Ways to Help Your Employees Have a More Secure Retirement
Have your employees saved enough for retirement? The Internal Revenue Service (IRS) says an individual could easily spend 30 years or more in retirement, and to retire comfortably could need up to 80 percent of their annual income.
Unfortunately, a recent CNN Money report found that nearly half of those surveyed had only saved $25,000 — even though most people believe they’ll need at least $500,000 to retire. The average Social Security benefit check is only $1,200 per month, so many retirees could find themselves in dire straits.
Savings Add Up
The upside to the savings dilemma is that the sooner saving begins, the easier it will be to grow a sizeable nest egg. For instance, by saving $50 per month for 20 years, an individual could have $23,218 half way through their working career. However, if they were able to increase that to $500 per month for 20 years, their nest egg would skyrocket to $232,176 and increase even more the next 20 years.
What You Can do to Help
One of the easiest ways for an employee to save money is through an employer-sponsored retirement plan.
If you want to sponsor a plan, the IRS recommends you follow these four stages – choose, establish, operate and terminate.
Choose – Hire a financial advisor or retirement planning company to decide what your options are — including tax-qualified plans. With a tax-qualified plan, contributions are not taxed until the individual withdraws the money.
One of the most popular employer-sponsored, tax-qualified plans is a 401(k). The employee decides how much to contribute each month, with the money automatically withdrawn from their paycheck. Many employers choose to match funds. If you matched 3 percent of the contributions of an employee making $60,000 annually, you would be adding an additional $1,800 to their retirement savings annually. That incentive is enough to convince many workers to contribute at least enough money to qualify for matching funds.
Automatic enrollment — whether in a 401(k) or other retirement plan, is an easy way to ensure that all employees participate. Many people believe medical bills, mortgages and other expenses make it hard to save enough for retirement. With automatic enrollment, you choose a default rate that will automatically be taken out of everyone’s paycheck — and then gradually increase that amount to 10 percent. Remember that many employers start the default rates too low. If you go with this option, advisors recommend starting at 6 percent.
Establish – Once you choose a plan, arrange a fund for the plan’s assets; inform employees about their options; and develop a good record keeping system.
Operate – To ensure your plan continues to operate profitably and complies with federal guidelines, make sure all eligible employees receive the opportunity to participate; that regular contributions are made; that the plan follows laws; and that the assets are handled properly.
It’s also important you offer tools that employees can use to determine if they’re saving enough. Online calculators — often provided by your broker’s company — make it easy for employees to see if their savings plans need adjustment.
Make it a priority to educate employees about the importance of savings and urge them to save at least 10 percent to maximize their savings.
Terminate – You can make the decision to close out the plan or switch to a new plan if you find it no longer fits your company’s and employees’ needs.
Employee Benefits
Here are more reasons employees receive benefits from an employer-sponsored plan:
- Contributions and investment gains are not taxed until distributed.
- Interest on retirement savings compound, with regular contributions growing significantly.
- Retirement assets can be carried from one employer-sponsored plan to another.
Employer Benefits
- Contributions to an employee’s retirement plan are tax-deductible.
- A good retirement plan can attract and retain better employees, and reduce training costs.
- In years past, employees retired at age 65 or younger. Many now wait until age 70 or older because they haven’t saved enough. Since older workers usually cost more than younger workers due to higher salaries and higher group health plan costs, helping them save early for retirement may cause them to move into retirement sooner.
By planning ahead and saving, an employee can leave when they want, not when they have to because of finances. Please contact us and let us help you set up a retirement plan for your employees.
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