Retirement plans aren’t enough to sustain employees’ financial wellness

COVID-19 turned a theoretical financial fear into an actual threat. People had heard for years that they needed to budget better and have short-term savings to keep them going for three to six months. But for more than a decade, the economy was so strong and unemployment so low that the threat was simply intangible for many people. As a result, when it got all too real in 2020, they were just unprepared.

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Aside from inadequate short-term savings, many Americans lacked a basic understanding of their spending and cash flow needs. In essence, they didn’t know what it was costing them to live month after month because it had been so long ago the economy made them think about it.

Focus on financial wellbeing
If anything positive can be gleaned from the financial plight that many Americans have experienced, then employers are now much more focused on implementing effective financial wellness policies for their employees. Offering retirement provision certainly helps, but it should only be a starting point.

Consider the hypothetical example of a 35-year-old employee with two car payments, student loan debt, a mortgage, and children. With all the expenses in his life, just accumulating some cash on a 401 (k) plan for a retirement in 30 years is not enough to keep him quiet at night. This is why short, medium and long term thinking is so important. Financial wellness programs can play a key role in providing this training to employees.

Comprehensive curriculum
Traditionally, much of the training employers provide on their 401 (k) plans could be viewed as modular, with subjects treated independently and little attention to their interrelationships. A legitimate financial wellness program is more of a comprehensive curriculum where employees will certainly learn how the company pension plan works, but also learn more about their overall financial picture.

The program should have a strong emphasis on budgeting. This would mean employees carefully reviewing their income and expenses and learning how to handle money better, including ways to save it and create more comfort and confidence.

Employees would also benefit from education about investment options beyond the company’s 401 (k) plan, such as: B. Using a 529 plan to save college education for their children. Employers should consider looking into family protection, including short and long term disability insurance and whether life insurance might make sense.

For older workers who are about to retire, education about social security would be a key element. This could include details of the age of entitlement to partial and full social security benefits and the extent to which these funds should be drawn. When you put all of this information together, it becomes a much broader assessment of an employee’s financial condition than just a number resting on a 401 (k) or 403 (b) account.

Financial wellbeing is here to stay
The drastic effects of the pandemic have ensured financial wellness programs remain in place. I would argue that employers’ commitment to this will also increase significantly. In the past, when an employer offered a financial wellness program, the motivation often didn’t go far beyond simply being able to say that it exists.

A much more widespread and genuine motivation has now emerged among employers. Many really want to promote and facilitate financial wellbeing rather than just implementing a program that can be touted in an employee handbook or recruiting brochure. The bottom line is that companies are directly and adversely affected if their employees are not doing well financially. Accordingly, there are concerted interests to establish and highlight financial wellness programs that actually do what they are supposed to.

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