Helping Plan Participants See the Long-Term Impact of Short-Term Decisions

As we start to come out of the pandemic tunnel and see a new normal on the horizon, we can begin to reflect on the lessons we have learned through this experience. How will decisions that were necessary at the time, impact the future?

With many employees laid off or furloughed and nearly five percent stepping away from their jobs due to caregiving responsibilities, many plan participants put saving for retirement on hold. As they faced these financial obstacles, people quickly turn to what they can do to manage their monthly cash flow and don’t realize the impact their actions have on their future.

Aside from the pandemic, some employees may experience their own personal crises, and in turn, stop saving for retirement or withdraw funds from their retirement plan. While it may be a difficult conversation to have, it’s important for plan sponsors and financial advisors to demonstrate the long-term impact of these decisions on plan participants. Pointing out the factors that can have the greatest impact on retirement savings can help participants better understand. A person’s contribution rate, consistency in making deferrals, and the length of time they contribute, can have a significant impact on account balances.

Taking out a loan from your retirement plan can also have a substantial effect on retirement savings. This creates a long-term disruption in someone’s ability to accumulate enough savings for retirement. Missing out on the days when the market goes up can also play a significant role in the ability to capture long-term returns.

Investors may feel compelled to take a loan against their retirement plan savings or to reduce or stop contributions. While these decisions may be driven by very real circumstances, for many the main reason was feelings of uncertainty.

We owe it to retirement plan participants to help them take a step back and consider how a decision made today could impact tomorrow’s results. Plan providers can help their participants by shedding more light on the impact of contribution rate, consistency, and time on their retirement savings.