Motivating Employees to Save for Retirement

October 09, 2019
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I speak with hundreds of employers every year and one of the most common complaints I hear is the struggle to motivate employees to take retirement planning seriously. Yes, the auto-enroll features help but is it enough? Probably not. Studies show we are falling way short on our retirement savings needs. 

When it comes to retirement planning, you can’t simply order your employees to contribute sufficiently to your 401(k) and expect them to do what you want. In fact, it’s hard to “order” employees to do anything since most people don’t like to be told what to do. It takes a bit more finesse to motivate employees to take the right steps toward retirement success, even if it is for their own benefit. There are two main ways to get your employees’ cooperation when it comes to retirement planning: motivate and inspire. Although those two words are used interchangeably, they mean two different things.

Motivation is about moving people to act in a way that achieves a specific and immediate goal. Making sure your employees know you believe they need to contribute at least as much to the 401(k) as required to get to their retirement goal is an important call to action. When you have group meetings or webinars on your 401(k), do you participate? Having the owner, CEO, or senior leadership present is very important because it sends a message to your employees that leadership believes in the 401(k) and supports their involvement. Fear is also an effective motivator. “If you don’t save diligently, you may never be able to afford retirement.” Obviously, fear overused can serve to demotivate workers or desensitize them to the reality of their situations. “Yeah, I know. I’m never going to be able to retire. Blah, blah, blah.”

People Prefer to Be Motivated By Positive Reinforcement

Certainly, most people prefer to be motivated by positive reinforcement like excitement, pride, a sense of belonging, and the thrill of achievement. That is why your employees need to hear from you, the firm leadership. They need to know you care about their retirement and support their financial wellness, not just by having a meeting but also by showing up. Even making a short speech to tell them why you care enough to offer a 401(k) and support the financial wellness program will go a long way to engage and motivate your employees. Of course, you can also demonstrate your concern by offering an employer matching option.

Inspiration, however, is more effective than motivation and can have a greater impact on employees’ long-term success. Inspiring people involves changing the way they think and feel about themselves so that they want to take positive actions. It taps into people’s values and desires. Inspiration appeals to the best aspirations of people, and its underlying, often unspoken message is You can do this!

For example, employees who are debt-ridden, struggling to make ends meet, and living paycheck to paycheck need inspiration. For them, it is hard to imagine a life free from financial burdens. Indeed, they may never have that sort of life if they aren’t inspired to change their values about money and reprioritize personal desires. Ironically, those who are the least able to save today are the ones who will most likely never be able to save even if you doubled their pay. This is because for most in that situation, it is not the income that is the problem but rather their attitude and value system. Financial education can go a long way in motivating and inspiring employees.


When You Inspire Others, You Empower Them to Be Their Best


But above all else, your reputation, character, and behavior will inspire your employees most of all. The only way to call the best out of others is to expect the best from yourself. That is why your engagement is so important to the success of your plan. When you inspire others, you’re not telling them exactly what to do or giving them precise directions, but you are empowering them to be their best. When this is done sincerely, your employees will be inspired by the sacrifice needed to succeed with their retirement plan and will likely surpass what even they themselves thought possible. Want to be a champion of success? Motivation and inspiration are often great tools used to bring out the best in people. It’s just a matter of knowing the right time and the right situation.

For example, when there’s an immediate short-term specific goal that you want your people to achieve, you need to motivate them. But when you want to shape people’s long-term aspirations, you need to inspire them. Your 401(k) team and, ideally, your advisor can set the stage, while you and your leadership team can boost the effect by showing you care. Telling your employees why you offer the 401(k) is a great start, but remember, retirement readiness is a process that requires years to achieve. To keep your employees going, you need to give them inspiration.

Want inspiration? Consider this: Suppose you have employees saving $150 each paycheck (paid bimonthly with a small employer match). After twelve long years, he or she finally accumulates $100,000 in the 401(k) (assuming a hypothetical 7% net average rate of return). That’s twelve years of saving, paycheck after paycheck, month after month, year after year. After twelve long years of sacrificing spending for today, the employee only has $100,000, which doesn’t go very far for retirement these days. It’s hard to be inspired when, after all those years, such little progress is made.

But once you get the first $100,000, the next hundred grand gets easier. It will only take about six years to build the next $100,000, assuming the employee continues with the same contributions and at the same rate of return. That’s half the time! This is because of the magic of compounding. Then, you can build another $100,000 within only a little over four years and the next take only a little over three years. The compounding effect works over and over. If you are able to accumulate a million dollars, you could build $100,000 in months, not years with the same savings rate.  In other words, your stick-to-itiveness really magnifies and magnifies rather quickly. Now that’s inspiration!

Unfortunately, it takes at least 10-15 years to start to really see the effect. That’s a lot of time to wait and stay motivated. And for those employees who don’t start until late, they may never get past the first hurdle, building the first $100,000.


Want Inspiration? Take Advantage of Compound Interest


This is all the more reason why your leadership and your 401(k) team need to guide the way and keep the enthusiasm going until your employees see the fruits of their labor. How many of your employees have small 401(k) balances left behind at former jobs? Why are they left behind? Typically, because the employees are uninspired to consolidate them. Yet, if they pooled their funds, they just might see the compounding effect and realize how impactful time can be.

With the deadline for 5500 fast approaching, don’t let another year pass by without ensuring you have the right education program for 2020 to inspire, motive and educate your employees and work towards retirement success.

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All illustrations are hypothetical and are not representative of any specific situation. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.