By: Mark Strand, VP Senior Trust Officer
The Retirement Income Gap is the difference between your retirement income and actual expenses. Individuals typically need about 80% of their pre-retirement income in retirement. Ways to close the retirement income gap can come from both the plan sponsor and the participant.
Various enhancements a plan sponsor may incorporate into their company’s retirement plan are:
- Utilize automatic enrollment to encourage participants to start saving and saving early. Many plans start at a 6% default rate.
- Utilize an annual deferral increase. This can be a 1% increase each year until a cap is met, which could be up to 15%.
- Utilize a Qualified Default Investment Alternative (QDIA) to meet participant needs, which could be Target Date Funds or Asset Allocation Funds.
- Review the investment menu to add options with income replacement goals.
- Establish an Education Policy statement with your plan provider detailing the frequency and types of employee education meetings throughout the year. This becomes part of your annual review of the plan provider.
What can participants do:
- Review your contributions annually and adjust based on life circumstances with a goal of saving more. Take advantage of auto escalating features your retirement plan may provide.
- Consider spending less today to save more for retirement.
- Review your investments annually to ensure they meet your risk tolerance, time frame and are appropriately allocated. Reposition your existing assets to provide greater growth potential and more guaranteed income in retirement.
- Look at ways to create additional lifetime income through investments or business opportunities.
- Consider downsizing to reduce property maintenance costs freeing up money to reinvest for retirement income.
- Delay retirement until a later date, which could help increase your social security benefit.
- Create a budget to understand withdrawal strategies to cover retirement expenses.
At First Western Bank & Trust, we work for both the plan sponsor in creating a plan that will be viewed as a benefit and for the participants to walk with them on their journey to retirement. We provide multiple solutions ranging from complete local in-house services to partnering with industry experts for fiduciary outsourcing and technology needs.
If you are a plan sponsor looking to review your retirement plan for ways to enhance for attracting and retaining talented employees, feel free to contact our West Fargo Trust Department at 701-364-9006.