With all the concern about economic recovery, here’s a wakeup call: Many companies would be far better served preparing for a more menacing structural crisis.
I founded a company to help employers tailor financial benefits to meet the unique needs of employees. Instead of a one-size-fits-all retirement plan, we designed our company to focus on the priorities that matter most at an employee’s particular stage of life. For some, that’s retirement; for others, it might be paying down student loans or buying a house.
We surmised our platform would offer a range of payoffs for businesses and employees alike. Less absenteeism and healthcare costs. Less attrition ― and thus lower costs to find replacement employees. Higher engagement and more profit.
More use of tax-savings benefits. And of course, the relief and satisfaction that comes with knocking off a pile of debt or sending a kid to college.
Our holy grail has long been about translating our common-sense thesis into bottom-line value. Recently, we explored just that with a detailed financial assessment of the value of employer-provided financial wellness.
We sought to answer a simple question: when employees have access to a range of tools to solve their biggest financial challenges, what will make the biggest dent in boosting their financial picture ― and ultimately help their companies thrive?
The findings floored us. While debt, major purchases and ongoing expenses all contribute to a healthy financial strategy, retirement readiness is the straw that stirs the drink.
Tools That Count
Consider that employer-provided financial tools that help employees invest just three percent more of their salary can make a significant impact on quality of life. For example, for workers making $60,000 a year ― just above the national average ― saving merely $1,800 more per year could add an astonishing $134,000 at retirement.
That is the future value of $1,800 compounded annually by the stock market’s historical rate of return (7%), starting from age 40 until retirement at age 67 (27 years). With Fidelity reporting that the average 401(k) savings for anyone in their 60s is under $230,000, that means these tools can boost retirement savings by a life-changing 60%.
That’s not all ― based on our calculations, a mid-sized employer of 5,000 workers can save $3.5 million each year by offering those same financial tools, even if just 30% of their workforce actually use them and make changes to their financial lives. (Assumes a 5,000-employee company with an average salary of $50,000 and a 5% annual turnover, with a 30% reduction in costs associated with healthcare premiums, payroll taxes, turnover, absenteeism and delayed retirement.)