This webinar will talk about why and how to get your workers prepared for retirement. You will see that there is a large financial incentive for employers to get their older workers to retire on time. The webinar will provide tools for getting older workers comfortable financially and emotionally with retiring, without strong-arming them.
- There is a large financial incentive for employers to allow their older workers to retire with dignity, allowing the next generation of the workforce to advance
- We must ensure that older workers are comfortable financially and emotionally prepared for retirement
- We need to consider several tools to help them make the decision to retire and smoothly transition their responsibilities to a successor
Welcome. My name is Chris Haak, and I’m going to be your presenter today. A little bit about myself before we begin. I have enjoyed a 20 plus year career in compensation and benefits, and I currently lead the compensation and retirement benefits function for a large automotive services company based in New Jersey. I earned my BS degree in Management from Lebanon Valley College and my MBA from Villanova University. I hold both the CCP and GRP designations from World at Work.
Today I’m going to talk to you about why and how you want to get your workers prepared for retirement. I hope to show you how there’s a large financial incentive for employers to allow the older workers to retire. I want to show you how to get your older workers comfortable financially and emotionally for retirement without strong arming them.
Remember the three legged stool of retirement savings? One leg was supposed to be an employer’s pension plan, a second leg was supposed to be social security, and a third leg was supposed to be the employee’s own savings. How’s that working out today in a world largely devoid of pension plans? The sad fact is that our employees who are closest to retirement age, which today is 66 rising to 67 for those born in 1960 or later, are not saving enough money for their retirement. Against the backdrop of low defined benefit or traditional pension coverage and inadequate Social Security benefits, employees should be saving more than ever for their retirement on their own. Living in one’s golden years is becoming ever more costly. largely thanks to healthcare inflation.
AON estimates that an employee needs 11.1 times their final pay to last them through the end of their life. For someone making $50,000 annually, that is $555,000. For someone making $100,000 annually, that is $1,110,000. Yet we see that employees are not able to or have chosen not to adequately save for their retirement. The loss of the employer leg of the stool via pensions falling out of favor means that the $5.6 trillion in 401k assets in the US today is just not enough. We’re left with a two legged stool for many people, and that’s just not ideal. Our economy needs older workers to continue contributing to the workforce. But that experience, knowledge, and maturity does not come without costs both hard and soft.
We, as employers and HR professionals, owe it to our employees to help them prepare for their retirement, which according to Mercer, they are expecting us to do. Why would we, as employers, care about employees who delayed retirement. The hard costs, according to both CFO.com and Prudential, our healthcare expenses being double for a 65 year old worker compared to a 45 to 54 year old worker. We also tend to pay older workers a higher salary that they’ve earned over their years of experience. Soft costs include the downstream impact of clogging the pipeline. A delayed retirement blocked other employees from moving up into the retiring workers role, which also blocks the people filling the other successors. This flows downward even to entry level employees.
To counter the forces that lead to a delayed retirement, we must remember the opposing forces that make it beneficial for employees and workers to retire on time. Workers delay their retirement because they can’t afford to retire, or because they’re not sure of their identity when they’re no longer in the workforce. If you spent the past 45 years as a technician, how do you introduce yourself to people when they ask you what you do? Are you a technician? Are you a retired technician? Are you retired? These are real questions that retirees struggle with.
Remember the reasons we want people to retire on time. It’s expensive to cover older workers under our group healthcare plans. Advancement of those below them is blocked, and newer workers tend to have lower salaries and be more comfortable with new technology. Regardless of age, some degree of turnover is healthy in bringing new ideas to the business. Lower costs could allow for expansion of other benefit offerings. The question is, how do we, as human resources professionals, encourage the on time retirement side to win more often?
I believe that for workers to be comfortable with retirement, they need two kinds of security: financial and emotional. Financial security basically means being comfortable knowing that they have enough money to retire and last them from their retirement until their death, and possibly leaving an inheritance to their descendants. To get there, they need to understand how much they need and how to invest that money appropriately for their situation, as well as how much they need to invest.
