Retirement IQ Survey Underlines Need for Better Communication, Education

Retirement IQ Survey Underlines Need for Better Communication, Education

Fidelity Investment’s first ever Retirement IQ Survey shows that most US employees misunderstand basic concepts around retirement and financial planning, with two-thirds of respondents underestimating how much money they need to save for retirement Bruce Shutan reports at Employee Benefit News:

Many people surveyed, including those age 55 and older, gave wrong answers to questions in nearly every category, even though it was a multiple-choice format, according to [Ken Hevert, SVP of retirement at Fidelity Investments]. He says the average grade was 30% (the equivalent of an F), no one answered all 14 questions correctly and 1% got all of the questions wrong. Fewer than 0.5% of respondents received a 79% (C+), which was the highest grade.

The question most people answered correctly concerned the age of Medicare eligibility (77% got it right), while there was a three-way tie for toughest question, which only 14% answered correctly. Those results included:

  • Number of years out of the past 35 with a positive market return (about 60% thought it was half the time or less, whereas the correct answer was 80% of the time).
  • Future value of $50 a month earning market average return (half underestimated it).
  • Largest expense for most retirees (most wrongly guessed healthcare, whereas the correct answer is housing).

Building employee knowledge about the importance of saving for retirement is critical to driving usage of retirement benefits. CEB (now Gartner) research finds that employees who believe they have high future financial risk if they do not save for retirement now, and who believe they can save adequately for retirement using a 401(k) plan, are much more likely to make the maximum contribution to their retirement plans as compared to the average.

However, the way we communicate retirement benefits to employees often limits, and even detracts from, employees’ understanding of the importance of retirement savings. Most retirement communications focus on the processes and design of retirement savings (i.e., the company match, the quarterly performance of a fund, and the maximum contribution). This focus leads to retirement communications that are often too technical for employees to understand and don’t actually help them see why saving for retirement is important and how they can leverage the 401(k) plan to help them reach their savings goals (That is if employees read them at all: We all have those quarterly performance reports from our retirement provider that are left unopened on our coffee tables).

There are three things organizations can do to improve employee knowledge and usage of retirement benefits through communication:

  1. Communicate the “why,” not the “how,” of retirement plans: Instead of communicating the processes and design of retirement plans, explain why saving for retirement is important to securing their financial future.
  2. Segment retirement communications based on employee needs: Instead of sending a generic communication to all employees, differentiate communications based on the particular needs and concerns of each employee group.
  3. Embed retirement messages in other rewards communication: Instead of communicating retirement separately from other benefits, embed messages about the importance of retirements when communicating about other related benefits, such as wellness and incentives.

(CEB Total Rewards Leadership Council members can find out more here about how to encourage greater employee participation in retirement savings programs through better communication.)