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Delaying retirement – a benefit for both employees and employers

June 11, 2018

By Kristen Cifolelli, courtesy of SBAM Approved Partner ASE

According to the LIMRA Secure Retirement Institute (LIMRA SRI) study “Selecting the Right Carrots: How Employers Can Incent Employees to Delay Retirement,” encouraging employees to delay retirement benefits both the employer and the employee. 

First, it helps employers keep experienced and productive employees on the job, especially in a labor market that has more jobs than skilled persons.  Second, it helps employees have more for retirement when they are ready to retire. 

Employee retirement is a complex issue.  It generally has more to do with the employee wanting to do more as they age, than wanting to “retire.” Yet, the decision to do what they want is tempered by financial considerations.  LIMRA SRI found that one-third of employees based their decision regarding when to retire on attaining a specific age, and that the most important reason for that was the expectation that they would be able to afford to do that by that age.

According to the EBRI 2018 Retirement Confidence Survey, the share of workers who feel very confident in their ability to live comfortably in retirement remains low at just 17%, but another 47% are somewhat confident. Combining those that are very and somewhat confident, workers appear to be more confident in retirement than they were in 2017.  And retirees remain more confident than workers, with a third (32%) very confident and another 44% somewhat confident that they will have enough money to live comfortably throughout retirement. 

Workers appear to be very positive about their workplace defined contribution (DC) retirement plans, and that may be impacting overall retirement confidence.  However, at least 4 in 10 workers state that debt is negatively impacting their ability to save for retirement. At the same time, about one quarter of retirees say debt is also negatively impacting their lifestyle.  Moreover, many respondents have found that their health care expenses in retirement are higher than they expected, and another 1 in 4 say long-term care costs have been higher.

Therefore, employers have opportunities to retain the older workforce in order to train the younger workforce.  It also helps with the knowledge fund transfer – a long-term issue for employers. 

LIMRA SI recommends four programs that could be attractive to retaining the older workforce. 

  1. LIMRA SRI recommends affording employees the flexibility to work outside the office.  This could result in them prolonging their service for an average of 15 more years.  
  2. If employees are allowed to work flexible hours, they are likely to work an average of 13 years more.  Allowing them to work part-time can add 12 additional years.
  3. Allowing employees to work as a consultant could add an average of 12 additional years to an employee’s tenure.  
  4. Financial incentives to work longer could result in an employee staying with the employer for an additional 13 years.

In addition, providing a healthcare policy that would convert to a cost-effective, supplement for employees who are eligible for Medicare could also have a positive effect on employee longevity.  Other subsidized benefits such as access to long-term care can be attractive to older employees.

The EBRI study found that only 19% of workers and 39% of retirees have tried to calculate how much money they would need to cover healthcare costs in retirement.  Another EBRI study found that the fear of catastrophic health care expenses may cause retirees to inefficiently self-insure.  Therefore, by providing opportunities for retirement-eligible and soon to be retirement-eligible employees, it may give them pause and allow the employer not only to maintain the skilled workforce, but also assist in building the capabilities of the future workforce.

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