My grandpa Pete probably didn’t spend much time thinking about his future retirement plans while walking behind a plow and facing the malodorous end of a team of horses.
He had a family of eight to feed and a farm that required constant attention. He eventually lost his wife and a young daughter during childbirth, and a few years later lost his farm to unpaid taxes. When the last child left their rented house, he was ready for retirement. With the help of a few small government pension checks, he became an itinerant retiree, alternately living with his children for the next 22 years.
He had taken in his widowed mother-in-law and expected, in turn, that his children would provide for his old age. He hadn’t needed the services of financial or wealth preservation planners. His wealth could be found in a paper shopping bag containing a change of clothes, a jacket and a pair of black dress shoes for Sunday Mass.
Today, there are few three-generation households, or even mother-in-law suites attached to houses. Young people today are expected to plan for a retirement that does not include living with their children.
As a retired human resource director and former college business instructor, I’ve spent considerable time among employees and students promoting the importance of pension plans as the first part of a three-legged stool (social security and private savings are the other two) strategy to prepare for retirement. In most instances my appeals were met with glassy eyes and polite indifference.
Here are recommendations employers might adopt to encourage employees to begin early planning for their golden years:
S
eparate pension enrollment from other benefits
New employees often are subject to sensory overload — too much information, too soon on the first few days of employment — and as a result they make hasty decisions about enrolling in important benefits. A separate presentation made a few weeks after starting by HR and pension representative about the importance of retirement planning and pension enrollment is likely to result in a more thoughtful choice, especially if the spouse attends.
Explain the power of compound interest
Compounding causes wealth to grow faster by earning investment returns on an initial balance then reinvesting those returns.
For example, MoneyGeek’s calculator reveals that an initial $5,000 investment at 6% compounded monthly will result in $30,113 in 30 years. Once employees see the advantages of compounding in their pension statements, they often increase their personal contributions.
Employees also might be warned that running up credit card late fees will produce exactly the opposite compounding effect — lots of debt.
Hold pension meetings during work hours
Whatever the topic, most employees will attend events that gets them out of the workplace for a few hours. Encourage them to schedule individual consultations with the pension representative after the meeting. A few meetings should be scheduled in the evening to encourage attendance by working spouses.
In today’s pandemic-ravaged work environment, the entire process also can take place through stay-at-home group and personal video conferences.
Too many employees who initially refused involvement in the company pension plan appear in the HR office a few years later asking to enroll. They’re a little older and wiser and their co-workers finally convinced them of the benefits of participation.
Late enrollment often is offered, but the ability to capture the employer’s lost contributions is usually not available. Employers should attempt to keep the number of those late-arriving employees to a minimum.