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Why Companies Should Help Employees Retire on Schedule


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When it comes to retirement readiness, the numbers are not encouraging: according to investmentnews.com, more than half of our fellow Americans do not have enough retirement savings to cover their living expenses after they leave the working world. Have you considered how this lack of planning and funding might affect your business?

Retaining older, near-retirement workers can certainly offer big benefits to your business and employees. After all, highly experienced workers have a lot of knowledge and wisdom to share with younger colleagues, and it's tough to find good workers of any age. However, what about the other side of the coin? As with most things, there are trade-offs. First, the greater the number of older, more experienced workers in your employ, the fewer opportunities exist for younger workers looking to learn and make their mark. Second, retaining older workers who would prefer to retire is likely to result in increased costs for your business.

Following the career life cycle

Most employees have certain expectations in their careers. Often, these expectations involve a steady progression up the career ladder and wage scale, along with the accumulation of knowledge that comes with those career moves and experiences. This natural career life cycle depends on a predictable pattern of young workers entering the full-time workforce after completion of school and older workers exiting the workforce at or around traditional retirement age. But with over half of workers unable to support themselves in retirement, how will this lack of preparation and funds affect this established pattern and life cycle? Older workers staying on the job create a ripple effect:

  • When an employee stays at work past the expected retirement age, that employee's position is not available to a younger, more inexperienced worker.

  • Since promotions are generally based on knowledge and experience, each employee working past expected retirement affects numerous others down the management chain. Now employees must wait longer to be promoted into roles they had thought would be available upon another employee's retirement.

  • Employees who must wait to receive the promotions and raises they feel entitled to will likely look elsewhere for their next career step, costing your company valuable resources plus actual costs in turnover and hiring.

Addressing employee benefits costs

When workers stay on your payroll past traditional retirement age, they often also stay on your health insurance, which costs your company money. While every additional employee costs your company to insure, in the case of an older worker, the cost is usually quite a bit more. Insuring a young individual costs about one-third what you'd pay to insure an older person.

Let's say you employ Mary, who's 67 years old. Mary doesn't have the retirement savings she needs to quit working, so she decides to stay in her job for several more years. If she retired, she would use Medicare for her health insurance, but since she's still employed, she decides to retain your company's insurance, which she feels allows her more flexibility in choice of doctors and services. Just this one employee undoubtedly costs your company thousands in medical benefits alone. When large numbers of employees make the same choice as Mary, the altered employee lifecycle can make your company's health care costs skyrocket.

Related reading: Why More Americans Are Delaying Retirement

Ensuring productivity

Over the years, many studies have suggested that engaged employees are more productive. That may signal a problem with certain past-retirment-age workers, since an employee who has no choice but to continue working past his preferred retirement age is unlikely to be fully engaged. According to a Prudential report, "employees who are not able to retire when they wish may experience financial stress, a lack of engagement, and lower productivity." An employee who knows he didn't save enough to retire comfortably may be preoccupied with money worries and unable to give his work as much concentration as he could without those stresses.

Encouraging employees to retire on schedule

Now that we've addressed some of the negative consequences of employees working past retirement age, how can you improve the situation? Of course, you don't want all your older workers to retire at once, and as we discussed earlier, your company and younger employees greatly benefit from older employees' experience and knowledge. Therefore, you want to consider what the best plan would be for your company.

  • Establish what you think is the best employee life cycle for specific departments, groups, and positions. Once you have an idea of an optimal life cycle, you can work with your management team to determine plans that would enable older employees to occupy positions where they transfer knowledge to younger workers and still retire in time to enjoy their golden years, freeing spots for younger workers to learn and grow in their careers.

  • Encourage employees to save for retirement through education and access to appropriate savings vehicles.

  • According to the Employee Benefit Research Institute, 73% of workers who are currently not saving for retirement report that they would be more likely to do so if their employer provided a matching contribution. Given this powerful number, consider whether your company could start or increase matching retirement plan contributions.

  • In the same report, 66% of respondents say they'd be more likely to save if their investments were automatically deducted from their paycheck. Setting up payroll deduction is often free to your company, so it's an easy way to encourage employees to save.

Helping your employees properly prepare for retirement is a responsibility that business owners take seriously, and for good reason. Remember to take the employee lifecycle into account when deciding on the best way your company can support employees in saving for retirement. For personalized assistance with your business and retirement planning, consult a financial advisor. Click here to get in touch with one of our advisors today!

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