Closing the Retirement Gap

Don’t look now, but there’s a retirement crisis occurring in the U.S.

According to the Economic Policy Institute (EPI), most families – including those at or near retirement – have little or no retirement savings. EPI reports that the median values in retirement savings for all age groups range from $480 for those in their mid-thirties to $17,000 for families nearing retirement in 2013.

Blame a recession for some of that pain, as retirement savings accounts took huge hits. Still, some of decline can be attributed to cuts in employer contributions. According to a Willis Towers Watson study, employers slashed their contributions to employees’ retirement plans by one-quarter from 2011-2015. The reason: a decline in the traditional defined-benefit plans in favor of more affordable 401(k) plans.

So how are retirement advisors going to help plan participants close that gap?

Do the math. The easiest way to get retirement plan participants thinking hard about their retirement savings is to show them their financial fitness. Use retirement calculators to show participants how much their current contributions and Social Security payments will total at their intended retirement age.

Track spending and debt. Your participant loves buying sports cars, but his debt is such that it could well be impacting his retirement savings trying to pay off loans and credit card accounts post-retirement. Devise a simple worksheet that shows debts alongside discretionary spending habits, and educate participants on what those debts would look like if one spending habit was reduced or eliminated.

Increase automatic deductions. Payroll deductions are not just for paying bills. Talk with your plan participants about using this method as a way to pump up the savings and retirement accounts. Use the example of annual raises. How much would your participant miss a one-percent payroll deduction if he is receiving a three-percent raise every year? Show your participants what retirement and savings accounts look like after ten years of incremental one-percent increases in savings.

Delay retirement. In some cases, your participants may be able to work one more year in order to capture that much more savings. Particularly if the employer is matching contributions, this could be a good strategy for boosting retirement account levels.

Revisit asset allocation. Participants should review their fund mix regularly, particularly post-recession. Are assets being allocated in the best possible way? Is your participant taking a conservative approach when she could benefit from a more aggressive one? Is that employee nearing retirement taking too many risks with allocation at a time when he should be looking for a less risky strategy?

Resize lifestyle. Particularly for older workers, that four-bedroom house could be swapped for a two-bedroom house, that extra car sold, the mortgage refinanced at a lower interest rate, and higher interest credit cards paid down first. Give your participants options for reducing their expenditures and show them their expected savings per year for doing so. Then encourage them to reroute that savings into retirement investments.

Retirement plan advisors can help participants close the retirement gap left by recession or a lack of adequate planning. By showing participants their savings, expenditures and retirement goals alongside one another, advisors can help employees understand the impact their current habits have on their retirement years. Armed with that information, plan participants can then build a retirement strategy that helps them make the most of their earning years.