Saving for Retirement Early: Why Every Employer Should Get Employees on Track
When it comes to retirement planning, the biggest advantage is time. Help your employees start saving early to take advantage of compound interest by offering a retirement savings plan.
Retirement can feel daunting for older employees who aren't financially prepared for life after the workforce. For workers ages 55-64, the average retirement savings of $120,000 will afford them approximately $1,000 per month over a 15-year span in retirement. When you add in increased life expectancies and unexpected healthcare costs, those funds won't stretch far.
For younger employees, retirement may seem like a lifetime away, but building a substantial nest egg only becomes more difficult for those don't start early. Saving now can set them up for success in the long-term. For employers, it's never too early to get workers get on track. Here's why:
Social Security benefits won't be enough
As of January 2022, the average monthly Social Security benefit is $1,657. While many retirees rely on Social Security as their primary income source, that doesn't mean it will be sufficient to sustain a comfortable retirement lifestyle.
Time is on their side — with compound interest
Compound interest is basically money-making money. That's why saving for retirement early is so important. It accumulates when the interest earned on an account balance is reinvested, earning even more interest. And with retirement further away, younger employees have plenty of time for their balances to compound and grow.
Saving for retirement early encourages overall financial wellness
Saving for retirement builds healthy financial habits in younger workers, helping them to stay on track.
Financial stress impacts employers' bottom lines
Among employees feeling increased financial stress during the pandemic, 45% admit they've been distracted at work. Nearly ¾ say they'd jump ship to a company that cared more about their financial well-being.
Saving for retirement early vs later
Employers are in a unique position to play an instrumental role in their employees' retirement savings, by either implementing an employer-sponsored plan or participating in a state-mandated plan. What's the difference? State-mandated retirement plans may offer an affordable solution with fewer fiduciary responsibilities, but the tradeoff could be a one-size-fits-all plan design with limited investment options compared to an employer-sponsored plan.
Regardless of which option you choose, getting started sooner rather than later can help ease employees' concerns about financial security. In today's tight labor market, offering retirement benefits can also help you stand out when it comes to hiring and retention.
What is your organization doing to help employees improve their productivity and financial wellness?
To weigh your retirement plan options, refer to our State-sponsored and Employer-sponsored Retirement Plans brochure for more information.
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Unless otherwise disclosed or agreed to in writing with a client, ADP, Inc., and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors, or service providers; engage or compensate any financial advisors to provide advice to plans or participants; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans.
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