Retirement planning is riddled with challenges — many hard-working Americans struggle to turn their earnings into a stable income stream once they’ve reached the end of their careers.
According to a McKinsey report, 80% of baby boomers haven’t saved enough money for retirement. A lack of financial knowledge, fluctuating markets, health care costs and rising inflation are just some of the factors putting a kink in their plans.
Although it’s never too late to start retirement planning, the sooner one begins saving, the better. Businesses can play a role in helping employees secure their future.
In addition to attracting and retaining top talent, B2B businesses that start a retirement program usually see tax credits that reduce costs. Additionally, employee contributions are tax-deductible.
Of course, there are several other reasons why you should encourage deserving employees to set up retirement accounts. Here are four reasons why it’s in their best interest.
There’s a lot to look forward to in retirement — vacationing around the world, devoting more time to hobbies, moving to a less-expensive area and spending more quality time with family and friends. Without work responsibilities, the possibilities are endless for retirees.
However, most of these endeavors require tapping into savings to cover the costs. If a person hopes to maintain a particular lifestyle or live more carefree, they’ll need to ensure they have enough money to do so comfortably.
The question of how much money you should save varies — however, the average person should have savings equal to their annual salary by the time they turn 30. For instance, a person who makes $50,000 annually should save at least $50,000. Yet, analyses show that the average savings fall well below at about $11,000.
Young people don’t always think about retirement in their 20s and often wait to get started in their 30s — but the benefits of early financial planning are too good to overlook. Employees should set up a retirement plan immediately to ensure they can enjoy their retirement years without financial worries.
Employees with children should also consider the burdens they’ll place on their loved ones if they fail to save up for retirement.
Although multi-generational households are commonplace today, most older adults prefer not to live with their grown children. However, lacking funds to live independently will undoubtedly mean they’ll have to move in with their kids and their families.
Moving in with adult children — because one can’t afford to live on their own — could also force their children to sacrifice their preferred lifestyles and put financial stress on them having to support their parents.
Businesses can encourage their employees to set up retirement plans by offering to match their contributions.
Companies can provide a 401(k) with a contribution match for a specific percentage or amount. For example, if an employer agrees to match 50% of employee contributions to a 401(k) and an employee contributes 8% of their salary, employer contributions would be 4%.
Employer contributions have become a top perk that entices new hires and helps companies retain employees long-term.
Employees contributing to a retirement plan can watch interest accrue over time, leading to even more considerable savings.
For instance, if they invest $60,000 with an interest rate of 8%, their earnings amount to $4,800. With a tax rate of 22% equaling $1,056, they’ll have $63,744 to reinvest.
The effects are even more significant with compounded tax-deferred growth. The longer the earning period, the greater the savings — a prime reason for investing in future retirement as early as possible.
Employees can garner interest on retirement savings in a savings account, IRA Roth, mutual funds or individual stocks where different interest rates will occur over time.
However, it’s important to note that the longer individuals wait to set up their retirement accounts, the more time they’ll need to catch up, and the less money will compound. The U.S. Department of Labor says that for every decades-long delay in retirement planning, people must save three times as much every month to make up their earnings.
Business owners who understand the importance of retirement savings should provide their employees with the necessary resources. Offering excellent retirement plans as a perk will entice employees and help prepare them for the future.
Eleanor Hecks is editor-in-chief at Designerly Magazine. She was the creative director at a digital marketing agency before becoming a full-time freelance designer. Eleanor lives in Philly with her husband and pup, Bear.