Retirement Readiness has been described as the efforts an employer makes with their retirement program to give employees the opportunity to fund and structure the retirement they desire. In order to achieve Retirement Readiness, employees need to:
- Contribute. First and foremost, employees have to contribute to fund their retirement. We live in a 401(k), defined contribution retirement plan world. There are fewer and fewer employees who can expect a traditional pension from their employers. In order to succeed in a defined contribution world, employees have to ensure that at least 13% to 15% of their compensation flows into their 401(k) accounts each year.
- Manage. All 401(k) plan participants are responsible for managing the investment of their account balances. Whether that means hiring a professional adviser, or educating themselves on investing concepts, the responsibility rests with the participant.
- Educate. Very few employees will begin their retirement journey with the investment knowledge necessary to confidently manage their account. Employees need to take advantage of the resources their employers provide. These resources usually include group investment education sessions, one-on-one conversations with experts and online planning tools.
- Understand. Funding a retirement is a sacrifice. By saving to fund their retirement, employees are electing a lower of standard of living today. This is incredibly difficult for most Americans to understand and embrace. We are a nation of consumers and have no trouble borrowing to meet our needs. We find it very difficult to save. As someone who has worked with retirement plan participants for more than 25 years, I can say with a lot of confidence that most Americans don't eagerly embrace the challenge of diligently saving over time to achieve an end result that is a long way off.
Many critics of 401(k) plans have said that they have been a gigantic failure. Because 401(k) plans depend upon employee contributions, and nearly all employees aren't contributing near enough, the experts feel all of us will be disappointed in the type of retirement we can finance. In order to succeed, employees must begin embracing the concept of Retirement Readiness with the same commitment as their employers.
Contributing Editor Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. Mr. Lawton has over 25 years of experience working with corporations on their retirement plans and is a Chartered Retirement Plan Specialist (CRPS) and Accredited Investment Fiduciary (AIF). He may be contacted at firstname.lastname@example.org or 414.828.4015.
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