Tuesday, December 23, 2008

Employees Not Saving Enough for Retirement

Traveling the world, spoiling grandchildren, taking long walks on the beach: What was once known as the golden years of retirement might be a thing of the past.

According to a new study by Hewitt Associates, less than one out of five employees will be able to meet their estimated fiscal retirement needs, and that can have a bottom-line impact on productivity and engagement.

"If you look out five, 10, 20 years, there's a pool of individuals who are not going to be able to retire, who may not be able to afford health care," said Alison Borland, defined contribution consulting practice leader at Hewitt. "So they're going to continue working, and we have seen some conversations about what that means from a workforce management and talent perspective."

On the one hand, organizations are facing a talent shortage, so the fact people might remain in the workforce longer could be seen as a positive. But workers who are staying only because they can't leave financially aren't going to be as productive, engaged or creative as they otherwise might be.

"When you think about the kind of talent employers are looking for, they're not looking for a disengaged workforce that is dying to leave," Borland said.

Borland thinks many employers struggle with how best to communicate the issue of saving for retirement, since the numbers can be intimidating, and many different factors affect how various groups participate.

"Gender, for example, plays a significant role in how employees interact with their savings plan," she said. "Age: That plays a key role. And also race and ethnicity has an impact on how people behave and how they save and invest."

Talent managers must understand all of these other factors, in addition to providing modeling tools, information and guidance - including examples of what good savings and investment choices might look like - to develop custom, targeted solutions that reach each group in the most comprehensive way, Borland said.

Additionally, to drive the point home, many companies have started holding regular retirement checkups. Often, the retirement decision is included in the annual enrollment period for health care plans.

While these tools can help employees save for the future, talent managers also must help those workers facing retirement today.

One option on the table is phased retirement, in which workers can access some of their retirement funds while they're still working and reduce the total number of hours they put in each week. But the concept is challenging from a regulatory perspective. Borland said policy changes would need to take place before many companies could adopt the plan, but it could benefit both the employee and the company if enacted.

"This pool of workers who need to work and contribute might be much more productive if they can do it on their own terms," she said.

Finally, Borland said she expects as the issue becomes more widely publicized, more and more employees will be focused on learning about and participating in their employers' retirement benefits. So talent managers should take some time to brush up on their organizations' policies.

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