For employees not just older workers, the biggest challenge in preparing for retirement isn’t how much they’ll need or how to invest, but just finding enough room in their budget to save adequately for retirement. Healthcare expenses are also important for retirees to keep in mind.
I know people who have plenty of money to retire are old enough but keep working. The father of one of my wife’s friends continued to work into his mid 80s. My own father is in his 70s and still runs a business. Employees also need to have emotional security to retire. For many, their career is their identity and losing that identity without another one to replace it becomes impossible to imagine.
Now, let’s explore some tools that we as employers can use to answer these questions, and make the retirement decision easier for our employees. Here we’ve broken down each of the financial security questions noted on the earlier slide, and provided some solutions that employers might provide to get employees closer to feeling financially secure. Note that many of these resources are not instant solutions, but rather long term solutions that require a sustained commitment from both the business and the employee to reach the goal.
You’ll notice many repeated resources such as customized situational communications. By this, I’m referring to resources on your 401k record keepers website that are behind the wall, meaning that the employee has to log in to access them. This allows the advice to be best tailored to the employee’s individual situation since the record keeper will already know their age, income, and 401k balance.
My company recently offered MetLife’s retire wise workshop series. We are among nearly 2000 employers that offer this series of four workshops, and they covered many important tenets of financial literacy. It was very well received by participants and it was completely free. MetLife’s branding is on the materials, but I was very happy to hear that there’s no MetLife sales pitch included with the information. Attendees are offered a free one on one consultation as well, and over 40% of our workshop participants took advantage of that.
Let’s talk about some of these needs. First, how should I invest my retirement assets so they grow without too much or too little risk? Well, some of the resources you might consider customized situational communications, as we just mentioned, online advice tools such as Financial Engines, or target date funds as an offering in your plan. How much money will I need in retirement? Will I have enough money to retire? Customized situational communications, financial wellness programs, one to one pre retirement financial planning, and also retirement spending studies such as the AON study I mentioned at the beginning of this webinar.
How much do I need to save to meet these retirement goals? Those situational communications with the provider will help them. You can consider some plan design tweaks such as a stretch match where you have to defer a larger percentage of your pay to get the full match. Also, things like auto escalation or auto enrolment. Those will also help with getting people financially set to retire. Finally, those financial wellness programs. And fourth, how will I pay for my healthcare and retirement? Well, you can offer health savings accounts with a high deductible health plan. That’s a really good solution. Also, those customized situational communications where we know what employees assets are and how their health is as far as finance goes.
Emotional preparedness is a different animal. We, as employers, can help our employees in some ways, but we, as the employer, can’t tell a potential retiree what their life purpose will be after they retire. However, many long term employees naturally feel a bond to the place they spent all or at least the final years of their working career and want to be sure that their work is left in good hands after they retire. The company also has a stake in getting the handoff right. One way to facilitate that is by having an open conversation with the retiring employee. Having a deep bench with a successor lined up is also is certainly a luxury.
At my company, the benefits manager announced in January 2017 that you would be retiring in September of that year. We had the luxury of that long transition to hire his replacement. We started in March, and had been one of our outside benefits consultants. Then, nearly six months of overlap to transition the work to the new manager. The result was a successful transition and a retiring employee who knew that he left his role in great hands.
Other [inaudible] that companies might consider are transition period from full time to part time. For example, my company owns over 30 vehicle dealerships. We often have folks transition from full time salespeople to part time shuttle drivers when their retirement age. That way, they have some income and possibly more importantly, a social outlet with their former co workers plus a way to fill a few days per week with minimal stress. Older workers might transition to another role as their career winds down.
We’ve had other instances where a leader has very valuable knowledge and skills, but no longer wants the responsibility of managing a team. In some cases, we are able to find an individual contributor role for the final years of that person’s career. As far as how home life will change, that’s largely up to the individual. Quite frankly, we don’t officially do either of the suggestions here. We do offer a one to one pre retirement financial counseling that is focused on financial needs and emotional needs. Likewise, the individual will need to determine their life’s purpose or identity after retiring.
