PLANSPONSOR - December 2018/January 2019 - 21

Save While Paying Off Debt
MOST people regret not saving more for
retirement, according to the Nationwide
Retirement Institute analysis " Smart
Financial Moves in Your 20s and 30s. " On
average, the study shows, employees start
saving for that milestone at age 31.5.
If workers started saving for retirement
eight years earlier on average, they
would have significantly more available
to draw on later. The Nationwide analysis
walks through the example of a participant
who is paid twice a month and contributes
$50 per paycheck to an account that earns
a 6% annualized return on investment
(ROI). If the employee starts this regimen
at 23, he can generate up to $88,572 more
than if he starts at 31. At $100 per paycheck,
the difference would be $177,143.
According to the survey, workers
are broadly aware of the power of
compounding, but many said they are
simply unable to save more and save
earlier. More than half (61%) said debt
has negatively affected their retirement
savings. In addition, those who wish they
could save more point to the rising costs
of child care and health care.
Actions to Take Now
All employees who do not already do so
should start contributing to a retirement
plan immediately. Those facing debt
payments must also prioritize long-term
savings, as difficult as this may seem,
according to the analysis.
" Employees may be able to reduce
their student loan payments, accept a
slightly later payoff and contribute the
difference to their retirement savings
account. This will allow compounding
more time to work, " the analysis says.
" Individuals could reduce their monthly
saving for a house down payment and
contribute the difference to a retirement
account. Doing so would delay reaching
the down payment, but potentially only by
several months rather than several years.
Meanwhile, the saver would kick-start [his]
retirement savings. "
Among other examples, the analysis
considered a hypothetical employee who is
paying $500 a month on a 10-year, $35,000
student loan that charges 6% annualized
interest. The terms of the loan require a
minimum payment of $390.
" By the employee repaying more
TALKING POINTS
Benefits vs. Salary
Eighty percent of Americans would
choose a job that offers high-quality
workplace benefits over one that
pays 30% more salary but no benefits.
Additionally, workers estimate that their
benefits comprise 40% of their total
compensation, but statistics from the
Bureau of Labor Statistics say benefits
average 31.7% of total compensation.
Source: American Institute of Certified Public Accountants, " 2018 Employee Benefit Report "
The Whole Person
Firms that describe their financial
wellness initiatives as " holistic programs "
are more focused on the value of the
programs to employees and are willing
to invest more in these initiatives.
Source: Employee Benefit Research Institute
PLANSPONSOR.com December 2018-January 2019 19
than the minimum, she will save $10,594
in interest and cut the payoff period by
1.80 years, " the analysis says. " Or, she
could contribute $55 per pay check ($110
per month) to her retirement account by
reducing her loan payment to the monthly
minimum. In doing so, she would accumulate
$16,267 for retirement over the 10-year
period while paying $10,594 interest, a net
savings of $5,673. " -John Manganaro

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PLANSPONSOR - December 2018/January 2019

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