Since the contribution limits were recently raised by 10% for 401(k), 403(b), and most 457 plans (to $22,500), now is a good time to learn creative ways to communicate to your participants the benefits of increasing contributions to their retirement plan. These new, higher limits could strengthen their retirement goal; however, participants might not be too keen on squirreling away too much right now, which is understandable.

As participants consider their elections at open enrollment, they’re likely weighing which benefits they’ll keep and what they’ll drop as they enter 2023, with the continuously fluctuating and grocery prices remaining uncomfortably high. The good news is inflation seems to be calming down, and some analysts expect it will continue to cool.¹ This means it could be a good time to start contributing to a retirement plan or to increase contributions—even if it’s only by one percent.

Communicating the Payoff/Benefit of Just One Percent

You can help participants conservatively establish a good habit of regular contribution increases now and down the road by identifying the difference just one percent can make. Here are three talking points:

Some workers may decide to visit their contributions twice per year: they start the New Year off with a win by increasing contributions one percent, and on their birthday, they give themselves an additional gift of contributing another one percent. We’ve included a three-slide graphic which really drives home how much one-percent can grow over time.
A 35-year-old earning $60,000 per year could have an additional $85,500 in their retirement fund at 67 if they increased their contributions by one percent, according to calculations from Fidelity Investments.² ³
According to a recent survey of 2400 adults over the age of 18⁴ by Harris Poll, this number ($85,000), is close to what the average American’s total retirement savings is today, which is 11% lower than last year’s average of $98,000.⁴ This means people are dipping into their savings. Thus, promoting the long-term growth potential of retirement account contributions may ease concerns around these dwindling savings numbers.

This information is intended to be educational and is not tailored to the investment needs of any specific investor. *Approximation based on a 1% increase in contribution rate. Continued employment from current age to retirement age, 67. We assume y — This information is intended to be educational and is not tailored to the investment needs of any specific investor.
*Approximation based on a 1% increase in contribution rate. Continued employment from current age to retirement age, 67. We assume you are exactly your current age (in whole number of years) and will retire on your birthday at your retirement age. Number of years of savings equals retirement age minus current age. Nominal investment growth rate is assumed to be 5.5%. Hypothetical nominal salary growth rate is assumed to be 4% (2.5% inflation + 1.5% real salary growth rate). All accumulated retirement savings amounts are shown in future (nominal) dollars. This assumes no loans or withdrawals are taken throughout the current age to retirement age.
Your own plan account may earn more or less than this example and income taxes will be due when you withdraw from your account. Investing in this manner does not ensure a profit or guarantee against a loss in declining markets.

Translating “Savings Today” into “Comfortable Future”

Finally, you already know how important it is to consider the demographic of retirement account contributors s based on which generation they represent. One commonality, however, is the Boomer and Millennial are living in the now—the right now—especially after COVID demonstrated our present can be disrupted without warning. Schroders’ head of US defined contribution, Deb Boyden, has gone on record saying we need to rethink how to “reach investors that have the mindset of living in the moment. … [We] need help translating their savings today into what that means for the future.” ⁵

If you want your participants to learn the power of one percent, or if you want creative ways to reach your participants across all demographics, reach out to a KerbeRose Trusted Advisor for guidance.

Sources:

¹ Toms, M. (2022, November 16). Inflation finally moves lower. Will it last?

² Adamczyk, A. (2020, January 23). Increasing your 401(k) or IRA contributions by just 1% can make a big difference — Here’s how much.

³ Fidelity (2022, July 22). Increasing your savings by just 1% now could mean a lot in retirement.

⁴ Zuss, N. (2022, October 30). Needed Retirement Asset Expectations Are Higher in 2022.

⁵ Place, A. (2022, April 25). Millennials and baby boomers are saving — Just not for retirement.