For too many companies, retirement planning includes a quick overview of the 401(k) plan at some point early on in the employment relationship and then nothing until cake and a gold watch. But prepping employees to assure they’re ready to retire, in more ways than money savings alone, is a sound talent strategy for organizations and their employees.
An older workforce has knowledge, connections and networks that are invaluable. But it can also be a weighty expense. Seniority often puts older workers at the top of wage and compensation levels, and they may incur higher healthcare and wellness expenses. They can also slow the promotion pipeline. When junior workers can't see a path to move up because senior workers aren't moving out, they may decide it's time to move on.
Show me the money
Readying employees to retire comfortably benefits both workers and businesses. From a financial perspective, however, the majority of American workers are not prepared. One survey from the National Institute on Retirement Security put nearly 60% of workers with zero retirement assets; the majority of those who do have a retirement account have, on average, only $40,000 saved.
In addition to the financial costs, there's also a competitive advantage in attracting and retaining talent when you have a culture that focuses on employees' financial well-being and retirement success, Erik Fromm, financial advisor at Janney Montgomery Scott, told HR Dive in an email. "If top talent is comparing possible employers and one of them states clearly that they will provide resources and guidance around organizing and managing their financial well-being, that could be the clincher," he said.
If employees have goals organized and plans in place, they're better able to focus on their work instead of stressing about bills, Nick Holeman, a financial planner at Betterment for Business, told HR Dive. For companies that don't have talent in place to assist employees in that matter, a third party provider can help staff create a pathway to comfortable retirement.
"In the early stages of their career, employees have other priorities: they're planning a down payment on a house, their kids' college funds, creating an emergency account or paying off loans or high interest credit card debt," Holeman said. They may not understand the importance of preparing for retirement upfront.
Breaking the ice
The retirement planning discussion can be tricky for employees, as they may feel they're being edged out. Fromm said that company culture can help smooth this transition. "I think this starts with an open culture where it is OK to talk about when you are not going to be working with your employer — whether that’s five years down the road or 15 years down the road," he said. If an employee doesn't feel his or her manager is starting the conversation to try and replace them, the conversation can be productive.
Holeman agrees the conversation can be challenging. But if employees stay in the workforce out of necessity rather than desire, they tend to be less invested, damaging engagement, he said. One study by the Transamerica Center for Retirement Studies showed 66% of workers would like assistance with retirement planning, but there's a disconnect: 72% of employers believe staff only think about retirement as it gets closer, while only 40% of employees say that is true.
When to start
Retirement planning should begin as early as possible, but due to other financial pressures, most employees put it off in the early stages of their work journey. "Early 50s is where we really start to engage with people," Fromm said. "Painting with a broad brush, you're probably in peak earning years, house/kids/college cash flow is consistent and usually improving, and you're close enough to start to be able to picture yourself not working full time where you are."
Meaningful financial planning conversations in the early 50s offers employees a chance to get a "good snapshot of where the status quo will take you over the next 10-15 years with enough time to make adjustments that will make an impact on your well-being."
For younger workers, automatic enrollment in a 401(k) can put them in the habit of saving and serve them well later on. Even without an automatic deduction, businesses should highly recommend that their employees contribute to a retirement plan as soon as they are eligible. Remind staff that just by contributing the minimum in order to receive an employer match, workers are doubling their investment. For many employees, the difference in their paycheck is minimal since contributions are pre-tax. The employer match is essentially free money. When financial pressures change, employees can be guided to rethink the amount going into the account.
Surviving the brain drain
Fromm suggests transitioning to part-time or consulting is a tremendous opportunity for business and baby boomers, especially those still engaged with the work and the social dynamic. Removing someone who is Medicare-eligible from full-time rolls to part-time or consulting status is a win-win, he said. Any business seeing seasoned employees move on should at least suggest the option of continuing to be an asset to the company, or to maintain a connection.
Transitioning can be a great way to retire slowly, Holeman said. "Retirees that stay on part-time or in a consulting capacity can continue to bring value and create income to increase their safety net," he said. From a planning perspective, the lower tax bracket could be beneficial to them, as well, he adds.
Raymond Lee, founder and CEO of Careerminds, spoke to HR Dive about another reason employees may not be ready to retire. "Friday afternoon is their retirement party," he said, "and Monday morning they have nowhere to go."
Employees in their 60s may be healthy and active and have a feeling it's time to move on, especially if they're not digitally savvy, he noted, but they have no plan for what’s next.
"Companies can help employees think about the non-financial aspect of retirement," Lee said. "If you don't have a sense of what will keep you busy when you leave your job you can lose what's important to you — a part of your identity." Employers can help with transitional work, or even help staff "find a new passion — a new way to leave your mark," Lee said. "Life expectancy is longer, and even though they may want to stop what they're doing, they may want more than travel and leisure — a way to still contribute."
Lee suggested that consultants can help staff find their new adventure, but businesses could consider a one- to two-year retirement rollout, or reverse mentoring opportunities. For companies that have a strong commitment to charitable works, employees may even find a pathway to stay connected on a volunteer basis.
"Money isn't the only thing," Lee said. "It's important — but social connections, life meaning and well-being are just as important to the emotional readiness for retirement."
According to Fromm, employers can help staff with retirement readiness so they’re "looking forward to the future with anticipation not anxiety, knowing that you have a strategy in place."