Retirement and savings programs should motivate plan members to think about how they want to spend their time in retirement as well as their money.
“If we focus in just on the financial part of the equation and then [plan members] get to that point where [they’re] retiring, not only might they not have enough money to do the things they decide they want to do, but also they haven’t really figured it out,” said Laura Pratt, national practice leader of organizational health at Canada Life Assurance Co., during a session at Benefits Canada and the Canadian Investment Review’s 2020 Plan Sponsor Week in mid-August.
“I think the worst thing is going into that stage of your life without a bit of a plan or an expectation of how you want that to look.”
Pratt suggested plan sponsors connect members with free resources that encourage them to plan how they’ll spend retirement, including who they hope to spend it with, whether they want to give back to their communities, what activities would give them a sense of purpose and enjoyment and routines they hope to develop or continue.
“If we’re lucky, our retirement years may represent up to a third of our lives and we want to spend time on the things that we’re passionate about, that we enjoy and that bring purpose to our lives. So it’s important to do some planning and to consider what we want out of our retirement years.”
Also speaking during the session, Avnee Patel, national accounts executive in Canada’s Toronto consulting and group customer business, said financial well-being programs will help arm employees with the financial literacy to plan for their retirement. “[Financial well-being is] a lot like mental and physical well-being — it’s about creating good habits to support your goals.”
The demographic composition of the workforce is changing, she noted, with millennials making up a larger portion. While this cohort is more educated and skilled than their parents, they also report low levels of financial literacy, according to a survey by BMO Wealth Management. It found just 24 per cent of millennials reported having basic financial literacy — meaning they understand their assets, expenses and income — and a mere eight per cent had a high level of financial literacy, understanding taxes, banking options, mortgages and investing.
“For employers offering a retirement and savings program, the process is fairly straightforward: offer the plan, hopefully include a contribution or a matching component from the employer, promote enrolment into the plan and try to promote the tools and resources available for the member,” said Patel. “But is this really contributing to an employee’s financial well-being or addressing their priorities?”
Pointing to the results of the 2020 Sanofi Canada health-care survey, she noted 39 per cent of respondents cited personal finances as the biggest source of stress. It also found financial planning services made the list of the top products and services plan members would use if added to their benefits plan. Financial planning also made the list of services that plan sponsors were interested in covering.
Employers can use retirement and savings programs to instil good financial habits, such as budgeting and expense tracking, among employees. “Budgeting is an organized way to understand how money is spent and promoting expense tracking can really help someone understand how much they will need in retirement,” she said.
They can also encourage the use of a tax-free savings accounts to save up a small cash cushion for unexpected expenses, giving employees peace of mind and helping them to set financial goals to work toward.
“A culture of good financial habits goes a long way,” said Patel. “A lot of what’s going to determine what will happen [in retirement] will be the savings and spending habits we pick up during our working years.”
To view a recording of this session, visit our webinar page.