Don’t let startups off the hook with retirement planning

December 22, 2016

Millennial employees can be wooed by a lot of things: snacks, games, unlimited PTO, nap time. The startup world is overflowing with creative perks to entice employees with a fun office or innovative culture. 

But these perks have gained notoriety for covering up for a concerning lack of essential benefits. Most notably, a retirement plan like a 401k. And if that little phrase triggered a deep sense of restlessness or boredom, you’re exactly who needs to be reading this article. 

When you’re in your twenties or early thirties, it can be hard to adopt a strong sense of financial planning. It’s part of human nature to deny and ignore the fact that we will one day be old. Your mind is focused on saving up for that trip abroad or maybe just putting away enough to pay bills. Retirement may not yet be in your vocabulary. 

But it's that same indifference that has led many young adults to fall behind in their savings and miss out on an easier path to financial security. 

So how do you compare to the rest of America? Here are the facts:

  1. There are $4.4 trillion in assets in 401k plans in America with 52 million workers participating.
  2. The median age for someone to start contributing to their 401k is now 22 years old.
  3. The average worker in their twenties already has $16,000 saved for retirement; for thirtysomethings, average retirement savings is $45,000. 
  4. The median level of retirement savings for an individual in 2004 was $9,000. In 2014, that number rose to $32,000.
  5. Social Security is not going to be around in the future so it's time to plan accordingly. (OK, the last one is not a fact but, let’s be honest, it’s not looking good.) 

So why are so many companies not offering 401ks?

For a small company, it's simply not in the budget, but it’s important to make sure that same sentiment doesn’t linger as a company grows. Unsurprisingly, holding onto key employees can be difficult if they're feeling financially neglected. In fact, 67 percent of millennials would leave their current job to find another with better benefits. And a Price Waterhouse Cooper study showed that only 44 percent of employees believe their employers care about their financial well-being. 

But bringing this issue up with your company can be tricky. For more insight on how to approach the conversation, follow a few of these tips

“Are employees even utilizing 401k plans?” you conveniently ask. Yes, of course they are. 71 percent of employees who are offered a 401k plan contribute to it. That number is even higher when the company matches your contribution (i.e. free money). Employers contribute in 81 percent of all plans and 46 percent of companies match every cent of your personal contribution. 

This is the point when I should explain to you why contributing to a 401k plan as early as possible is important because of compounding interest. But if those two words are foreign to you, just think of it like this: 

Scenario 1: You’re planning on throwing a cocktail party at 6 p.m. You text five of your friends at 5 p.m. and tell them to spread the word. They successfully get four more people to come. Your party has nine people at it. Pretty lame. 

Scenario 2: You’re throwing a cocktail party at 6 p.m. You text five of your friends at 3 p.m. and tell them to spread the word. They successfully get four more people on board. Those four people text their friends at 4 p.m. They each get two more people on board. Those people text their friends at 5 p.m. They each get one more person on board. Your party has 25 people at it. Nice. 

What the grade school math problem above is saying is this: if you start saving early you progressively make more money from the interest you’ve already accumulated. 

If you’ve read to this point and now feel anxious about your complete lack of 401k savings, don’t worry. It’s never too late to take action and start contributing five to 10 percent of your paycheck. And if your company doesn’t have a 401k plan, it’s time to have a serious conversation

For more information on 401k plans and personal financing, visit the experts at Windgate Wealth