# 4 steps to motivate employees to start saving for retirement

Benefits professionals struggle constantly to convince employees that they need to start saving for retirement. For many workers, retirement is so distant and abstract that it’s easy to put off planning for it.

Snap them back to reality by helping them figure out exactly how much they need to sock away to pay for their needs once they stop working.

Walk employees through this savings calculation the next time you talk up your 401(k) or 403(b) plan. Better yet, have employees do the math themselves. Chance are they’ll be more motivated to start saving in earnest.

### Hello, hypothetical pre-retiree!

Let’s start with some assumptions, the biggest being that you live comfortably on what you now earn, and that you will be content with that standard of living when you retire.

We’ll assume that you’re 50 years old and plan to retire in 15 years, at age 65. For simplicity’s sake, you take home a nice, round \$50,000 per year.

This retirement income planning exercise involves four steps:

### 1. Determine 80% of salary

Experts say it’s safe to plan on living off 80% of what you currently make. That’s because once you retire, you won’t have many of your current work-related expenses—commuting costs and regular wardrobe updates, for example. For our hypothetical employee, the math looks like this:

\$50,000 X .80 = \$40,000

### 2. Add an inflation factor

Now let’s figure out what that annual number will be when you’re ready to retire. To do that, factor in the effects of inflation over time—3% according to the Federal Reserve’s estimate of long-term inflation.

This is a reasonable complex math problem. Fortunately, Google has a great calculator built right into its search bar; we’ll use it for this step:

• Open Google and type the following in the search bar: 1.03^15. The 1.03 is the 3% inflation factor; 15 is the number of years until you retire. Result: 1.5579674166.
• Multiply that number by your retirement income target:

1.5579674166 X \$40,000 = \$62,318.696664

The result rounds off to \$62,319.

### 3. Subtract Social Security

Now it’s time to account for Social Security benefits, which will provide some income when you quit working. Check your annual Social Security statement to find your projected yearly benefit, or use one of the Social Security Administration’s online calculators.

We’ll take a fairly conservative approach here, and assume that you will receive \$17,500 in annual benefits. Subtract that amount from your projected retirement-age income to find your adjusted yearly income:

\$62,319 – \$17,500 = \$44,819

### 4. Make your money last

You’ll live many years past retirement. Multiply your adjusted yearly income by 20 years to get the total you must put aside in order to retire:

\$44,819 X 20 = \$896,380

Our hypothetical 50-year-old will need almost \$900,000 to fund a comfortable retirement. That’s a fairly daunting figure—and the results will look even scarier for younger workers and those who earn less. However, it’s a tangible target to aim for.

For HR pros, the challenge is to help employees understand that they must start planning—now!—to provide for their income needs when they retire. Next step: Offer financial literacy training to show them how to save.