Live to 100? Implications for Work, Employers and Retirement
The vision of retirement for workers depends on employers’ willingness to embrace older workers, support flexible transitions into retirement and help employees of all ages financially prepare for long lives.
People have the potential to live longer than any other time in history as a result of advancements in scientific knowledge about the aging process and breakthroughs in medicine. Today’s workers are already thinking in terms of longer lives.
In our 2017 survey of more than 6,000 workers across the United States, nonprofit Transamerica Center for Retirement Studies asked an uncomfortable question: “What age are you planning to live to?” Workers who provided an answer to the question are planning to live to age 90 (median) and 14 percent plan to live to age 100 or older, a finding which is even higher among millennials (18 percent).
As a researcher, I’m intrigued by the prospects of longer lives and how people will spend this gift of extra time. Do they plan to work longer or spend more time in retirement? Whichever path they choose, will they be financially secure?
Our survey finds that many workers are envisioning retirement as a chapter in life that includes both work and leisure. Many are expecting to work beyond age 65 out of financial necessity and for healthy aging-related reasons such as to “be active” and “keep my brain alert.” More than half are planning to work past age 65 or do not plan to retire, and more than half plan to continue working in retirement.
Moreover, few are envisioning the so-called “gold watch” retirement of prior generations in which they reach a certain age and immediately stop working. Instead, many envision a transition that involves reducing work hours or working in a different capacity that is either less demanding and/or more personally satisfying before they fully retire.
Unfortunately, as compelling as their vision may sound, it is unclear to me whether older workers wanting to work longer will be able to remain in the workforce. The U.S. Census reported that only 19.3 percent of people age 65 and older were in the labor force in 2016. It projects that the percentage will increase to 21.8 percent in 2026.
Workers cannot achieve their vision of retirement on their own. Their success is highly dependent on employers’ willingness to embrace older workers, support flexible transitions into retirement and help their employees of all ages financially prepare for long lives.
What About Flexible Retirement?
Our most recent survey of employers, in 2016, finds good news in that employers’ perceptions are in sync with workers’ expectations. Nearly three-quarters of employers believe that many of their employees expect to work past age 65 or do not plan to retire. Seventy-seven percent of employers think that many of their employees plan to continue working after they retire.
Flexible retirement offerings, however, are less likely to be found among employers. Just 39 percent of employers offer preretirees flexible schedules. Even fewer enable preretirees to shift from full time to part time (31 percent) or to take on positions that are less stressful or demanding (24 percent). Only 27 percent encourage preretirees to participate in succession planning, training and mentoring.
By not offering flexible retirement options for preretirees, employers are missing out on a win-win opportunity that can help them optimize workforce management, improve succession planning and facilitate the transfer of institutional knowledge — while at the same time generating good will among employees.
To help illustrate this point, when I am speaking at conferences I often hear from older members of the audience who are working full time and want to transition to retirement. One audience member was a long-tenured employee at her company. She expressed her desire to work part time throughout the year, along with her willingness to train her successors and increase her hours as needed by her employer during its peak season that falls at a time of the year that employees are vying for time off.
Like so many I hear from, she has not approached her employer because she is afraid of being marginalized or shown the door if the answer is no. Because she and others are not offered flexible retirement options, their employers risk losing them altogether without the ability for a smooth transition when they leave.
The Government Accounting Office recently released a report, “Older Workers: Phased Retirement Programs, Although Uncommon, Provide Flexibility for Workers and Employers,” which highlights the body of research on the topic, discusses the widespread lack of formal programs offered by employers and some of the reasons why they don’t offer them (scheduling-related, regulatory, potential liability regarding age discrimination), and shares best practices among employers that have programs in place.
I’ve had many conversations with employers on the topic. One of their common arguments against flexible retirement is that their employees would be unwilling to work for a smaller paycheck or give up the prestige of their job status. In 2017, I set out to validate this in our survey of workers. The survey found, to the contrary, that among workers who envision transitioning into retirement, most have reasonable expectations. Most say that if they were to:
- Reduce their work hours at their current employer, they would expect to be paid the same hourly rate for hours worked that they are earning now (79 percent).
- Take on a new role at their current employer with fewer responsibilities, they would expect their job title to change (78 percent).
- Take on a new role with fewer responsibilities at their current employer, they would expect to be paid the market rate for the duties involved, even if it means a reduction in their current level of pay (71 percent).
With that said, employee benefits may be a sticking point. In fact, 3 in 5 workers say that if they shift from full to part time at their current employer, they would expect to receive the same level of employee benefits, which is an expectation that may not be realistic because many employers offer no or reduced benefits to their part-time workers.
Employers Helping to Save, Plan and Retire
Employer-sponsored retirement benefits are an important tool for workers to save for retirement and for employers to attract and retain talent. Eighty-one percent of workers say that the retirement benefits offered by a prospective employer will be a major factor in their decision to accept an offer or not.
Current retirement plan participation is high. Among the 71 percent of workers who are offered a plan, 4 in 5 participate in the plan with a contribution rate of 10 percent (median) of their annual salary. While this level of savings is impressive, workers are financially vulnerable. Many face competing financial priorities such as paying off debt while others have little to no emergency savings. Some have dipped into their retirement accounts by having taken loans and/or early withdrawals as a result of these issues. Taken together, these factors indicate that many workers are inadequately preparing financially for their later years.
Our research identifies opportunities in which employers can enhance their retirement benefits in ways that can improve planning and outcomes for their employees, including:
- Consider offering a financial wellness program to help employees increase their financial literacy and gain insight into their overall finances.
- Prompt employees to use online calculators to estimate their retirement savings and income needs.
- Encourage employees to formulate a written retirement strategy through the plan provider (if available) or a professional financial adviser.
- Remind employees about the Saver’s Credit, a tax credit available to eligible tax filers who save in a qualified plan or IRA.
- Notify employees when they become eligible to make catch-up contributions, which are available to people 50 and older.
- Adopt automatic enrollment and automatic escalation plan features to make it more convenient for employees to join the plan and increase their savings rates.
- Offer financial counseling about distribution options for preretirees who are getting ready to financially transition into retirement.
Employers can also help their employees achieve long-term financial security by offering voluntary benefits that complement retirement and health care benefits. Voluntary benefits such as life, disability, critical illness and similar types of insurance can help employees protect their finances in the event of unforeseen shocks.
If at all possible, employers should extend eligibility for retirement, health care and other voluntary benefits to their part-time employees. Extending eligibility can enable preretirees who are transitioning to retirement as well as other part-time employees who may be parenting, caregiving or going to school to save for retirement and help them safeguard their financial security.
Employers also can nudge their employees to be more proactive about preparing themselves for longer working lives. Our survey asked workers what steps they are taking to help ensure they can continue working past age 65 and the findings were surprising. Only 62 percent say they are staying healthy. Just 56 percent are focused on performing well at their current job and even fewer, 46 percent, are keeping their job skills up to date.
Disappointing as these findings are, they underscore the positive influence that employers can have on their employees’ current and future productivity by offering workplace wellness initiatives, encouraging lifelong learning vis-a-vis training and continuing education, requiring regular performance appraisals, and providing actionable feedback on a frequent basis.
The potential for longer lives, perhaps to age 100 or even older, is an exciting proposition but it’s not an entitlement. It requires a fundamental rethinking of work, retirement and employment practices and will likely involve changes in public policy. Workers, employers and policymakers must all do their part and work together to make the best use of this gift of extra time.
Catherine Collinson is CEO and president of Transamerica Institute and Transamerica Center for Retirement Studies and is a retirement and market trends expert. To comment, email firstname.lastname@example.org.