Employees (future retirees) need not be forced, sold, or otherwise limited to the exercise of navigating retirement plan benefits “packet“ to develop and manage a successful plan for retirement.
Why are we here?
The retirement plan industry has strived for “efficiency that uses the latest technology” when it comes to Plan enrollment and ongoing support and service. The latest attempt, the “Target-Date Fund” (which is indeed a multi-generation defect), is clear evidence that efficiency doesn’t automatically lead to a successful retirement. In fact, much of it may be detrimental to the retirement success of employees.
What a Financial Plan isn’t:
Many employers offering a retirement plan are led to believe that “all is good” when considering the support their employees receive. The following will provide some examples of typical, yet largely ineffective “planning tools”:
- An enrollment and beneficiary designation form, accompanied with the Summary Plan Description
- A paycheck calculator
- These provide an estimate of how much the employees net pay will be reduced by contributing a certain percentage to the corporate retirement plan
- A complete list of the investment options offered and their 1-, 3-, 5-and 10-year historical performance and the number of “stars” or “moons” from some esteemed fund rating service
- Auto-enrollment and target-date default options
- An 800 number to call or website chat function to contact
None of these common “planning tools” really solve the basic requirements of a financial plan.
This is why so many hardworking people are unprepared for retirement. They are overwhelmed, consider saving for retirement as a “cost” instead of a means of accumulating wealth, and use performance data to chase the “hot funds.”
More importantly, the above planning tools provide no sense or organization about where they are now, when they want to retire, and how much or what they need to save to achieve this goal. Effective, personal communication with each employee about their date and dollar-specific goals should be the first step before presenting any of the above Plan information. Next month, we will look forward to a discussion that provides the solution, or “what a financial plan truly is.”
