Last week, we went over the top three mistakes that could cost your employees when it comes to their retirement. Let’s continue to look at some more mistakes to watch out for.
4. Overlooking the cost of health insurance in retirement 🩺
94% of small- to mid-sized Canadian employers offer benefits plans. So it stands to reason that the majority of Canadians have health insurance through their employer. This is great. Most of us couldn’t afford to pay out of pocket for prescriptions and dental without causing financial hardship at times.
But another financial hardship lurking around the retirement corner presents a risk that can catch most new retirees off guard. In most cases, group health insurance plans have provisions that allow employees who leave the company or retire to keep their health and dental benefits. Of course, those premiums are all the responsibility of the insured once they leave the company. Many who retire before 65 often fail to realize that they’ll also be footing the full cost on their own, and this cost could amount to as much as $200 - $400/mo, or more until age 65 when many provincial programs kick in.
There is no real way out of this one if you retire early. You could choose to go without health and dental insurance from retirement age until 65, but the chances you have health expenses at that age are incredibly high. You could work until 65. But the best course of action is to ensure your employee financial education provider collaborates with your group benefits team. For their entire working lives, employees should be told at least once a year how much single and family health plans cost early retirees that year. This will help them keep that future cost on employees' radar, understand how much it changes over the years, and encourage them to save enough to cover these costs during early retirement.
5. Underestimating cash flow management needs 😲
There is very little financial education on cash flow management included in employee financial wellness programs. And when it is there, it’s all about spreadsheets, lectures on making coffee at home, or telling people to go on a budget. There’s often very little guidance on how to actually alter behaviours so that spending changes can have an impact.
Unfortunately, budgeting doesn’t work for day-to-day spending for most people. The whole point of being an employee, beyond hopefully having a career we enjoy, is to create cash flow to support ourselves and our families. That’s why cash flow management is one of the most important areas of finance that employees of all ages need to learn. There are significant gaps where cash flow management education and tools belong in most employee financial wellness programs. Not only do these gaps need to be filled, but employees need to be exposed to this topic over and over again.
This isn’t only important in earlier working years when employees are paying off student loans, or wrestling with daycare costs. Pre-retirees need to work on their cash flow too. Cash flow management skills help employees of all ages get a much better understanding of their actual retirement income needs, as well as provide valuable tools to help them make the most of that fixed income. Stop assuming this part of finance is common sense, or that intelligent employees are immune to cash flow mistakes. Not only is this not true, it’s dangerous and expensive thinking, and it’s hurting you and your team.
6. Assuming debt will be paid off in time 🧐
Many people are marching towards debt in retirement, and they don’t even know it. And it’s not just mortgage debt. In fact, 66% of Canadian retirees with debt are carrying credit card debt. Debt management strategies, as well as tools and methods to help employees determine how their debt relates to their financial health is crucial at all ages.
In part 1, we talked about how important it is to maximize the income you keep, and carrying debt will take away from that. Most employees may not know exactly when they’ll pay their debt off, or if they are carrying a reasonable amount of debt for their age or life stage. Many are just hoping they’ll be debt-free by the time they’re ready to stop working, but the odds are not in their favour.
Debt is a financial power tool, and without it, most of us could never purchase a home. But like all power tools, if employees don’t know how to use it, or where the safety features are, they can easily hurt themselves. Debt as a topic shouldn't be avoided, and advice that teaches employees to avoid or fear it doesn’t provide them with the skills they need to use it to their advantage. Make sure your employees have access to the education and tools they need to ensure they retire their debt before they do.
7. Thinking they can stop saving for emergencies 🚨
When you think about this one carefully, it becomes obvious that it makes no sense. But if you ask most retirees if they are actively saving each month for emergencies, many say no. Why? Well, some may have access to cash for emergencies within their portfolios, though they have to keep in mind if withdrawing from an account will trigger tax consequences.
Some seem to think that once you’re retired, there’s no longer a threat that you could lose your job, so why save each month? But that only makes sense if you have no other risks. Bad surprises, like home repairs, medical costs not covered by insurance, or helping a loved one experiencing a financial crisis can all come up in retirement.
And most retirees will have to replace their car at least once during retirement. It won’t last for all of their remaining driving years, let alone without any repair costs. The younger you are when you retire, the more important saving regularly for emergencies during your retirement is.
8. Thinking credit doesn’t matter in retirement 💳
Many employees mistakenly believe their credit score really only affects their ability to get a loan. But that’s not true. Credit scores can affect the types of financial products they are eligible for. Credit scores can also impact home and auto insurance premiums.
Since credit scores could be needed for multiple things during retirement, taking care of it is important throughout adulthood. Not only should credit management basics be included in your employee financial wellness program, but employees should be exposed to credit management strategies. Ensure your program walks your team through how to access their score, including any costs or risks, and how it differs from the score lenders actually use.
There can be an overwhelming number of myths and misconceptions to cope with. That’s why financial education needs to be plentiful, with frequent employee exposure, and it must provide your team with practical ways they can act on what they learn. Don’t let your employees' mistaken assumptions cost them thousands, or worse, ruin their retirement.
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About the Certified Cash Flow Specialist (CCS) program
CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.
About the Financial Capability Program (FCP)
The FCP combines quick and practical lessons with tools, including Winton, which helps people make financial changes they can stick to. Users can apply what they've learned to their financial situation, thus bridging the knowing-doing gap. The goal of the FCP is to help people get more life from their money.