Fidelity Investments’ 2021State of Retirement Study found that many plan participants would benefit from increased knowledge about the fundamentals of secure retirement. Here are some helpful points of emphasis for communications with plan participants.
Most 401k savers need to better understand the commonly accepted “rules of thumb” for retirement. Fidelity’s recent survey points to some specific knowledge gaps. For example, apparently, most of us continue to underestimate how much we need to save, and overestimate how much we can withdraw from 401k plans each year upon retirement. We also underestimate the market’s performance over the last 35 years, though we are overly optimistic about the age we can fully retire and receive social security benefits.
One expense category that tends to be vastly underestimated is out-of-pocket health care: for a couple retiring at 65, the average cost throughout retirement is $295,000. In addition to raising awareness about the importance of building this cost into our retirement plan budgets, 401k Specialist also provides these points of emphasis for plan participants:
- Financial professionals recommend having 10-12 times your last full year of working income by the time you reach retirement….Fidelity’s rule of thumb? Aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by age 67.
- It may come as a pleasant surprise for people to learn that the stock market has had a positive annual return for 26 out of the past 35 years.
- For people born between 1943 and 1954, the FRA is 66. People born later have an FRA of 66 (plus some months) or an FRA of age 67. Waiting to claim Social Security after age 62 comes with a bonus: roughly 8% additional monthly income per year for each year you delay claiming (up to age 70).
Keep Your Eye On The Prize
Amidst the many responsibilities of being a plan sponsor, don’t lose sight of the reason for the plan in the first place—helping employees—and yourself—save for a healthy and happy older age. Many workers across the country are trying harder then ever to save while also steering out from the disruptions caused by the pandemic. Experts advise plan sponsors to look at retirement plan participation rates, deferral rates and personalized rates of return at least annually, if not quarterly.
Understanding these measures can inform plan design and communication strategies to further help participants—and the plan as a whole—achieve end goals. Increasing auto-enrollment deferral rates and adjusting the employer match are two examples of how plan design adjustments might advance plan goals—and employee saving practices.
Realistic Risk Management
As a plan sponsor, be sure to revisit your risk management plans periodically—and make sure that all appropriate coverage is in place and current. For example, in the event a plan participant sues over an alleged fiduciary breach—and you are personally named in the suit—what’s your coverage?
There’s no need to go it alone. Let Colonial Surety Company help. Just select an affordable, comprehensive package and receive a three point coverage solution:
- The ERISA bond required to protect the assets of the retirement plan from theft;
- expenses in the event of a cyber breach; and,
- Fiduciary Liability coverage to protect you and your assets from personal liability.
- Cyber Liability coverage to safeguard your company and plan from covered losses and
Keep in mind: the ERISA bond required for the retirement plan does not cover you as a fiduciary.
Colonial Surety Company’s ERISA bond package provides plan sponsors up to $1,000,000 of fiduciary liability insurance. Secure the greatest overall savings and protection with our 2-3 year packages. Colonial even includes extended coverage to ensure your ERISA bond remains US Department of Labor compliant.
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