More and more, employees are choosing to delay retirement. This is due to a variety of causes, including the desire to work longer and gaps in retirement savings. While it may seem advantageous for employers to be able to retain employees for longer, a study by Prudential found that delayed retirement leads to incremental annual workforce costs of about 1.0%–1.5% for an entire workforce. So for an employer with 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost about $2-3 million.
Why does delayed retirement cost employers so much and how can they support employees to retire on time? In this article, we'll dig into the factors driving increased expenses and strategies for supporting your workforce.
Why Do Employees Retire Late?
In February 2019, more than 20% of Americans over 65 were working or looking for work, which is almost twice as much as in 1985. There are a few factors keeping these individuals at work:
- Improved health and elongated life expectancy mean individuals are able to work longer.
- Delayed age in receiving full Social Security benefits means individuals must work longer to receive optimal benefits.
- Organizations have moved away from pensions toward contribution-based plans, which can be seen as less reliable if individuals aren't diligent with saving throughout their careers.
The Cost of Delayed Retirement
While not always true, it's common that the oldest employees at an organization tend to be the most senior. As a result, these individuals typically have the highest salaries and largest benefits. Employees over age 65+ have much higher healthcare costs than younger employees. Similarly, older employees are likely to utilize retirement benefits to their fullest potential.
Employees who know they won't be able to retire on time likely experience increased financial stress, which may lead to a lack of engagement and reduced productivity. Although there's a benefit in maintaining experienced employees, keeping them onboard reduces opportunities to hire new team members, which can bring new ideas and enhanced productivity.
Supporting On-time Retirement
By helping your employees to retire on time, you're not only being a great employer, you'll also optimize your organization's resources and expenses. Consider implementing retirement plans that help employees retire on time. Plans should be designed to help employees save for retirement. Features like contribution matching can be a great way to encourage contributions without overcommitting your organization. Are you tracking the retirement readiness for your employees?
For senior-level employees, consider providing supplemental executive retirement plans (SERPs). These can be offered to specific employees to provide advanced benefits for your most senior team members. Your organization will be able to support your executive-level employees in reaching their goals, without breaking the bank by bolstering benefits for all employees.
If you're able to support it, consider providing student loan repayment, comprehensive health coverage, and other benefits designed to minimize your team's expenses.
Across your entire organization, provide saving and investment education. This can include classes, time with retirement planners, and access to resources. Help your employees calculate their needed income in retirement and how much to save now in preparation for their future.
Remember, saving for retirement isn't the only thing on your employee's horizon. Be sure to also explore frequently asked financial topics like saving for college, purchasing sufficient life insurance, and buying a house.
Help Your Workforce Retire on Time
Today, more individuals are continuing to work past age 65 than in decades past. Delayed retirement can be costly as an employer. The aforementioned Prudential report estimates an average of $50,000 per employee per year. It’s important to develop a plan to support your employees in reaching their retirement goals on time.
For help building a retirement plan that works for your employees and your organization, schedule time with our team of experts.
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