Raise awareness during October’s National Retirement Security Month
October 05, 2022
Financial wellness in retirement isn’t a sure thing, but employers and financial planners are making strides in helping to provide a more secure future through access to retirement plans. Congress backs up these initiatives and supports the goals of National Retirement Security Month held each October.1
The goals are simple. National Retirement Security Month aims to raise awareness of various retirement vehicles, many of which come with numerous tax benefits. Increasing financial literacy and informing individuals on how they may achieve and maintain retirement security throughout their lives is another purpose of the month-long observance.1
When it comes to retirement planning, there’s a lot of focus on those approaching their Golden Years. However, financial planners and plan sponsors are well aware that, in general, to achieve the best possible financial outcomes later in life, investors need to start saving early in life.
Use these tips to engage younger workers and the young at heart, and encourage them to participate in a retirement savings plan sooner than later.
Educate about compounding interest
One way to encourage good saving habits may be to demonstrate the power of compounding interest and how it could lead to significant gains down the road. The concept of compounding interest is relatively straightforward. However, sharing an example with real dollars may help motivate individuals to begin saving now.
Investor.gov provides an easy compounding interest calculator that can be shared with all participants to demonstrate results like the following hypothetical example:
If a 25 year-old individual invests $1,000, contributes an additional $100 each month, and earns a 5% average annual return, they’ll end up with more than $150,000 by age 65. If markets perform better by an average of only 2%, they’ll rake in more than $250,000. Double that monthly contribution, and the 5% return goes up to nearly $300,000, and the 2% higher variance is just shy of $500,000 — half a million dollars.2
What happens if that person waits until age 35 to start saving? The same initial principal and $100 monthly contributions end up only bringing in about $84,000 at age 65 based on 5% average returns — a 44% decline in returns compared to starting 10 years earlier.2
The potential for compounding interest should be enough motivation for individuals to participate early in employer-sponsored plans or other retirement vehicles. As they advance in their careers and likely increase their compensation, additional contributions to a 401(k) or other retirement account only add to the potential.
Redirect student loan payments
You’d be hard pressed not to have seen recent headlines about federal student loan debt relief. Individuals eligible must have an annual income below $125,000 (or $250,000 for married couples or heads of households). Pell Grant recipients who meet the threshold may be eligible for up to $20,000 in debt cancellation whereas non-Pell Grant recipients may receive up to $10,000 in debt relief.3
Those who’ve benefited from the Student Debt Relief Plan may feel like they will have some extra spending money. Instead, it may be prudent to encourage those who receive some debt relief to direct what would have been a student loan payment toward retirement.
Determine risk tolerance
Conversations surrounding risk tolerance might be reserved for older clients with big portfolios, but younger generations have their own thoughts and opinions about how conservative or aggressive they want their investing approach to be.
Traditionally, some advisors assumed that young people should invest more aggressively to potentially reap higher rewards. But the potential for greater losses may not sit well with many young people who’ve observed recent market volatility or saw their parents’ near financial collapse during the Great Recession.
Don’t make assumptions about younger participants’ risk tolerances, and be sure to treat them with a tailored approach, much like you would a more seasoned investor with a higher net worth.
Many younger generations are digital natives and can’t remember a time when the internet wasn’t mainstream or when information wasn’t available at the touch of a button. Retirement tools and education need to be easily accessible. Whereas someone older might appreciate a folder full of printed materials, younger generations may prefer those resources in digital form where they can read and save them on their phones or tablets.
For employers and plan sponsors who have a majority of younger workers, it’s important to research what types of resources a plan provider may offer and how user friendly they are.
Even though there’s an emphasis on encouraging Millennials and Gen Z to save for retirement, it’s important to stress that it’s never too late for anyone to get started. Use the month of October to emphasize retirement saving and keep the conversation going all year round.
Remember that Cuna Mutual Group recognizes numerous observations throughout the year, including America Saves, Financial Literacy Month, 401(k) Day and National Retirement Security week. It’s our goal to educate participants on how to calculate their retirement savings and leverage their retirement plan to the fullest. As such, we’ve developed numerous educational resources that can be shared with them. Use these tools to help employees stay informed about their benefits and take full advantage of their retirement savings opportunities.
1Congress.gov, S.Res.404 — 117th Congress (2021-2022), Sept. 30, 2021.
2Investor.gov, Compound Interest Calculator, no date.
3StudentAid.gov, The Biden-Harris Administration's Student Debt Relief Plan Explained, no date.