Financial Wellness

The Carrot or the Stick? How about the Retirement Plan!

The success of a wellness program links directly to the level of engagement and participation of the employee population. For years, the debate has raged over how to drive greater utilization by using rewards (a carrot), or penalties (a stick) to motivate employees.

Regardless of which method is used, or even if both are used, the end goal is creating a culture of wellness. When a culture of wellness is achieved, employees are motivated that lessens the need for incentives or deterrents. They see the value of improved health outcomes and actively choose to engage in activities and actions in line with that goal.

Retiring Well

So how does the company's retirement plan fit into the picture? Unfortunately, usually the answer is "not at all." However, shouldn't the retirement plan adviser be one of the biggest proponents of your wellness culture? Keep reading and I think you will agree.

Many retirement plan advisers lead employees through an exercise of envisioning what they see themselves doing in retirement. They then use those activities to help employees see the necessity of saving money for their retirement (so they don't end up destitute and a burden). This is a useful exercise, but it falls short.

As important (maybe more important!) as the money they will need to enjoy these envisioned activities, is the health they will need in order to engage in them. For example, when you ask employees what they see themselves doing in retirement (or what they dream about doing) most will answer with things such as playing with grandkids, volunteering, traveling or golfing.

No one will answer with "confined to my home or a care facility because of disease or immobility" yet that will be the likely plight of many employees if they continue making poor health decisions. Not having this kind of conversation when discussing retirement planning should be considered borderline malpractice!

Not only will health play a major role in how active someone will be in retirement, it will also affect one of the biggest costs Retirees face - medical costs. The evidence is overwhelming that healthcare costs are a major financial burden for most retirees.

To cite just one study (and there are many to choose from) Fidelity recently reported that the average couple age 65 who retire in 2014 will spend $220,000 on medical costs (in today's dollars) over the remainder of their lives. In an article titled "How to Tame Retiree Health Care Costs," however, not one of their suggestions deals with the benefits of Wellness or preventative measures.

This one more example of how myopic most Retirement Advisors are in their approach to retirement planning - it's all about the assets. Most of the medical conditions that older people face could have been delayed, if not prevented entirely, by lifestyle changes earlier in their lives.

The biometric results are not encouraging for Boomers and later generations who are often living more sedentary lives than current retirees did. Until we help people understand how their current wellness choices are directly influencing their retirement options and future healthcare costs, has retirement planning taken place? I'll state it again: the organizations Retirement Plan Advisor should be one of the biggest partners in promoting the wellness message.

And - if I can be forgiven for using cake in my wellness article - improving an employee's health really is an instance of them having their cake and eating it too. Unlike the challenge of getting people to save more for retirement, which they perceive as having to give up money they could be enjoying now for some foggy future dream; all improvements in their wellness will benefit them in the here and now, as well as in retirement.

They will enjoy all the benefits of healthy living that the wellness program is extolling, and they are going down a path that will likely lead them to a much better place with less pain, and more options and independence in their later years. For many employees, the dreams of playing with grandkids, as well as other benefits of a healthy retirement contrasted with the probable place unhealthy living now will lead them, may be just what is needed for them to commit to a healthier lifestyle today.

That vision can be much more compelling than simply trying to focus on some boring biometric numbers. Who wouldn't be more motivated by "these choices may keep me from enjoying my grandkids" than by "if I keep doing this I won't feel very well and I may need more medical interventions"?

A recent study shows a strong correlation showing employees who are proactively saving for retirement are also much more likely to engage in healthy lifestyle choices - reviews of the study are in USA Today and the Wall Street Journal.

A Healthy and Wealthy Future

Switching gears, another growing facet of wellness is financial wellness. This should be a major focus of the Retirement Advisor as well. In fact, real readiness is built on a foundation of physical and financial wellness. If either, or both, is missing or weak, any efforts to improve Retirement Readiness are on a very perilous foundation.

What is real retirement readiness, and why is it important to an organization? The definition given by Wall Street and most Financial Advisers only measures the amount of money in a retirement account or replacement rations - what percent of an employee's current salary could be produced by the current amount that employee has saved in their retirement accounts.

Let's look at two employees. Employee A increases his retirement account balance by $25,000 and his replacement ratio by 10% over a 2-year period. Using traditional measures of retirement readiness, that employee is much more retirement ready and the plan, for this employee, is a huge success. Employee B has the exact same balance in her retirement plan and her replacement ratio is the same as it was two years ago.

Again, using traditional industry measures she is losing ground in her retirement readiness. But let's look at the whole picture. What you didn't see is that Employee A also continued on his trend line of poor health and his Biometric results are worse than they were 2 years ago.

He is also further in debt and is sometimes even unable to meet monthly expenses. Employee B has quit smoking, lowered her cholesterol to within healthy guidelines, dropped to an acceptable BMI and paid off all her consumer debt. She is also making progress in building up a Peace of Mind Account (Emergency Fund).Now tell me which one is more retirement ready in absolute terms.

Which one is most likely healthier, happier and more productive today? Which one is likely a better employee in terms of productivity and company costs (healthcare and other costs)? The current definition of retirement readiness leads naturally to the "cure" of auto features - auto enrollment, auto escalation, etc.

This is a very good solution for Wall Street and for the Advisor, but if the employee is not currently in a state of physical and financial wellness, it may be a bad solution for the organization. Auto features do not solve the foundational issues. Auto features may well help plan metrics, but it might be better to take a year or two and work toward improvement in the physical and financial wellness of the employees first.

Then, with a firm foundation in place, auto features can benefit all parties involved. Real retirement readiness is built on the foundation of physical and financial wellness. If you implement auto features before addressing financial stability, where do you think the employee will turn when one of the inevitable storms of life comes his way?

Most likely, he'll tap into his 401(k) through a loan or hardship provision. And while a 401(k) is a very good way to save for Retirement it's a very poor way to save for emergencies that pop up 3 or 4 years down the road. It's bad for the employee (they're destroying their retirement savings), it's additional work and worry for your HR department, and it's completely undermining the very reason organizations implement a match or Auto features in the first place - to increase the amount employees have saved for Retirement.

One of the biggest challenges we face in getting employees fully engaged in wellness and in creating a culture of wellness is helping them see past the challenges and impulses of the moment (Coke tastes better than water; catching up on social media is more "fun" than going out for a walk or other form of exercise).

Yet helping them see the long-term impact of those decisions - how it will affect the activities they can engage in, as well as the costs they pay for poor health in retirement - just may be the way to move more employees to embrace their health and to buy into a culture of wellness.

About the Author

Scott Pooch is a Retirement Plan Advisor on a mission to Redefine Retirement Readiness. His passion is to help employees make choices now that will lead them to a healthier and financially secure future. You can reach him at:

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