How Financial Strain From COVID-19 May Delay Employee Retirements
While new coronavirus vaccines are being distributed throughout the American healthcare system, COVID-19 fallout is just beginning for employers. A recent survey from Willis Towers Watson found that one in four employees plan to delay their retirement. What does this mean for small- and mid-sized employers?
Survey Shows Employees Expect to Delay Retirement
Released Dec. 15, 2020, the 2020 Global Benefits Attitudes Survey from Willis Towers Watson surveyed approximately 5,000 employees about their financial position during the past year. Unsurprisingly, the pandemic played a central role in responses.
Concerning results indicate that 25% of employees aged 50 or older plan to retire later than anticipated. Additionally, exactly half of all older employees plan to phase into retirement with shortened work hours, reduced responsibilities, or transitioning into a different role.
Respondents also said they want better long-term financial security from employer benefits packages, including a more generous retirement plan. Additionally, 53% of all employees surveyed selected saving for retirement as the top area in which they want assistance from their employer.
Why Employees Decide to Wait on Retirement
Not every employee is ready to retire as soon as they’re able. In an AARP study from 2018, 27% of older workers surveyed said they don’t ever plan to retire or stop working completely. The question remains: Why?
Employees who delay their retirement may have several different reasons. These can include:
- Maximize Retirement Savings: Some employees work for companies with generous retirement plans. If they’re still up for the day-in, day-out of work-life, these workers may decide to stay on board to keep saving for their eventual retirement down the road.
- Retain Employer-Sponsored Benefits: Other employees may have the financial stability to retire but haven’t reached age 65, which is when Medicare coverage kicks in. To save on healthcare costs, many workers opt to keep their jobs and use employer-sponsored benefits until they qualify for the government plan.
- Unable to Retire: For countless different reasons, some employees simply can’t retire. By staying on with their job, these workers can count on a steady source of income, even if their healthcare is covered by Medicare.
How Delayed Retirements May Impact Small- and Mid-Sized Businesses
While not comprehensive, consider three ways in which delayed retirements can affect operations at small- and mid-sized organizations:
- Benefits Spend Increases: In general, healthcare claims tend to be lower for younger employees versus employees closer to retirement age. According to data from the Kaiser Family Foundation, average health spending nearly quadruples from the lowest adult age bracket (19 to 34) to the highest (55 to 64). It almost goes without saying, but these costs can raise employer group coverage pricing for the employer and the employees.
- Payroll Difficulties: Employees closer to retirement may have higher salaries than workers fresh out of college. Companies with more experienced, more skilled workers may end up with higher payroll costs over time—particularly if these employees wait to retire. For smaller organizations, this can mean less room for expanding personnel if business remains the same.
- Limited Internal Growth: When older employees decide to delay retirement, they can limit opportunities for younger workers to take on more responsibilities within organizations. For example, younger employees who are ready to take the next step in their professional careers may become discouraged with the limited room for growth in the company. As a result, these workers either become demoralized, disinterested in their work, or leave the company altogether.
How HR and Employers Can Face These Challenges and Support Employees
It’s essential to remember that the Age Discrimination in Employment Act of 1967 protects employees 40 and older from discriminatory practices related to their age. With this in mind, there are several ways HR teams can help older employees reach their retirement goals. These include:
- Educate Employees About Retirement Benefits: Many employees are simply unaware of the vast array of retirement options available, including tax incentives like the Saver’s Credit and catch-up contributions. HR can team up with broker partners to dedicate time and energy towards educating employees about maximizing these benefits.
- Expand Retirement Plan and Benefits: When was the last time you reviewed your team’s 401(k) match? By re-evaluating the company’s 401(k) contributions, you can help older employees achieve their retirement goals.
- Develop and Implement a Phased Retirement Strategy: Not every employee near retirement age is ready to retire. However, if employees show interest in gradually retiring, HR can collaborate with leadership to develop a phased retirement plan where older employees work fewer hours and transition into different roles while still helping the company succeed. This approach can also boost retention for younger employees who want to move up within the company—and present excellent mentorship opportunities as people shift into new positions.
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