Reliance on defined-contribution plans, primarily 401(k)s, and the combination of a flawed system, an erratic stock market over the past decade, and a looming bond bubble have created the “Retirement Cliff,” a drastic shortfall in funds for millions of workers who won’t have enough money to enjoy a comfortable retirement – or retire at all.
Today’s workers are using 401(k)s to fund nearly 100% of their retirement income, other than Social Security, and the risk of saving has shifted from employers to employees.
Workers investing in stocks and bonds for retirement income are in for a rude awakening. Between 2000 and 2012, the S&P 500 stocks averaged a return of only 1.66% a year, less than the 2.45% rate of inflation. Many financial analysts see Treasury bonds falling 10% or more before long.
So don’t be surprised if your employees start asking themselves, “Did I get proper education and investment advice on my 401(k)?” and “Who’s responsible for me not having enough money to retire?”
What’s more, a number of recent studies stress the cost to employers of aging workers who can’t afford to retire.
To make sure that your workers avoid the “Retirement Cliff,” employee benefits experts offer this advice:
- Offer automatic “opt-out” plan enrollment and increases in deferrals at regular intervals
- Encourage such proven long-term investment strategies as asset allocation and dollar-cost averaging
- Stress the benefits of compounded returns
- Consider higher employer matches or mandatory profit-sharing contributions
Bear in mind that, although these program are easy to understand, they can be difficult for some workers to implement.
We’d be happy to advise you on how to help them save for their” golden years.” Just give us a call.