Can you give your employees the benefit of the pension without the employer liability of one? Yes, by giving them the equivalent of an in-plan actuary. Combine the one-on-one advice of a CERTIFIED FINANCIAL PLANNER™ with a retirement needs assessment. Most plans provide no retirement planning help for their employees.
What is a Retirement Planning Needs Assessment
Before they start saving, would it not be wise to do a retirement planning assessment?
- How much to save?
- How many paychecks?
- What rate of return?
Retirement plans have been sold by investment professionals who are most comfortable discussing investments. They often don’t have planning credentials such as CERTIFIED FINANCIAL PLANNER™ or CHARTERED RETIREMENT PLANNING COUNSELORSM. Even the investments sold typically have some degree of risk. However, you and your employees are left to believe that somehow you can either pick a single investment or put together a combination of investments that will move you down the road to retirement.
Retirement Planning Starved
Many Americans don’t understand concepts like compound interest much less the various methodologies of investing. Advisors use the concept of compound interest as guidance to help them determine how and how much they need to save.
What if you leveraged your Qualified Default Investment Alternative choice to simplify retirement planning? Let’s assume that you use one that is 60% stocks and 40% bonds as your Qualified Default Investment Alternative choice. When you or your employee meets with the retirement planning advisor they can run a calculation that would show how much you would need to save until your chosen retirement date. If you find that savings is too high, you could either push out retirement or potentially choose another plan investment that would allow you to take on more investment risk to try to beef up returns. As the future is not certain, you would meet with the advisor on an annual or semi-annual basis to tweak your plan as your job, raises, savings and markets change.
Retirement planning behavioral counseling
Behavioral finance professors such as University of Chicago’s Richard Thaler, UCLA’s Shlomo Benartzi, Santa Clara’s Meir Statman and Princeton’s Nobel Laureate Daniel Kahnemann have provided research that shows this is not simply a rational exercise. While an actuary is thought to be “just the facts”, retirement planning includes dreams and behaviors. It is known that investors tend to shift dollars into investments that are “currently hot”. An advisor can be a calming voice in the ups and downs of the market. The advisor can explain that while the market is down, their new contributions are actually buy more shares of investments which well be a good thing when markets rebound as they historically have done.
Who should pay for retirement planning?
I believe that it should be paid by the employee. You may not realize this, but if you buy an investment from a broker, you are likely paying a commission or sales load. While often reflected in percentages, you may pay about 6% up front. On a $5000 investment that means $300. Did you get a retirement plan for your money, expert investment guidance or did they simply fill out the paperwork? You will have to be the judge. Are they tied financially, emotionally and ethically as an investment fiduciary to help provide their best efforts to help you pursue your retirement goals?
Retirement planning for all
Are the majority of your employees on track to retire? If not, I believe that this benefit should be part of your plan for all participating employees and be paid by them. Hopefully you and your employees have read your fee disclosures and know who and what you are paying for in your plan. I believe that once you examine your costs, there are likely areas that you are paying for that aren’t providing much return on investment (ROI). Even if that is not the case, help your employees by having them work with CERTIFIED FINANCIAL PLANNER™, CHARTERED RETIRMENT PLANNING COUNSELORSM and the like to customize a retirement savings plan.
I welcome your email comments james.brewer@lpl.com. Because of spam and regulator issues, I have disabled the comment section.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. (2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI.
