Why Professional Financial Services Matter For Employers

When you get to retirement, you want to enjoy all the things you couldn’t do while working. But to do those things, you’ll need a steady income stream. Many rules of thumb will give you a general idea of how much to save. These include calculating your estimated expenses and using the “rule of 25.”

Educating Employees

As employers started replacing pension plans with 401(k)-style defined contribution plans, financial education became essential for employees. They had to learn a new vocabulary, choose from various investments and make changes as markets fluctuated. They also had to consider the implications of various unknown factors like future investment returns, life expectancies, health care costs and the viability of Social Security. Educating employees about their retirement plan options, especially those with multiple layers of complexity, can be challenging for many companies. Finding time to teach employees about their options or how they work together is often difficult, and most HR benefits professionals need to be more financial experts. Moreover, many retirement planning services providers are focused on administration rather than education. In addition to providing education, employers need to help employees stay motivated during the pivotal saving years leading up to retirement. One way is to offer credit coaching or budget counseling, which can help reduce stress and improve employees’ ability to save for retirement. Another strategy is to provide a retirement calculator that allows employees to see how their savings will play out in different scenarios. This can help them determine how much they need to save and how much of their income they should allocate toward retirement. 

Creating a Plan

Professional financial services help individuals develop a strategy for retirement that will allow them to replace a significant portion of their pre-retirement income. This is important because many retirees find that Social Security payments only cover about 40% of their expenses. The other 60% must be accounted for through savings and investment strategies. The first step in retirement planning is to create a budget and estimate your costs in retirement. This includes housing, food, health insurance, and transportation expenses. The prices that will change in retirement, such as travel and entertainment, are also important. These estimates will provide a base for creating an investment plan to generate sufficient returns. The second step is to choose the right investments for retirement. While this is a personal choice, most experts recommend diversifying your portfolio to increase your chances of success. This can be done by investing in various asset classes and industries. This will help mitigate your risk if one type of investment experiences a significant loss. Finally, a third step is establishing an emergency fund to cover unexpected expenses. This may seem obvious, but it is often overlooked. If you can select a cushion that will protect your needs for six months, it will help to ease the transition into retirement.

Managing Expenses

Managing expenses is one of the biggest challenges people face when reaching financial goals. Whether the goal is saving for retirement, paying off debt or covering day-to-day expenses, a professional can help by creating a budget and setting savings goals. A clear picture of an individual’s financial standing is essential when developing a plan. This includes a review of all assets and liabilities, including properties, investments, credit cards and any loans. This information helps a financial services professional determine how much debt an individual can realistically afford to carry and which assets are most likely to grow over time. Once a plan has been established, a professional can create an actionable roadmap for reaching goals. These may include short-term goals like building an emergency fund or paying off debt and long-term goals such as saving for a vacation or buying a home. A financial planner can also help establish an investment strategy based on an individual’s objectives and risk tolerance. A holistic approach to financial services can increase confidence and lead to more constructive behaviors. For employees, it can mean better retirement outcomes and a greater chance of enjoying a comfortable life after work. It can also make it easier for individuals to achieve their estate planning and legacy goals.

Investing

As part of retirement planning, a financial advisor can help you invest your savings in a portfolio consistent with your risk tolerance and goals. A planner will also run simulations of your best- and worst-case scenarios, including the possibility that you might outlive your assets. The planner will discuss strategies to address this concern, such as adjusting your withdrawal rate or increasing the size of your portfolio. The planner will also look at your total financial picture, including assets such as investments, real estate and pending inheritances, and debts such as a mortgage, credit card payments and student or small business loans. The planner can recommend tax-efficient ways to manage your income, investment and debts in retirement. Finally, the planner will address your insurance needs, from long-term care to life and disability policies. In addition, the planner will look at your estate plan, including how to minimize taxes and transfer wealth to the next generation. Many Americans must save more than previous generations for a comfortable retirement. This is partly due to a longer life expectancy and low current bond yields, so it’s harder to make your money last through retirement. Planners will work with you to develop a budget and spending plan so you can determine how much to save.