My company doesn’t have any specific affinity groups or clubs, but retirees are invited to attend events such as our annual car show and our annual shareholder meeting their managers. However, years ago, I worked for a company that had several staff networking groups that focused on the environment, their heritage, or their generational identity. Such groups might allow an employee to discover a hobby they could take up more enthusiastically in retirement. I love this quote. I assumed it was one of John Wooden’s, but it’s from the other eminently quotable individual Ben Franklin. Bottom line, we should not be surprised by an employee’s retirement. We in HR know exactly how old our employees are, and it’s up to our managers to have at least an annual conversation about future goals and plans.
In my company, we have processes called MDP, which stands for Management Development Plan, and IDP or Individual Development Plan, where we discuss where we want to be in the short term or longer term career wise. Someday, I plan to tell my manager that I plan to retire in three years, and then I’ll tell him in two years I plan to retire, then I’ll tell him next year I plan to retire.
Just because a worker haven’t talked about retiring doesn’t mean they never will. As managers, we owe it to our company to plan for the future with a robust succession planning process. We should always have in mind who can assume a new role if one suddenly becomes open, whether by retirement, resignation, transfer, or whatever. Older workers offer a ton of value to our organizations, and we don’t want them to leave before they are ready and before the company is ready for them to step down. We can retain their skills less expensively by preventing a part time schedule, or a different role within the organization.
Lastly, I’d like to talk about alumni benefits. As you can see, these have become far less prevalent over the past 25 years. Few employers offer retiree health benefits to active workers. According to the Kaiser Family Foundation, only 18% of large firms offered retiree health benefits. This is down from 66% of firms in 1988. However, there is some good news for our employees. A plurality or 45% of pre Medicare retirees do have employment based health benefits.
Even though most companies are scaling back or eliminating retiree health care, there are a few tools that employers might consider for providing retiree health care. One is to offer a 100% retiree paid plan. While it would be expensive, it could take advantage of group rates. The downside is that for the 55 to 64 age group, it will be more expensive than Medicare supplemental insurance would be for the Medicare group. Also, the inevitable big claim will quickly raise premiums to unaffordable levels, resulting in healthier individuals seeking other coverage perhaps on the exchanges, leaving only the unhealthy individuals. In other words, the plan would go into a death spiral.
Employers could also contribute to an HRA or HSA. There are significant tax advantages with these accounts, and they are only a current expense, not a future liability. Those future liabilities are what sent the availability of employer provided health care plans in the past 25 years. HSAs and HRAs have annual contribution limits, which means that even the most generous employer will likely not provide enough money to completely pay for retiree health care coverage. Some 401k plans offer a Roth option, which taxes money going into the plan, but does not tax earnings or qualified withdrawals, which are those held for a minimum of five years.
My plan personally is to use my HSA account and my Roth 401k money to pay for all or part of my retiree health care costs in the next 20 plus years. I recognize this has been a lot to digest. So, let me wrap it up into just three main points. First, there is a large financial incentive for employers to allow their older workers to retire with dignity, allowing the next generation of the workforce to advance. Second, number one is not going to happen unless our older workers are comfortable financially and emotionally with retirement. We can’t strong arm our older workers into retiring, or we’re at a risk of an age discrimination lawsuit. Third, to accomplish number two, which hopefully results in number one, we need to provide our employees with tools to help them make the decision to retire and smoothly transition their responsibilities to a successor.
Thank you. I have enjoyed going over this information with you. If you’d like to discuss this topic further, I’d encourage you to continue the conversation below. For example, is your company doing anything to help retirement age employees to move to the next stage of their lives? Are there any tools that you’re aware of to make this transition easier for the employees and for the employer? Thanks again.
Get full Q/N Access
Sign up to Q/N with a few details to watch this presentation.