Company Worries About Retirement Readiness

According to a new report from Willis Towers Watson, corporations worry that employees cannot afford to leave the labor force on schedule. Fearing higher costs, many employers describe anemic retirement readiness as a "top risk" yet few monitor this on a regular basis. Researchers write "These findings suggest that sponsors have an opportunity to improve the governance of DC plans by increasing the frequency with which they monitor retirement readiness, as specific metrics on readiness would offer sponsors insight on the overall effectiveness of their plan." For a full read of this report, click to download "Unlocking Value From Effective Retirement Plan Governance."

Unfortunately, if results of a new FINRA Investor Education Foundation study reflect widespread reality, Corporate America may have an uphill and expensive battle on their hands. Nearly eighty percent of respondents self-identified as financially literate despite low scores on a quiz they took to test their knowledge. Making matters worse, financial education is a rarity. Six out of ten persons answered "No" when asked "Was financial education offered by a school or college you attended, or a workplace where you were employed?" 

Notably, the 2015 National Financial Capability Study reveals a financial literacy income gap with persons earning less money seemingly in need of greater help. If, as some predict, the U.S. Department of Labor Fiduciary Rule makes it harder for smaller investors to access financial advice, employers may need to pick up the slack. If that occurs, expect companies in search of long-term labor cost savings to incur bigger short-term cash outflows to provide employees with adequate financial education (to the extent allowed).

The takeaway is that retirement plans have a bottom line impact on shareholders. Companies offer programs to attract and retain talent but are mindful of the cost-benefit tradeoff.

Cat Food or Cruises For Retirement

When I taught personal finance and investment management courses as a finance professor in the 1990's, I talked at length about the need to save early and save big. We went through sensitivity analyses that were based on input from the students. What always struck me was the lack of realism in terms of how long it would take to accumulate sufficient funds to stop working and begin the "golden years" phase. I would point out that bad planning could result in having to eat low-cost cat food instead of being able to book a long-desired cruise around the world or doing something similarly fun. This hypothetical got a few laughs until students looked at the numbers and realized for themselves that it's just math. Save too little and your choices will be limited.

The reality is that inadequate retirement planning on the part of some individuals will cost everyone. It is a perfect example of the free rider dilemma that makes it hard to motivate those who are not thinking about their future. Essentially, with any safety net system, anyone earning an income is going to be taxed to pay for government-provided benefits. This means that a national retirement deficit will take something out of the wallets of all. By extension, this means that everyone (in the U.S. and elsewhere) has a stake in improving financial literacy. (The issue of poverty and the adverse impact on being able to plan for retirement is not addressed herein but certainly cannot be ignored either.)

Financial education is hugely important and can't start soon enough in my opinion. Organizations that promote how to plan ahead should be commended. One such group, the International Foundation of Employee Benefit Plans ("IFEBP"), has gone a step further by creating the National Employee Benefits Day. Set for April 2 this year, the goal is to remind individuals to be pro-active, "take control of your future" and "get to know your retirement plan." Besides an educational section on their website, the IFEBP includes a worksheet entitled "Your Retirement Picture." Links are provided to retirement calculators such as the Smart Money Retirement Calculator. Of course, not every company offers retirement benefits. Even when an employee does have access to company-sponsored benefits, individual savings should not be ignored, however small.

The Jump$tart Coalition for Personal Financial Literacy is another organization that seeks to make economic empowerment a top priority. A non-profit organization, its stated mission is to promote "quality and effectiveness in financial education." Yet another notable organization is Junior Achievement which seeks to "foster work-readiness, entrepreneurship and financial literacy skills." I am proud to say that I once served as a Junior Achievement volunteer in two different schools and found the experience highly rewarding. I was told that the students and host teachers likewise found the classroom interaction to be productive and enlightening.

Courtesy of U.S. taxpayers, MyMoney.Gov is a helpful resource about topics such as borrowing, saving and consumer precautions against adverse circumstances. "This website is a product of the Congressionally chartered Federal Financial Literacy and Education Commission..." Click to read a flyer about "Financial Literacy and Education Commission Research and Data Clearinghouse."

Thomas Jefferson is quoted as saying that "It is neither wealth nor splendor; but tranquility and occupation which give you happiness." In Jerry Maguire, Cuba Gooding's character made "show me the money" a mantra for countless moviegoers. Practically speaking, currency is important. If you don't have it, your choices are limited. That is why financial advisors talk address saving and goal-setting in the same conversation.

While cat food is important for felines, humans will likely opt for something different. Let's hope your future includes the freedom to choose what you want.