If you had to guess, how many Americans would you think have attained millionaire status? Would you be surprised to hear there are millions of millionaires? Well it’s true! In fact there are now somewhere in the neighborhood of 10.8 million people with net worths north of seven figures! (1)
Maybe what makes that stat a little shocking is the widely held belief that only movie stars or professional athletes can build that kind of wealth. We don’t often think of millionaire status being available to everyday workers in more down-to-earth industries. But the fact that so many people are achieving that milestone is terrific news for employers. Why? Because the most common method Americans use to get there is something you are probably already offering your own workers—the company retirement plan!
That’s right! Our research into millionaires proved 79% of people started their journey in a 401(k). Not only that, we’ve also seen that employees crave financial education and guidance toward a healthy retirement. Those two facts together mean that your company should be looking for ways to get your employees more engaged with your retirement offerings!
How to Help Your Team Get Ready to Invest
Of course you don’t want them jumping into a 401(k) without a plan. Not everyone is ready to invest. In fact, before getting help with retirement education, many on your team could use help grasping the fundamentals. This is especially true if employees are still living paycheck to paycheck, borrowing to make ends meet, and forever refusing to budget!
In case you haven’t heard, these are really common habits for the average American worker:
Most (78%) live paycheck to paycheck, which means they’re only one really bad week away from financial disaster. (2)
About 75% are living in debt, and most of them have no expectation of ever getting out of it.
Only 41% even bother to budget! That means three out of five of your employees do not have a regular written spending plan for their income! (3)
So what do all of those things have to do with 401(k) engagement? The answer is everything!
The truth is, the surest way to get employees not only enrolled in a 401(k) but also excited to send big savings to it is to first help them change their behaviors around the personal finance basics—stuff like debt, savings and budgeting. That means they have to admit and address their painful lack of financial literacy.
That’s the essence of real engagement: inspiring workers to switch from the bad habits that are holding them back financially to the good habits that can move them full speed ahead into retirement savings. Let’s talk about ways to help your employees do that.
First, Start With the Money Basics
Like we said before, the first real step toward getting your team engaged in a 401(k) is to help them get some basic financial literacy. Whether you realize it or not, most workers are more than happy for their employers to educate them about their finances. And that makes sense, because for most of them, you’re their main source of income. Consider the fact that more than half of all Americans don’t think their company offers the resources they need for retirement. (4) Furthermore, the leading source for retirement information is an employee’s company, tied for first place with their parents. (5) Financial wellness guidance offers the kind of help and answers they want and need.
So go ahead and lead the way! A great financial wellness benefit should provide employees with:
Excellent content that inspires them to do the right things with their money.
Clear action steps for eliminating debt, getting on a budget, and building up an adequate emergency fund.
Convenient and user-friendly tools that help them put what they’re learning into action.
A product that’s available to them anytime and on any kind of device.
Stories of life change from others who have enjoyed their own financial success.
Trust us, once your employees see how many people have already taken the initial steps toward basic financial literacy, they’ll be inspired to follow the same path themselves! What’s more, they’ll be on the doorstep of getting powerfully engaged with a 401(k).
Second, Consider Offering a 401(k) Match
Obviously this isn’t always possible for every company. But if you have the means, it’s one of the most powerful investments you can make in your team. And it goes a long way toward driving engagement with the 401(k)! After all, who doesn’t want free cash to put toward their future?
If you can match a certain percentage of your employees’ 401(k) savings, you’re very likely to see more enrollment among participants. And you’ll probably also see participants saving whatever percentage of their income you’re matching. But once employees sign up, you’ll definitely want to get them even more engaged from there! The truth is that most employees are investing at rates far below the level of savings they’ll actually need for a healthy retirement. To put the situation in perspective, just 4% of workers earning below $50,000 are maxing out their 401(k) limits, while only 11% of those earning between $50,000 and $100,000 are doing so. (6) Don’t assume the six-figure earners are doing all they can to prepare either! Even among those making above $100,000, less than one-third are maxing out.
That’s typically because many have jumped in without first addressing the basics of financial literacy discussed above. This is where a great financial wellness benefit is even more helpful. Be sure you’re helping employees understand one of the fundamental rules of retirement education: as soon as possible, everyone should be investing 15% of their income in anticipation of the day they stop working. For many, it’s the prospect of an employer match that entices them to start. But be sure both your financial wellness benefit and everyone on your team are communicating the need to get to 15% as soon as possible.
Third, Send Frequent Reminders About the 401(k) to Employees
Life’s really busy. Even when employees are doing all the basic things right financially and they’re enrolled in your 401(k), it’s still pretty common for them to fall into a “set-it-and-forget-it” mentality. “Okay,” they say. “I’ve got it together financially, and I’m even investing for retirement. What else does anybody expect from me?”
This is where a gentle reminder (or three) from your HR experts can go a long way toward greater 401(k) engagement. Employees should know their options, which mutual funds are available to them, how to increase their savings, the importance of never taking loans out against their savings, and how much income they’ll need to live well in retirement.
You’re used to handling all kinds of communications, so don’t neglect a vital item like your company’s retirement offerings. Here are some of the communication methods we’ve seen work well:
Table tents in lunch or common areas
Postcards sent home
Announcements during company-wide meetings
Videos on common area televisions
As for what to say to your team in your 401(k) communications, keep it simple and consistent. Remind workers to take advantage of the 401(k) benefit being offered.
But before that, it’s essential to pair 401(k) awareness and education with the right financial wellness solution. You’ll need to help your employees make the fundamental behavior changes necessary to truly engage with a 401(k) and use it successfully. They’ll never be able to hit that recommended (and totally possible) 15% until they first master the money basics outlined above.
You’ve probably seen for yourself how bad the impact of financial stress can be both on employees and your business overall. SmartDollar has helped thousands of companies and their employees experience the kind of behavior change that allows them to put that stress behind them and face retirement with high hope. The financial wellness benefit gets your employees truly engaged with their finances, from the basics all the way to their 401(k) and beyond. If you’re ready to learn more about a program that actually changes your employees’ behavior in a positive way, we’d love to hear from you today!