Signaling an opportunity for retirement plan advisors, an August 2014 Cerulli report listed helping employees with personal budgeting as the top driver of an appropriate deferral rate.
While the report largely called on record keepers to address the issue, retirement plan advisors are uniquely positioned to respond. By working with employees to address the underlying financial wellness issues that determine savings rates, advisors can strengthen their impact on a plan’s success.
To address the disconnect between current financial goals and the long-term goal of a secure retirement, advisors who meet with participants can first take the opportunity to learn more about employees’ financial challenges. By holistically profiling employees, advisors can then use this information to pinpoint financial strategies to improve financial wellness.
For example, if an advisor can get an employee to identify their financial goals, debt issues and savings behavior, then they can use that data as a jumping off point to discuss saving options that will have the least quality-of-life impact for that individual. Such personalized saving options could include eating out less, refinancing their mortgage or spending less on vacations.
These captured savings can then be directed towards retirement savings or paying down high interest debt, with advisors providing a level of accountability and positive reinforcement that record keeping platforms and third party solutions often lack.
Additionally, communications should be targeted based on generational preferences. For example, common financial goals for Gen X employees are saving for retirement, eliminating debt and investing better. However, for Gen Y employees, top goals include buying a home, having children and eliminating debt.
By drawing a direct connection between personal budgeting and deferral rates, the Cerulli report shined a light on the hard work required to get employees on track for retirement — hard work that retirement plan advisors are uniquely positioned to assist with.
Matt Iverson is CEO and Founder at Retiremap, based in San Francisco.
