TD Bank’s recent retirement study surveyed found that 78% of millennials aren’t saving enough for retirement because they don’t earn enough, but in reality they could be if they simply took full advantage of the employee benefits offered at their workplace.
Unfortunately, many millennials aren’t doing that. According to TD’s findings, 36% of millennials don’t know if their employers offer a matching RSP contribution and where a company does offer a matching contribution of some kind, 58% of millennials aren’t taking advantage of this “free” money. That compares to 77% of Gen-Xers and 81% of those older than 51.
Advisors, are you listening?
Toronto-area financial planner Jason Heath sees this all the time; there are two reasons for it happening.
“Financial advisors generally sell products and are paid when clients invest with them. If their clients invest money in their group plans instead of with them - they don't get paid,” said Heath. “This creates a disincentive from determining if group plans are being underutilized and an incentive to outright ignore group plans for investment advisers.”
This explains why an advisor might not pay attention to what’s happening at the client’s place of employment but it also speaks to some of the shortcomings of a commission-based compensation system as opposed to a retainer model where the advisor is paid for advice regardless of where the products reside.
The second problem is a function of information overload says Heath. Employers can help the process by keeping things simple. If millennials are able to focus on what it means to “maximize” their contributions while at the same time having less information to consider, it’s more likely they’ll take advantage of their employer’s offer to match.
"Some employers may offer a form of employer-matching of contributions to a personal retirement savings plan, and younger workers should be taking full advantage of these programs as they are among the best ways to save for retirement," said Linda MacKay, Senior Vice President, Retail Savings and Investing at TD Canada Trust. "Canadians should also consider setting up an automated savings plan to regularly transfer funds into retirement savings accounts. A few dollars on a regular basis can quickly add up to a nice sum of money down the road."
There’s a third problem that Heath hints at which isn’t directly related to the failure of millennials to match their employer’s contribution but more to do with an advisor’s approach to financial planning.
“When I build retirement plans, I help people determine how much they need to save and sometimes this identifies the need for PACs or increased savings relative to one's current savings targets,” said Heath. “I do have a strong bias towards paying off unsecured debts like lines of credit and student loans before doing any serious investing.”