Older Employee Retirement Concerns: Two Perspectives
Employees who may have the greatest longevity at a particular office in terms of circuits around the sun and as part of payroll, have — and pose — concerns unlike those of younger cohorts. Two recent blog entries discuss different aspects of the retirement-related challenges attendant to older employees.
Higher Costs for Employers
Much is said about the value of the skills and experience that older employees can bring to the job. But David McCann does not appear convinced. In a piece on CFO.com
, he argues that sometimes employees cannot afford retirement, but ironically, their extended presence serves them well but can be a strain on the very source of the employment they need.
In “Delayed Departure,” McCann says that older employees who stay on the job because they can’t afford to retire yet “present a costly challenge for the entire company.” He focuses on the work of the Viability Advisory Group, a firm that seeks to quantify, from the employer’s perspective, the relationship between employees’ retirement readiness and the employer’s financial performance. He reports that Viability has quantified what it can cost an employer when an older employee remains on the job:
- an employee who retires at 66 instead of 65 costs his or her company an average of more than $34,000, a figure that rises to $172,000 if the employee retires at age 70; and
- on the average, an employer spends approximately $98,000 per year on salary, health benefits and workers compensation for a 60 year old employee, a figure rises to $102,000 for employees at age 70.
And the impact of these figures is compounded as the number of older employees rises, McCann observes; he also cites a consultant who argues that the extended presence of older employees imposes additional costs on employers by discouraging retention and recruitment of younger employees. To his credit, however, McCann also cites another industry expert who argues that “it’s important to distinguish between healthy delays in retirement and unhealthy ones” and that “older employees who are highly experienced in value creation and remain engaged and motivated likely will offer more value than the hard-dollar savings their retirement would generate.”A Helping Hand
McCann does address possible remedies that could mitigate these effects and benefit employees and employers, such as automatic features, employer matches and banning plan loans — means to increase employees’ retirement readiness (and, presumably, reduce the likelihood that they would not be able to afford retirement and prolong their stay in the workforce). He cites additional options, such as offering health savings accounts and controlling the fees entailed in investing plan funds.
Michael Webb, vice president at Cammack Retirement, also offers ideas
intended to help older employees to be better prepared financially for retirement. In “The Importance of Retirement Investing Over Saving for Older Employees,” Webb argues that how an employee’s retirement funds are invested matters more as an employee ages.
“Investments matter very little when you are just starting, since investment returns represents a negligible portion of your retirement savings,” says Webb. “However,” he notes, “for older employees, the priorities switch rather dramatically.” He continues, “Many mid-to-late career employees have not saved nearly enough for retirement, and for these employees, every savings dollar counts!”
Webb cites the example of an employee in the middle or late part of his or her career with a retirement balance of $1 million. He says that “may sound like a lot” but that it only provides approximately $40,000 per year, assuming a 4% withdrawal rate. He argues that if that $1 million is invested so it has a 5% return rate, the earnings will be more than double the maximum annual amount that employee can set aside in a 401(k) or 403(b) if he or she is older than age 50.
“At this point, therefore, how I invest becomes far more critical than how much I save,” says Webb. However, Webb does note that “this certainly does not mean that I am advocating for people nearing retirement to stop saving.”
Webb reminds employers and plan sponsors of the roles they can play in helping employees prepare financially for retirement, emphasizing the importance of participant communication.