16. Saving for Retirement

“Sure!” she said.

One of his questions was this: “What about your work gives you the most satisfaction?”

Easy, she replied. “I love the fact that when communication works well, employees understand an issue, know what it means to them, see clearly what they need to do, and feel like someone cared enough to help them. What could be cooler than that?”

We mention this because when it comes to saving for retirement, employees need our (and your) help. We know (from personal experience) that challenging economic times have made it more difficult for people to save for and manage their retirement. But we are still dismayed by the high percentage of employees who are in serious trouble. For example, a 2010 study by the Employee Benefit Research Institute found the following:¹

• Only 16% of workers say they are very confident they have enough money to retire. Forty-six percent are not too confident or not at all confident that they will have enough money to live comfortably when they retire.

• 27% of current employees have less than $1,000 in savings, and 54% have less than $25,000.

• Almost two-thirds of Americans at lower income levels will run short of money after 10 years of retirement.

All these facts add to our conviction that one of your most important goals should be to increase employee participation in your company’s 401(k), other retirement savings plans, and stock plans. You want to go the extra mile to create effective HR communication that

• Educates employees on the importance of saving for tomorrow

• Increases participation in retirement and stock plan savings

• Shares information that will help employees make good investment choices

Effective communication can mean the difference between a comfortable retirement and a difficult one. Helping employees with investing can mean that they will have money to buy homes, improve the home they have, invest in their children’s education, and live comfortably after they stop working. You can actually help people build a financially secure future. It’s an incredibly powerful gift!

So let’s get started.

1. Simply and clearly explain how financial stuff works. (Don’t assume that even the most sophisticated employees are financially literate.)

2. Use a how-to, “service journalism” (see Chapter 5, “Write Simply and Clearly”) approach to communicating about retirement by giving employees information they can use.

3. Create video (or print) “stories” of employees describing how they have benefited from the plan. Show them on screens in lobbies and cafeterias or on the company intranet.

4. Personalize if possible. Your retirement plan service provider may offer the option to provide personalized statements in print or online. Take advantage of that option, but also consider supplementing those statements to make a strong point.

Her knowledge of the future provides many funny lines. One of our favorites is a remark to her math teacher: “Well, Mr. Snelgrove, I happen to know that in the future I will not have the slightest use for algebra, and I speak from experience.”

We feel precisely the same way (about algebra), but it turns out that Peggy Sue was wrong about one thing: It is helpful to understand math well enough to make smart financial choices.

Since many of us struggle to understand complex financial issues, we especially appreciate gentle “here’s how” information provided to help us make good decisions about our investments or retirement program.

For a financial services company, Jane took advantage of the requirement to provide employees with an annual report of their savings incentive plan. She turned that communication into a “marketing” brochure that included these sections in this order:

• Eight reasons to save and invest

• Seven steps to sound investment decisions

• An overview of plan features, transactions, and funds

• How your investments performed

• Investment fund portfolios (showing how each fund was invested)

Understanding that many employees skim over print or online communications, she made sure every headline and subhead did some heavy lifting. She used them to tell a story, too, so if all a reader did was glance at the first two sections of this brochure, here’s what he would see:

Eight reasons to save and invest:

• Double your award

• Cut your tax bill every time you invest

• Earn investment income now; pay taxes later

• Small, regular investments add up

• Choose the investments you prefer

• It’s not just for retirement

• It’s never too soon

• You can take it with you

We think at least one of these subheads would draw in the reader to learn more.

Here again is simple, brief advice on how to invest in yourself:

Seven steps to sound investment decisions:

1. Understand risk

2. Know your time horizon

3. Understand yourself

4. Study your finances

5. Evaluate the plan funds

6. Diversify

7. Reevaluate your plan periodically

You need to repeat good financial investment advice every time you communicate about stock and savings plans, because for at least some of your readers, this is “just in time” information. They’re new to the company or have decided to participate in the plan for the first time, so you need to repeat the information that will continue to help them make good decisions.

Here’s how we described making investment choices in the summary plan description of a company’s 401(k) plan:

You’ll want to consider your personal financial goals, review fund performance over time, learn about the different funds, and then pick your investments. No one employed by the company can give you advice about how to invest.

Most people who invest hope to increase the value of their savings over time. Most financial advisors explain to investors the value of diversification: selecting several different funds to invest in.

You can choose from a number of funds, including a stable value fund as well as mutual funds, or you can select one of the [Special] funds, which are asset allocation mutual funds that automatically diversify your investments based on when you anticipate receiving the money in your account at retirement.

On a following two-page spread, the nine available funds were described, moving from low-risk/low-reward to high-risk/high-reward funds. The headings were

Name of Fund:

Goal:

Invests in:

Designed for:

Here’s the text for the Stable Value fund:

Goal: To preserve your principal investment while earning interest income. The fund will try to maintain a stable $1 unit price.

Invests in: Investment contracts, offered by major insurers and financial institutions, and certain types of fixed-income securities that pay interest at a specified rate.

Designed for: Someone who wants a slightly higher yield than money market funds, or someone interested in price stability to balance other, more aggressive investments.

This text uses simple language, combined with concise summaries that describe what the fund invests in and who it is designed for. The reader gets a complete picture that will help her decide which funds to invest in. She can even figure out how to use one fund to balance an investment in a more high-risk/high-reward fund.

We’ve shared this advice many times throughout this book, and this is one topic where real stories shared by real employees make a huge difference.

