How to Get More Younger Employees to Invest in Their 401(k)

Picture this: Your young, ambitious employees confidently walking into retirement with a million-dollar nest egg, and they have you to thank for it. 

Sounds ideal, right? 

Yet, despite the undeniable benefits of starting early, many millennials and Gen Z workers are hesitant to invest in their 401(k) retirement accounts. As an employer or HR director, it's time to take charge and pave the way for their financial wellness.¹

In this article, we'll dive into the world of 401(k) investments, explore why younger employees may be missing the boat, and unveil actionable strategies to inspire them to secure their golden years. 

This is how to make a lasting impact on your workforce's financial future.

The Importance of Investing Early

Younger employees often struggle to see the long-term benefits of investing in their 401(k). However, the earlier they start, the more time their investments have to grow. 

According to Fidelity, an employee who starts saving at 25 years old, putting away $6,000 annually and earning a 7% return, would accumulate over $1.2 million by age 65.²

In contrast, an employee who starts at 35 would only have around $600,000 at retirement.

This stark contrast in outcomes highlights the incredible power of starting early. Younger employees have the unique advantage of time on their side, which allows their investments to compound and grow exponentially over the years. 

Additionally, investing early helps to mitigate the impact of market volatility, as they have more time to ride out the ups and downs of the market. 

By encouraging younger employees to invest in their 401(k) as early as possible, you're setting them up for a more secure and comfortable retirement – one where they can truly reap the rewards of their hard work.

How to Encourage 401(k) Investments

You know the importance of getting your employees to invest in their 401k, however relaying the information to your employees and getting them to follow through is easier said than done. 

Here are some of the best strategies you can start using to inspire your young workforce to take action and build their retirement nest egg.

1. Start With Education

Lack of financial knowledge is a significant barrier to 401(k) participation. Offer financial wellness workshops that cover topics such as budgeting, debt management, and the basics of investing. 

Create user-friendly educational materials to help employees understand the importance of saving for retirement, the power of compound interest, and the advantages of tax-deferred growth.

2. Simplify Enrollment

A complicated enrollment process can deter younger employees from participating in a 401(k) plan. Streamline the process by using online platforms, offering clear instructions, and providing step-by-step guidance. 

Consider implementing automatic enrollment, which has been shown to increase participation rates. According to a study by Vanguard, plans with automatic enrollment had a participation rate of 92% compared to 57% for plans without it.³

3. Offer Employer Matching

Employer matching is a powerful incentive for employees to participate in a 401(k) plan. Design a matching program that provides a clear and compelling match formula. 

For example, you might offer to match 100% of employee contributions up to 4% of their salary. Communicate the value of the match frequently, emphasizing the "free money" aspect.

4. Use Behavioral Nudges

Mindset can’t be overlooked when talking about financial wellness, and behavioral economics offers valuable insights into how to encourage positive financial decisions. 

• Automatic Contributions: Implement automatic contribution increases, where employees' contributions increase by a small percentage each year. 
• Personalized Messages: Send personalized messages and reminders about the benefits of 401(k) investments, using clear and motivating language. 
• Social Proof: Use social proof to create a sense of urgency and show that other young employees are investing in their retirement.

5. Provide Investment Guidance

Many younger employees feel overwhelmed by the investment choices available in a 401(k) plan. Offer a diverse range of investment options, including low-cost index funds and target-date funds that automatically adjust the portfolio's risk level based on the employee's age. 

Provide access to financial advisors who can offer personalized guidance and help employees make informed decisions about their investments.

6. Celebrate Milestones and Achievements

Recognize and celebrate employees' financial wellness achievements, such as reaching a specific savings goal or increasing their contribution rate. Share success stories and testimonials to inspire others to take action. Offer incentives, like small bonuses or extra time off, to those who consistently contribute to their 401(k).

Final Thoughts

By implementing these strategies, you can create a workplace culture that values financial wellness and encourages younger employees to invest in their 401(k). Not only will this improve employee satisfaction and retention, but it will also contribute to a more financially secure future for your workforce.

This is where Enrich Financial Wellness comes into play. 

Our comprehensive financial wellness program is designed to support employers like you in fostering a culture of financial well-being. Through engaging workshops, personalized coaching, and user-friendly tools, Enrich Financial Wellness empowers your employees to make informed decisions about their finances, including 401(k) investments.

Investing in a financial wellness program like Enrich Financial Wellness demonstrates your commitment to your employees' long-term financial success, further boosting satisfaction, engagement, and loyalty. 

Don't wait – take the first step towards a more financially secure future for your workforce by partnering with Enrich Financial Wellness today.

1 - https://www.cnbc.com/2022/07/20/millennial-and-gen-z-employees-arent-saving-enough-for-retirement.html

2 - https://www.fidelity.ca/en/growthcalculator/

3 - https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvComHesitantAboutAutoenrollment

4 - https://www.benefitspro.com/2023/02/20/the-biggest-hurdle-in-getting-younger-workers-to-defer-money-into-a-401k-and-how-to-overcome-it/