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Commentary Give Young Workers the Straight Dope on Retirement Savings

December 6, 2007
Related Topics: Retirement/Pensions, Future Workplace, Workforce Planning, Featured Article, Compensation
Go ahead: Freeze it. Get rid of it altogether. I don’t care. I’d prefer to have something a little more stable than just a kinda-sorta-maybe promise of a pension anyway.

    But if you are going to make more young workers, like me, more responsible for covering the cost of our own retirements, please do us a huge favor. Don’t try to broadly "educate" us with brochures or videos of talking heads discussing the benefits of tax-deferred savings or the need to diversify our mutual fund picks in the company 401(k). Don’t merely nudge us in the right direction either.

    Lock us in a room during that first day on the job and tell us we can’t leave until we agree to contribute something to a 401(k). Give it to us straight—and then give us as much of a reward as possible if we actually start participating.

    Sure, automatic enrollment programs for 401(k)s will likely push younger workers over the retirement savings hump—one day. But we’re not there yet. The numbers vary, but few (if any) research reports show that more than half of younger workers are actually participating in their employer’s 401(k).

    The simple fact is, most younger workers either don’t know or don’t care that they’re on their own now. I’m 30, and if I didn’t write about pensions for a living, I probably wouldn’t care either.

    So tell us the responsibility is ours and that it is a reality, no matter how far off our retirement may actually be. A 401(k) isn’t just a benefit, it’s a lifeline. Tell us to treat it like any one of the eight or so other deductions on our pay stubs that we don’t understand yet still pay, involuntarily, twice each month.

    Because younger workers can’t afford to wait for companies to move us to an opt-out world, where we are automatically enrolled in a 401(k) unless we say otherwise. If we choose to wait until our 40s to finally opt in and start saving for retirement, we’ll have more than just a midlife crisis to contemplate. The rest of our lives could be one big crisis.

    It may be difficult right now for us to know our "number" (the amount it will take to retire comfortably one day), but we know it won’t be pretty.

    As a rule of thumb, a worker is supposed to have at least 10 times his or her final salary socked away before seriously considering retiring. If salary and inflation were each to increase at the same rate for the next 30 years—figure 3%—then someone currently earning $60,000 a year should be taking home at least around $145,000 a year in 2037. Apply the classic retirement rule here, and he or she would need to have almost $1.5 million tucked away before logging out.

    We must become a generation of middle-class millionaires. If we’re lucky.

    So have someone in HR tell me this when you lock me in the room on my first day of work. Tell me that compounding can help make it happen if I choose to start saving now—6% of my paycheck, ideally, but even as little as 3% is an OK start. Tell me what a fool I am if I leave "free money" on the table by not taking your matching 401(k) contributions. (You are at least matching my generation’s contributions, aren’t you? Most companies that do match pony up 50 cents for every $1 a worker contributes on as much as 6% of his or her salary, says a September study from the Profit Sharing/401(k) Council of America.) And tell me that I may actually increase my current take-home pay by saving in a pretax account like a 401(k).

    Then tell me that investing my 401(k) doesn’t have to be complicated. Give me an option like a low-cost target-date fund that lets me check off just one fund that has a name that sounds like a year that I might actually retire and allows me to keep my 401(k) on rebalancing autopilot.

    It’ll never be easy to get younger workers to buy into retirement. You will always have two things working against that goal: Retirement is a boring subject (at least, it is when you’ve just entered the workforce) and saving for it costs money.

    But we younger workers want to work for an efficient company that actually makes money, not one that’s saddled with expensive promises it made to older workers well before we were born. Just don’t expect us to figure it all out on our own. Put us in the room. Lock the door. And give it to us straight

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