For a brochure on retirement savings, Jane featured photographs of and quotes from 21 employees—both male and female, with diverse ages and jobs, from a variety of the company’s locations in the U.S. Even if you read only the photo captions, you got a great overview of plan features and benefits—and incentives to sign up. Here are some examples of how effective real people with real stories can be at increasing employee participation in a savings plan:

“Two aspects of the plan really appeal to me: the tax-deferred status and the many choices of investment funds. I plan to use the money I’m saving to buy a house.”

Wayne, New York

“What attracted me was the fact that the company matches my basic award 100% if I save and invest it. It’s both an incentive and an opportunity to save for the future.”

Eli, San Antonio

“The plan provides an interesting way to prepare for retirement that I don’t believe exists in my home country, Japan. The plan makes it effortless to save and get tax savings at the same time.”

Mayumi, New York

“The moment you sign up to save and invest, you’re an instant winner since the company matches your basic award. (In Las Vegas, we like instant winners!) With this plan, [company name] shows its support for employees in concrete terms. This is an investment in your future.”

Carlos, Las Vegas

“I encourage all my employees to participate actively. It’s a wonderful benefit to help employees save for retirement, because you’re never too young to start thinking about retirement.”

Geri, San Francisco

“I’m contributing extra money each paycheck because they take the money out, I don’t see it, and it’s going to a good cause—me. It’s a good way to save. I’m saving for a down payment on a house.”

Joseph, New York

“It’s so hard to put money away these days. This plan makes it easy. Plus, it gives me security to know I have the money if I need it in an emergency. I also like the fact that I can change my investments each month.”

Shelley, Sioux Falls

• “Buying stocks seems pretty confusing to me.”

• “I just filed my tax return. I’m an expert on confusion. This plan seems pretty simple to me.”

• “I agree. Knowing you can buy stock at a fixed price any time during two years is easy to understand.”

• “I think it’s a good deal—your money earns interest while you’re saving to buy stock.”

• “I’m a Libra. I hate decisions. This plan offers two kinds of stock—which should I buy?”

• “You can decide to buy book value or market value, some of both, or none at all. Best of all, you can change your mind for a full two years.”

• “Opinions are fine, but I want facts before I decide to invest in stocks. How do I find out more?”

• “It’s verrrrrry simple. Turn the page. Just turn the page.”

We continued to use illustrations on each spread of this brochure. We showed how two employees from the company used the plan in different ways and how both were satisfied with the results after two years.

Research showed that most employees in this company were scared to invest in the stock market—even in the stock of the company they worked for. People at the lower ends of the salary scale simply did not view themselves as “stockholders”—that was only for wealthy people.

So we created a man who was afraid of a lot of things, and illustrator Edward Sorel brought him to life. “Once I was afraid,” he says in the caption of the first full-page illustration. “Afraid of tall girls. And fuzzy animals. And potted plants. But most of all I was afraid of the stock market. All those numbers got me confused.”

In the next illustration, he asks everyone for help, including his mother, his rich uncle George, and his night school teacher. “I even asked my smart brother-in-law Murray, who doesn’t even like me. But nobody could help,” he concludes. “I felt lonely and dumb.”

But then, in the next illustration, he’s sitting in a big chair, and he’s reading this very brochure from his company! “It explained how I could buy my company’s stock real easy,” he says. “While I’m saving my money, I can watch how the stock is doing. If it goes up, I can buy. If it goes down, I can decide not to buy. Best of all, if I don’t buy, no one will be mad at me and I can get all my savings back with interest.”

In the next illustration, he says, “I’m a happy guy now!” as he participates in a ticker tape parade on Wall Street. “Because buying stock is simple, thanks to my company’s stock purchase plan. Sure, there’s still some risk involved if I decided to buy the stock. But that’s the way it is in the stock market. And I’m not afraid of the stock market anymore.”

In the last illustration, he’s about to come around a corner and collide with a tall woman, carrying a potted plant, with a fuzzy dog on a leash.

We’ve often used this technique, and the results show that it works wonderfully. In fact, employees comment in surveys how much they like the fact that they can understand the plan simply by looking at the illustrations and then reading the captions.

So we developed a personalized communication piece for employees earning less than $40,000 who were taking their awards in cash each year. The report showed “what you got” and “what you lost.” For example, an award of $556 after taxes translated to $1,448 if the employee agreed to save her award and invest it.

The headings in this four-page printed piece were as follows:

• Don’t Miss Out!

• Wait a Little, Get a Lot

• A Nice Tax Break

• Put Time on Your Side

• Take Charge of Your Future

In the “Put Time on Your Side” section, a bar chart showed what the projected value of the employee’s account (this sample employee earned $34,500 a year) would be in two years ($4,681), five years ($13,756), and at age 65 ($232,469). The text explained that the numbers assumed a 3% salary increase each year and that investments would earn an average of 8% each year.

The text in that section began, “You may think you can’t afford to save. Think again!” The text concluded, “Don’t get left out—the deadline is fast approaching. . .” Then it told the employees specifically how to act to enroll in the program before the October deadline so that they would save and invest their award the following January. So we also had a little “just in time” communication working for us. The results? Fifty percent of employees did just that—they agreed to save and invest their award.

When we told the head of HR that a 50% response rate was fabulous, he said, “But 50% didn’t sign up!” We suggested he talk with his colleagues in direct-mail marketing firms and then tell us how he felt about the results. He did, and then he bought us a bottle of champagne, which is always an acceptable and welcome way to say thank you.

Use every opportunity—even legally required communications—to encourage employees to save for retirement.

Make it easy for employees to understand your savings and stock plans—through plan summaries presented by real employees or illustration captions.

Share real stories of how people have saved and how they’ve spent their money. These are powerful incentives.

Give managers periodic fact sheets with information they can share at staff meetings that will help employees sign up to save.

Use personalized statements to sell employees on the value of the plan today and projected value for the future.