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Helping Employees Take Control
Of Their Financial Future

The issue:

According to the American Savings Education Council, less than one-half of workers know how much they need to save for a comfortable retirement. A study released by the Economic Policy Institute indicates that more than 40 percent of American workers will not even be able to replace 50 percent of their current annual wages after they retire. Twenty percent of these workers, now between the ages of 47 and 64, will likely be facing a future of living in poverty. The situation is particularly acute for employees of small to mid-sized businesses, whose employers are less likely to contribute to their retirement programs.

What employers can do:

There are several options employers can consider to help compensate for the lack of contributions to employee retirement funds.

• Helping employees reduce withholding: Assign payroll staff to work with employees to help them withhold the proper amount of taxes. Withholding too much is simply an interest-free loan to the government. By reducing withholding to the proper amount, employees increase take-home pay that can be added immediately to interest-earning retirement savings.
  
  
• Establishing a 401(k) program: Even if the employer does not contribute to the plan, participants can have a portion of their pay deducted on a pre-tax basis and invested in a tax-advantaged retirement plan.
  
  
• Providing financial coaching: Employers can schedule time for a financial consultant, 401(k) plan administrator or the corporate accountant to speak with employees about financial management, including retirement savings.
  
  
• Offering payroll direct deposit:
  
  
  • Payroll direct deposit allows employees to have their pay electronically credited to their accounts at most financial institutions, including banks, credit unions or savings and loan institutions.
    
    
  • Pay can also be allocated among accounts such as checking, savings and even mutual funds or money market accounts. This is important because it may reduce the temptation to spend the money rather than save it.
    
    
  • Because pay is deposited directly into an account, employees can begin accruing interest immediately.
    
    
• Helping employees improve money management skills: Many employees do not have checking accounts and may consequently find it more difficult to stay on top of their finances. Providers like National Payment Corporation now make it possible for employers to help their employees establish a FDIC-insured debit card account specifically for using payroll direct deposit and withdrawing money. Cardholders have immediate access to their funds, 24/7, so they always know the status of their finances. There is no credit verification and no minimum balance, and the card can be used at ATM machines and retailers across the United States.

What employees can do:

Identify retirement needs and resources: Be knowledgeable of all retirement resources, including what Social Security will provide. Develop a budget of anticipated expenses. Many experts advise those nearing retirement to have the primary residence and vehicle paid for, or nearly paid for, by the time of retirement to reduce fixed monthly expenses.

• Prepare for financial emergencies: Put aside three to six months’ worth of living expenses in an easily accessible interest-bearing account.
  
  
• Consolidate debt and reduce credit card spending: Reduce the number of credit cards used. If credit card debt is at a high interest rate, consolidate into one lower-interest card or investigate consolidation loans at a lower rate. Pay cash and minimize future credit card spending except for emergencies.
  
  
• Create a budget and reduce spending: Keep a log of expenses to analyze spending habits and eliminate unnecessary expenditures. Create a budget where the first “bill” paid is to savings.
  
  
• Consider insurance needs: Review whether family needs will be met in the event of a crisis and investigate the need for life, health, disability, homeowners and long-term care insurance.
  
  
• Organize records: Organize and store financial records, including credit card, bank account, insurance and other important documents.