According to an annual study released by the Insured Retirement Institute (IRI), many baby boomers are working longer. For one-third of Americans, that’s past age 70. While older workers add a lot in the way of experience to your organization, the increasing number of retirement-age employees has an impact on your business, particularly in terms of increased costs.
Working Longer, How Baby Boomers Impact Your Organization
Simply raising the average retirement age by one year can have a significant impact across your organization. To determine the effects, Prudential evaluated a hypothetical private sector company with 3,000 employees and workforce costs of $194 million. For the model national case, a one-year increase in the average retirement age averaged an extra $50,000 per employee a year when calculating the difference between salaries and benefits of a younger worker versus a baby boomer. The same delay also resulted in an annual incremental run rate of about 1-1.5 percent of workforce costs.
Specifically with respect to healthcare costs, Anthem indicates that healthcare expenditures for workers over the age of 65 are double those of employees in the 45 to 54 age range. While smaller businesses with under 20 employees can rely on Medicare to provide primary coverage for retirement age workers, larger companies are required to offer group health benefits to all.
Businesses should carefully consider the added costs associated with retirement age employees as more Americans stay in the workforce longer. United Income’s report on Labor Department data shows that 20 percent of Americans aged 65 and over are actively working, a number that has doubled since 1985.
Helping Employees Plan for a Healthy Retirement a Win for All
For many baby boomers, insufficient retirement planning is the reason they are working longer. The IRI study mentioned above reports that 42 percent of baby boomers have nothing saved for retirement. For those that have managed to save something, the outlook is still discouraging as 38 percent have less than $100,000 set aside. It is for this reason that employers should proactively help aging workers prepare financially for retirement.
Financial wellness programs have provided measurable benefits across all age groups. According to research conducted by Financial Finesse's Financial Wellness Think Tank, employees who participate in these programs move from a score of four to a score of six on a 10-point financial-readiness scale and contribute 38 percent more to their retirement savings.
Even modest improvements are of benefit. Employees who increase their financial readiness from a score of four to a score of five realize a 17.85 percent increase in retirement savings, a factor that could help more workers meet financial goals and retire on time.
Improving employees’ financial readiness is a win for the organization as well. According to the Financial Finesse's Financial Wellness Think Tank research, reducing the average retirement age by just one year could generate $33 million in savings.
Of course, the best defense in preparing employees for retirement is a good offense. Consider starting younger employees off on the right path by encouraging contributions to a qualified defined contribution fund. Employers can design defined contribution funds to promote employee participation by offering matching employer contributions. A good rule of thumb is to educate employees on the plan and encourage them to invest at least as much as you are contributing. Automatic enrollment and escalation features are other tools that help encourage employee savings.
When it comes to serving the needs of retirement-age workers, it’s never too early to start supporting healthy retirement saving.
Whether your desire is to minimize fiduciary risk, reduce plan fees, or focus on employees’ retirement readiness, we can help you can create a retirement plan that meets your company’s needs and gives your employees confidence in their financial future. Learn more about our Retirement Plan Advisory Services.
About the Author
Charles is Director of Retirement Plan Advisory Services for First National Bank Wealth Management. In this position he has the overall responsibility for the coordination and delivery of investment advice, fiduciary consultation and vendor searches for retirement plan sponsors and investment committees.