Plan Sponsor News Brief March 2008
Younger Employees Saving More for Retirement
Saving Without Social Security
Figuring out Post-Retirement Expenses
How Your Employees Can Save More
Younger Employees Saving More for Retirement
When it comes to workplace issues, including retirement, workers in their 20s are the ones reaping the most rewards.
A 2007 study by the Employee Benefit Research Institute examined the average participant 401(k) balance for all age groups during the 2003 to 2006 period. While the balances increased overall by 67 percent, balances for Generation Y employees (those age 29 or younger) increased the most, jumping from $13,950 to $28,248.
Retirement savings is not the only area these younger employees are having an impact on. A recent survey by CareerBuilder.com found that some or most Generation Y employees feel entitled to more in terms of compensation, benefits and career advancement than those of older generations. These feelings of entitlement have translated into employers offering more:
• Flexible work schedules (57 percent)
• Recognition programs (33 percent)
• Access to state-of-the-art technology (26 percent)
• Salary and bonus increases (26 percent)
• Ongoing education programs (24 percent)
If this age segment is beginning to make up more of your workforce, you may want to make use of our Enrollers service. Members of our Marketing Department can visit with your plan participants to address retirement questions specific to them. Just contact us at (800) 462-3278, extension 7254 or e-mail nadart401k@nada.org to arrange a meeting.
Saving without Social Security
Among other advice about their saving habits for retirement, employees need to be made aware that Social Security may not be a large part of their post-retirement income or even be there at all.
In 2008, the first wave of baby boomers (those born between 1946 and 1964) will turn 62, with many looking to retire early, according to a recent article in USA Today. This first wave of 3.2 million people is just a drop in the bucket, however, compared to the 80 million who will qualify for Social Security and Medicare over the next 22 years.
Without modifications by Congress to the current system, the Social Security caseload will be up to 84 million people by the year 2030. Medicare will go from 44 million people to 79 million during that same time frame. According to the aforementioned article, that will leave about “two workers paying payroll taxes for every retiree”. At that rate, the Social Security Trust Fund is predicted to reach a zero balance by the year 2041.
Given these predictions, it seems only prudent to recommend that participants sit down and project the expenses needed for their retirement, along with mapping out a savings strategy that will fulfill those needs. Please point them to our online calculators, which are available via the NADART home page by clicking the Calculators & Tools icon at the bottom of the page.
Figuring out Post-Retirement Expenses
To better plan for their retirement, your participants should know that their expenses may change once they stop working.
“Expenditure drops are mostly limited to two categories: work-related items (such as clothing and transportation) and food (both at home and away from home),” according to a report by the University of Pennsylvania’s Pension Research Council.
The report found that people in their early to late 60s spend 10 percent less on food, 22 percent less on clothing and 20 percent less on transportation costs. Conversely, the report showed that other expenses such as healthcare, fuel and housing-related costs either remained constant or even increased.
The report showed an interesting anomaly of food costs going down, while actual food intake remained constant. However, the authors of the report attribute this to “the fact that retirees spend much more time on food production (preparing meals and shopping for groceries) than their non-retired counterparts”. In other words, lower costs for the food and for its preparation compared to eating out.
If your participants would like to figure out some food-related expenses with regards to their retirement savings, please point them to the Lunch Savings calculator on the NADART Web site. That and other online calculators are accessible via our home page by clicking the Calculators & Tools icon at the bottom of the page.
How Your Employees Can Save More
It is always a good idea for your employees to think long term and save more for their retirement. It also never hurts to offer them suggestions on how to do so.
Transportation. Encourage your participants to think about carpooling. Or investigate employer-sponsored programs (e.g., TransitChek in NYC metro area), which help them save money on commuting, which can then be put into their retirement accounts. Commuter benefit programs through employers let employees take advantage of Internal Revenue Service regulations for tax savings on commuting costs.
Food. Eating out less or eating cheaper can save participants quite a bit in the long run. For example, rather than spending the usual $6.50 eating lunch out 20 times a month, spending just $3 on a bagged lunch during the same time frame results in a monthly savings of $70. If a participant takes that money and deposits it in his or her retirement account, with an estimated rate of return of 6 percent, in just four short years it will produce a balance of almost $3,800. These figures were generated using the Lunch Savings calculator, accessible by clicking the Calculators & Tools icon on the NADART home page.
Lifestyles Purchases. Participants should look at how some of their other current spending habits could be adjusted. A study by the consulting firm Hewitt Associates found that lifestyle purchases such as vacations, TVs, cars, etc. can often impede a participant’s ability to save adequately for retirement. A little sacrifice now could mean less sacrifice later.