An eye-opening new study has found that simply talking to a financial advisor may be enough to dramatically boost people’s savings rates for retirement. Researchers examining exclusive data from more than 20,000 clients of a large Swiss bank found that people were 10 times more likely to open a tax-advantaged retirement account within 30 days of meeting with a financial planner than in a month when they didn’t talk to an expert.
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The research, titled “Financial Advice and Retirement Savings,” also found that people who had already opened retirement accounts were more likely to save five times as much in the month after meeting with a financial advisor.
According to the four university professors who authored the study, the results, “Clearly show that advisors help clients to better prepare for retirement and to take advantage of the tax exemption of retirement accounts, thus avoiding leaving substantial amounts of money on the table.”
Although based on Swiss research, the study has a direct bearing on the retirement situation in the U.S. While about 40% of Swiss workers don’t have a retirement account in their country’s tax-advantaged retirement system, slightly more than the 35% of U.S. workers who are eligible to save in employer-sponsored tax-deferred 401(k) plans don’t enroll.
The Bigger Picture
The research suggests that finding ways to get more workers matched up with retirement and financial planners could go a long way toward increasing participation levels for retirement plans, as well as the rate of savings. In past years, an increasing number of employers have moved to automatically enroll workers in 401(k) and similar plans, although the savings levels typically are low and the investment choice is limited to target-date mutual funds that may not offer adequate diversification.
Auto-enrollment got an added boost with this year’s enactment of the Secure 2.0 Act of 2022, which now requires employers offering 401(k) and similar workplace plans to automatically enroll workers at a savings rate of 3% of their salary. In addition, that savings amount would automatically increase by 1% each year, up to 15% of salary unless the employee elects a different savings rate.
But once enrolled, many employees don’t feel confident in how to manage their investments. A 2020 survey by Edelman Financial Engines found that 84% of employees would value getting financial advice at work, with 74% saying it would reduce their financial stress. About 50% of those employees surveyed said that be more likely to stay with an employer who offered financial planning as a workplace benefit.
While employers can’t offer financial advice to their workers, they are allowed to bring in qualified financial advisors. They aren’t required to do so, however, and many companies worry about the potential legal liability if the investment results turn out poorly. Nonetheless, a growing number of employers are offering financial wellness programs in the workplace, with 84% reporting that such programs can increase employee retention, according to a 2022 Bank of America survey.
Two-thirds of employers surveyed in the study said they feel extremely responsible for the financial wellness of their employees, with nearly all employers saying they felt some responsibility (97%). If that sentiment translates into employees getting the financial advice and encouragement they need to prepare for retirement, it could make difference in retirement readiness for Americans.
The authors of the Swiss study concluded: “There is also a bright side of financial advice. It helps people to better prepare for retirement.”
A recently published research paper suggests simply meeting with a financial advisor can help a significant impact on retirement savings. Four university professors examined data from a Swiss bank and found that people were 10 times more likely to open a tax-advantaged retirement account within a month of meeting with a financial advisor compared to a month when they didn’t talk to an expert.
Retirement Planning Tips
How much money will you need to retire comfortably? SmartAsset’s retirement calculator can help you answer that question. The free tool considers your annual income, when you plan to retire, your expenses in retirement and other data points to give you an estimate of how much money you’ll need to save.
A financial advisor can help you make important decisions in retirement, like when to claim Social Security, how much money to withdraw from your portfolio and whether an annuity may be a suitable income option. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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