How do you know if an employee is ready to retire? At Waterfront Financial Group, we believe it is important to visit with each of your employees, every year, to connect on their plan assets and savings rate. [see The Waterfront Difference] We maintain a file on each employee to track our meetings. To determine Retirement Readiness, we focus on what the employee deposits as net income. We look at their debt obligations and calculate a date which the debts will be retired. Next, we check in to Social Security and assess the income rates at ages 62, 67 and 70. We look at the current savings rate (including any employer match) into the 401(k) plan, assess their accumulated savings, assess the investment allocation and run a calculation about the Future Value of their savings. We then look at various withdrawal rates to determine the extent to which the employee can have a reasonable expectation for their money to last the duration of their retirement. We add this to the social security figures and add any other pensions that can be expected, and compare their current standard of living to the future retirement need.
If an employee is not on track, what can be changed to affect the outcome? Is the employee in a properly allocated investment portfolio that is appropriate for their retirement date? Are they saving enough? What would happen if they increased their savings rate just 1% each year? Can they adjust their spending so they can save more? Can they work until age 70? What about taxes, should some or all of the employee deferral be put into Roth 401(k)?
Answers to these questions will help employees get on track towards becoming Retirement Ready! That's good for your employees, and that's good for you.