Taking a 'Calculated' Approach to Retirement Readiness
Nathan Voris, with Schwab Retirement Plan Services, discusses how retirement calculators can be a useful resource for employees—by spurring them into action and providing them with more confidence about retirement readiness.
A version of this article originally appeared on PLANSPONSOR
Plan sponsors are always thinking about which tools and resources will have the greatest impact on their employees' engagement and outcomes. From online portals to webinars, there's more information available to participants today than ever before, largely thanks to the Internet. Amid all of these useful options, you might be surprised to know, the humble online retirement calculator is really pulling its weight.
We recently surveyed 1,000 401(k) participants, and the vast majority (82%) said they are likely to use online tools to help them plan for retirement.1 Just over half have already utilized an online calculator. And, as it turns out, the results they received spurred them to action.
Of those who have used this type of calculator, 61% took a positive next step, such as: increasing their contribution level for their 401(k) and other retirement accounts, altering their spending habits, accessing online advice through their 401(k) plan, asking a financial professional for advice and even opening a new retirement account.
This kind of behavior is definitely commendable, and it reinforces a point that my colleagues and I think is so important. Wherever an employee is in their financial journey, we want to encourage them to take their next best step. The cumulative effect of all of these small steps is what moves participants from saving to investing to true financial ownership.
The other byproduct of retirement calculators is confidence. Forty-two percent of those who have used one felt confident after doing so—more than any other emotion that was listed for them to choose from.
Large groups also reported feeling relief and happiness. Most (71%) said they felt encouraged and wanted to learn more. From my perspective, we can't underestimate the power of confidence in helping participants engage with their investments and make a plan they can stick to.
I should note that a much smaller percentage of people who've used an online retirement calculator reported feelings of frustration—and even panic or sadness. For them, this tool is no less valuable. Sometimes, getting an objective perspective on how much work we have to do is just what we need to overcome our inertia and take action that will improve our situation.
While many participants are self-starters, the reality is that they still want help. Nearly all respondents in the survey (95%) said they'd feel confident in their ability to make the right 401(k) investment decisions if they had the help of a financial professional, and 93% said they're likely to follow financial advice from a professional. Seventy-two percent said they'd take advantage of help from a professional specifically to develop a financial plan, if it were offered by their employer.
And yet, about half (48%) of participants feel their situation doesn't actually warrant professional advice. As those looking out for 401(k) participants, we need to work to address this misperception. After all, no matter how much a person has to invest, that money is part of their wealth, and they deserve the benefit of guidance to make the most of it.
The bigger picture here is that most Americans have a lot of work to do to save enough for a comfortable retirement. The people we polled believe they need $1.7 million, on average, for retirement. While everyone's situation is different, this is a realistic projection—though getting there is going to be a challenge for most.
That's why it's so important for us to encourage participants to use all of the resources at their disposal—from consultations with a professional to simply plugging their information into an online retirement calculator to take their financial pulse. Participants tell us they want help. Together, we need to focus on leading them to it and making sure they know they deserve it.
Talk with us about all the options available to your business.