Goal-Oriented Savings

Give employees a GPS for retirement savings

Your clients set goals for their employees at work. Why shouldn't they do the same for their retirement?

When retirement plans were introduced as tax-deferred savings programs, there were few behavioral studies or tools to help employees determine how much they needed to save.

Over time, a wealth of information has been gathered on saving habits and retirement income needs. What has been discovered is that savers have difficulty seeing themselves 15, 20, or even 30 years from now, and often find the concept of retirement income too abstract to grasp when they don’t have defined goals.

Goal-oriented savings allows employees to set and monitor progress—just as they do at work—and can help them better prepare for retirement.

Providing access to an online retirement calculator is an easy way to encourage goal-oriented savings. This often involves a simple interview that steps employees through a few key questions to let them set up and track how they’re doing in terms of their retirement savings. These questions include:

·         What is your current annual salary?
Determines how much employees need to save annually to meet their retirement goals and what their annual income needs might be when they retire.

·         What are your retirement goals?
Establishes when employees want to retire and how much income they’ll want annually during retirement.

·         How much are you saving for retirement?
Records the percentage of current income that employees are saving for retirement each year, including any amount that your clients are contributing.

·         How much have you saved for retirement?
Includes savings from employees’ current plan, along with any other savings that are specifically for retirement, such as an IRA or a retirement plan from a previous employer.

·         What investment return do you expect?
Captures the return that employees expect to earn on their retirement savings before retirement begins.

Once this information has been collected, goal-oriented savings tools like the Ascensus online retirement calculator below can provide real-time information as the contribution rate, retirement age, income percentage, and rate of return are adjusted. 

This allows employees to fine-tune their goals and see what steps they should take to better ensure that they stay on track to meet their retirement goals. If their personal circumstances change, they simply update the calculator to get an instant update on how their retirement planning is affected.

Experts believe that providing a visual reminder for retirement savings via an online retirement calculator can help employees become more retirement ready.

“The very act of thinking about how to do a task makes you more likely to follow through and do the task,” says Annamaria Lusardi, Denit Trust Distinguished Scholar and Professor of Economics and Accountancy at the George Washington School of Business. “Saving more is hard, and if people don’t do the calculations and see the numbers, they don’t save more.”¹

When clients express concern about their retirement plans due to low employee contributions or interest, talk to them about the possibility of implementing a goal-oriented savings tool like an online retirement calculator. Through interactive planning, participants can build a better retirement strategy based on realistic expectations and goals.

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¹Source: Novack, Janet. Forbes, "These Calculators Can Raise Your Odds of Retiring Well." January 9, 2013. http://www.forbes.com/sites/janetnovack/2013/01/09/these-calculators-can-raise-your-odds-of-retiring-well/.