Avoiding common retirement pitfalls

April is Financial Literacy Month—a natural time for multiemployer plan boards to reflect on how effectively participants are equipped to make informed financial decisions. Participants value their pension and defined contribution plans; however, common missteps can undermine long-term financial security these benefits can provide. By proactively addressing these pitfalls through education and communication, plans can help participants make better use of the benefits available to them.

Here are four common mistakes—and practical ways plan boards can help participants avoid them.

1. Treating retirement savings like a short-term savings account

Participants may view their 401(k) or defined contribution accounts as “rainy day” funds rather than long-term retirement vehicles. Loans, hardship withdrawals, or frequent reallocations can significantly reduce long-term growth potential.

Plans can address this by reinforcing the purpose of retirement savings accounts in participant communications. Simple messaging that illustrates the long-term impact of early withdrawals—especially when paired with examples or projections—can be effective. Offering guidance around emergency savings strategies outside of retirement plans can also help participants preserve their retirement assets.

2. Not naming or updating a beneficiary

It’s surprisingly common for participants to neglect naming a beneficiary—or to forget to update it after major life events. This can lead to delays, administrative complications, or outcomes that don’t reflect the participant’s intent.

Plans can encourage regular beneficiary reviews through annual reminders, enrollment meetings, and targeted outreach during life events such as marriage, divorce, or retirement. Making the process simple and accessible—especially through online forms or secure portals—can also improve completion rates.

3. Underestimating healthcare costs in retirement

Healthcare is one of the most significant and least predictable expenses in retirement. Participants often underestimate these costs or assume they will be fully covered by Medicare or plan benefits.

Plans can support better planning by providing education on expected out-of-pocket costs, coverage gaps, and available retiree health benefits. For trusts that offer supplemental coverage or health reimbursement arrangements, clear and consistent communication is key to helping participants understand and maximize these benefits.

4. Ignoring inflation’s impact on fixed income

Inflation can erode purchasing power over time – particularly for defined benefit pensions, as they frequently don’t include cost-of-living adjustments. Though 401(k) participants can lose purchasing power too, especially if money is invested too conservatively.

Plans can help by framing pension benefits as one piece of a broader retirement strategy. Educational materials that explain inflation in practical terms—and encourage supplemental savings where available—can help participants better prepare for their retirement. In 401(k)-type plans, members can be encouraged to invest in a portfolio that has an acceptable amount of risk to address inflation. Tools that show how expenses may grow over time can make the concept more tangible.

Bringing it all together

Financial literacy efforts don’t need to be complex to be effective. Clear, consistent messaging delivered at the right moment can go a long way in helping participants avoid common mistakes. For multiemployer plans, this is also an opportunity to reinforce the value of the benefits provided—and to support better long-term outcomes for the participants who rely on them.

By addressing financial literacy head-on, plans can strengthen engagement, improve decision-making, and ultimately help participants make the most of their retirement. Rael & Letson can help you design an effective outreach campaign for participants. Contact us to get started.