Planning for retirement is one of the most important things every worker should be doing. It takes time and commitment to build a sufficient nest egg to live comfortably in your golden years, so every little helps when it comes to getting this right.
As a result, businesses can play a crucial role by ensuring their staff are making the most of their opportunities to save right now and have enough money in their savings pot to carry on meeting their life's goals.
Important considerations for savers
There's a lot that people need to consider when it comes to retirement, such as at what age they hope to retire, what their future outgoings are expected to look like and how much they’ll need in their pension pot to achieve a comfortable retirement.
According to Which?, the average UK retiree spends approximately $2,700 (£2,100) per month. This equates to needing around $32,500 (£25,000) per year in retirement savings. In the US, this figure stands at closer to $4,000 per month - $50,000 per year - with both taking into account things like housing, healthcare, transportation and discretionary spending.
In whatever region you operate, it means that the typical retiree will need to set aside at least 15% of their pre-tax income each year throughout their working life to fund their retirement. However, it's important to factor in the age at which they start saving, any employer contributions and what a person's overall goals are for retirement that’ll impact this figure.
With that in mind, here are four top tips on how employers can support their teams in planning for life after work, making sure that when the time comes to retire, their employees are fully prepared.
1. Assess their needs
Clearly understanding the needs of your staff is crucial in helping them fund their future. Offering a free retirement planning assessment can be a great way to get to know your staff and their needs.
Encourage staff to plan ahead and think about how much money they'll need in retirement. They’ll need to assess things like how much they'd like to set aside for discretionary spending, holidays, and so forth, as well as day-to-day living costs and other outgoings like mortgages/accommodation.
Once they have a clear idea of what they'll require, the business can then advise them on the best way to save to ensure they have a comfortable retirement. Indeed, the need to plan ahead is strong for savers and research shows the majority of employees would welcome additional support in this area.
2. Automate enrolment
Automation can play an important role in ensuring all employees receive the best possible support in building a nest egg for their future. By automatically entering new hires into a corporate pension scheme, employers are taking away one of the biggest hurdles to saving: complexity.
In the UK, pensions auto-enrolment is now mandatory for all businesses, having seen a phased introduction since 2012. Meanwhile, the US has less stringent guidelines around companies offering pension support, but a growing number of businesses are automatically enrolling staff on to schemes.
For many people, the benefits lie in the considerable boost to their future savings that automatic enrolment can provide; it means they’re saving straight away as soon as they start work with a new employer.
3. Offer advice
For many people, planning for their retirement can be complex and confusing. As a result, it's important they have access to information that sets out a clear path towards helping them to meet their retirement goals.
Set out the different options that employees have available to them, such as investing more into their employee pension, other private pension schemes or saving into specific financial products. There are many routes to building a sufficient retirement nest egg.
It's important to remember that every individual should be treated differently; what's right for one person may be different for another. Consider the amount that people have available to save comfortably and tailor your advice to meet your employee's long-term needs.
4. Contribute to saving
One obvious way for employers to support their staff in planning for their retirement is to contribute towards their savings. This is also a great incentive to support staff wellbeing over the long-term, as employees know that their company is also helping to set them up for the future.
Having a percentage of their monthly salary added as a fixed contribution to pensions can go a long way to building employee savings. For example, a 3% employer contribution on a salary of $30,000 would be an additional $900 per year added to a person's pension pot.
Match this to employee contributions and that's $1,800 per annum. Add into that the effect of compound interest over the lifetime of a person's career and you can quickly see how adding an employer contribution to saving for retirement can make a significant impact.