not assuming that all is well, or that all of your employees are well on their way to happy, financially sound retirements. Be glad you may stave off future costs down the road, because if your employees can’t afford to retire a number of associated costs might begin to reveal themselves. For instance, impacts associated with an aging workforce, such as less productivity, increased absenteeism, higher benefit costs and a lack of advancement potential for junior employees. By looking into what or who needs to be addressed, you’re taking action on your retirement offerings while also ensuring you’re meeting your fiduciary obligations.
And that puts you in a good position to help your employees determine the best course of action. Here’s what to do.
Understand the scope of the problem. Perhaps you’ve determined a target replacement ratio for your plan to strive towards or you may have considered other tools to determine how well working-life living standards are replaced in retirement. Use the data you’ve collected, coupled with employee feedback about their retirement projections and aspirations, to determine how many employees need help. Is there a certain demographic in your workplace indicating that they are unprepared – and aren’t saving?
Determine the cause. If you’ve identified that a significant portion of your workforce needs assistance in building their retirement savings, you need to assess why that is occurring. Are employees only contributing what is required of them and not making additional voluntary contributions? Is your plan contribution formula adequate, or should it be revisited? Are many of your soon-to-be retirees facing specific hardships which will require additional funding?
Triage your employees. When you run the numbers and receive employee feedback, you get a good idea of who is most at risk in your organization. Determine the best approach, whether that’s increasing savings or giving them a retirement reality check: just how do they see themselves in their golden years?
Brainstorm together. Consider introducing one-on-one retirement workshops. If an employee is short on funds and subsequently needs to retire years after age 65, that necessitates a plan of action. Set up a one-on-one workshop, perhaps with a financial advisor, to discuss how that employee envisions this period in their employment. How long do they see themselves working? What is driving this decision? If it’s financial, in what way can they change their savings/investment strategy to build up their retirement funds at an accelerated pace?
Take communication to the next level. If you’ve been a bit hit and miss with your financial literacy communication, it’s time to pull out all the stops. Show employees what inadequate funds could mean for their retirement. Crunch their numbers for them – and offer them different savings scenarios.
Paint a picture. Explain what costs they might encounter post-retirement: health costs, homecare, travel, disability, etc. According to Statistics Canada, those aged 65 years or older allocate almost 8% of their goods and services spending to health care expenses – what if your employees haven’t considered these potential expenses? It’s helpful to shed light on costs they may not be budgeting for.
Map out all potential sources of income. A financial advisor can help your employees determine what income sources they’ll have at retirement, including the plan you offer, Old Age Security and the Canada Pension Plan (or the Quebec Pension Plan in Quebec), as well as RRSPs, TFSAs and non-registered investments. Some employees may also be counting on the sale of a home or an inheritance.
Tailor a savings program to your employees’ needs. Is there a perception among your employees that retirement is a time of travel and living large—when in fact their own savings dictate a more modest, less-exciting retirement? Once a complete assessment is done and funds appear to be lacking, new approaches should be assumed. For those employees who feel they can never save enough, it’s time to educate them on their options. Explore establishing automatic increases in payroll deductions towards their retirement plan.
Looking at your retirement offerings holistically may seem onerous and time-consuming. But maintaining the status quo and hoping for the best can be a costly path to take.
With a comprehensive analysis of their retirement situations, your employees will be able to craft a retirement strategy that addresses their needs—and yours.