Now that we’ve passed the 100 employee mark, I wanted to share an employee benefit that is a game-changer for growing, medium sized* companies to consider.
There are so many ideas for early stage start-ups to offer valuable employee perks. Over time, HomeStars has evolved our health and medical benefits to give people flexible spending options. A couple of years ago, we introduced a $1,000 annual education allowance, and three month top-up to parental leave. We have always closed the office the last week of the year, thereby giving new employees an additional week on a standard two-week vacation policy. We built a closed rec room with games and couches for any needed downtime. We have invested in stand-up desks, and have continuously expanded our beautiful brick & beam downtown office over the past six years.
But what about retirement? What about helping people build their long-term financial health and wealth? Here’s one benefit I credit our VP Finance (now on maternity leave herself) for introducing this year. I am excited, as it will have a positive long-term impact on each employee that enrolls.
We introduced a company match retirement savings program.
The program allows each employee to contribute up to 2% of their gross pay to their RRSP directly from their pay cheques. And HomeStars will match that 2%, so in essence 4% of their annual compensation is put into a registered retirement savings plan to accumulate wealth for their future.
Sounds basic. Why is this important?
Because saving and investing your money is the key strategy for building long term wealth. And the key to building wealth is compound interest. The famous investor, Warren Buffett, has written many times that the most powerful factor behind his investing success is compound interest.
Here’s an example to illustrate the need to start investing early. There are two friends who are the same age, Alex and Chris. Alex begins investing $300 every month from age 20 to 34 — the total amount invested over 15 years is $36,000.
Conversely, Chris saves nothing from age 20 to 34 and decides to start saving the same $300 per month at age 35 for a period of 30 years until age 65. The total amount invested is $72,000 over 30 years.
In this example, their investments grow at an average 5% annually, a number chosen for its simplicity. But by age 65, Alex has $358,000 and Chris has $250,000. That’s a shocking difference of $108,000 given Chris contributed the same monthly amount, for twice as many years — that’s the power of compound interest. Here’s the calculator I used if you want to try some other scenarios.
We all know how hard saving our money is. The cost of living in big cities like Toronto is getting higher. Saving for a special trip, or a car or a down payment on a house requires real financial discipline. Many of our team are under 40, so retirement is decades away and often falls to the bottom of the priority list. Yet there’s another concerning article I read that found only 1 in 10 baby boomers (people aged aged 55 to 74) have enough saved for retirement and expect to work well into their 70’s.
Saving is critical for our long-term financial well being. And there’s so much literature out there pointing to investing every month and starting as young as possible. When it comes to deciding how to spend your hard-earned money, pay your future self first.
After we launched the program this January, 65% of our workforce opted in. I hope this post will encourage the remaining 35% that have not yet enrolled to consider enrolling. And I encourage other founders and executives to add a matching savings benefit as your small company grows.
* Stats Canada defines medium-sized business as between 100 to 499 employees. The National Center for the Middle Market , a leading research source in the US, defines mid-size companies as having an average annual revenue of between $10 million and $1 billion.