After 37 years of teaching high school English, Martha Taylor-Nobile wanted to wake up just a little later in the morning.
So at 60, she retired earlier than she had planned.
“I could’ve kept going, but it just felt right,” she said. “My energy level was down, so I questioned whether I was doing the best job possible.”
Taylor-Nobile said her employer, the Greenwich, Connecticut, Public Schools District, allowed her to transition out of full-time work by becoming a mentor to new teachers. She had fewer classes to teach and spent time observing and coaching other less-experienced instructors.
“It was invigorating,” said Taylor-Nobile, now 66. “I got to share my experiences, and they showed me new ways of doing things too.”
Transitioning from full-time work to full-time retirement isn’t always as flawless as Taylor-Nobile’s experience. Often, baby boomers — those born between 1946 through 1964 — need to retire earlier than they expect, have to take a job that requires a lower skill set or must work longer at their current job to save more for retirement.
While employees are juggling all these scenarios and more on one end, employers have remained relatively quiet. Few organizations have formal phased retirement programs, which tend to help employee and employers equally. Workers enjoy being challenged but not at stressful rates while employers are able to get information and skills transferred to new employees. With a tight job market hovering just around or under 4 percent unemployment over the past year, and the exodus of 10,000 baby boomers leaving the workforce daily, employers are realizing they are dismally unprepared for the talent that may be leaving their organizations, or for managing the workers who plan to stay on the job longer to save more for retirement.
“These issues have been around for a while, but with the sheer quantity of baby boomers who are retiring, employers are increasingly paying much more attention to them,” said Lauren Hoeck, director of retirement practice at consulting firm Willis Towers Watson.
A Blind Eye for Boomers?
Organizations know they don’t have a cohesive strategy when it comes to older workers. Today, only a quarter of employers say they are effectively managing the pace and timing of employee retirements, a December survey by Willis Towers Watson found.
The study, “Working Late: Managing the Wave of U.S. Retirement,” revealed that 83 percent of employers believe a significant number of their employees are at or near 65 years old — the typical retirement age. While 81 percent of employers think managing employees transitioning to retirement is important, only a little more than half think they know when workers will retire.
Hoeck said that to get a better handle on employee retirement timing, employers need to have a clearer understanding of what influences workers’ decisions. Savings is a top driver for employees, and the survey showed a clear mismatch. While 71 percent of employers said employees should have enough money to retire when they want, more than half of employees reported having financial worries and added that they plan to stay working after age 70.
“Many employers misunderstand their employees’ motivations and circumstances for retiring,” Hoeck said. “They don’t have a firm grasp on their likely retirement patterns and may be vulnerable to certain workforce issues.”
Most Americans currently in the workforce plan to stay on the job past retirement age. However, most employers don’t have a strategy to manage those workers.
Still, employers are aware of the consequences they face when workers delay retirements. Nearly half said workers who stay on the job longer will increase benefits costs over the next five years; 41 percent said this group would increase wage and salary costs, and might also block younger worker promotions, the report showed.
Early departures also could create problems. Half of employers said they will have trouble finding similarly skilled workers, and nearly that same percentage said there will be a loss of company-specific knowledge over the next five years. Just over 40 percent predicted issues with succession planning.
A June 2017 report by the Government Accounting Office said many employers do not offer solutions like phased retirement because they are worried about breaking employment or benefit laws that might put their business in jeopardy.
“Issues are compounding, and it is a complex situation for employers,” Hoeck said. “The important thing [for employers] is to step back and assess where employees are before they start plugging holes.”
With unemployment levels flattening at a low 4 percent and the Bureau of Labor Statistics reporting higher quit levels (meaning workers voluntarily leaving jobs), employers are beginning to understand that staffing changes can have a significant effect on the company’s success, said Catherine Collinson, chief executive officer and president of Transamerica Institute and the Transamerica Center for Retirement Studies.
“Market conditions are starting to play a noteworthy role,” Collinson said. “Now [employers] may find this to be a top priority.”
The Transition to Retirement
The first wave of baby boomers seems to be faring decently in retirement despite reports that paint a bleak picture. The Transamerica Center for Retirement Studies looked at how and when retirement happened to 2,043 respondents in its latest study, and found that most are healthy and have a positive outlook on life. Many are spending time with family, pursuing hobbies and traveling.
Financially, 64 percent of respondents said their standard of living has remained the same, with 9 percent saying the way they live in retirement has gotten better.
More than half of retirees (53 percent) said they fully retired before age 65. Most respondents (56 percent) who retired early didn’t plan their lives that way, citing unexpected job loss, health or caregiver responsibilities as the primary reasons for their premature departure from the workforce. Only 11 percent retired earlier than expected, like Taylor-Nobile, because their finances allowed it.
Because many retirees were forced to leave jobs before they were ready, there were fewer years to earn money and save for retirement, Collinson said. That may be fine for now because Social Security picks up most expenses, but leaving early may prove troublesome down the road and for the second wave of soon-to-be baby boomer retirees.
“Very few people plan on [an unexpected retirement] happening to them,” Collinson said. “Now, many working people may not be aware of the financial vulnerabilities they may face in the future.”
Most retirees are financially OK because 66 percent use Social Security as the main source of income, Transamerica’s report said. But that income stream may not be available for future baby boomer retirees, experts say. For the 85 percent of people who said they factor government programs into their retirement income, potential drops in Social Security and Medicare benefits could severely damage their plans.
It’s not just a looming scare tactic. Last year, the Social Security Administration said in its annual report that it would need to cut benefits by more than 20 percent by 2034 if nothing is done to shore up the program. Meanwhile, Medicare’s hospital insurance fund is expected to dry up in about seven years. Other factors, including an impending bear market, a lack of defined benefit pension plans and expected longer lifespans all may hamstring younger boomers when accumulating enough wealth for retirement.
“These folks have all these headwinds that are going to force them to spend more assets if they are going to maintain their current standard of living,” said Bruce Wolfe, principal at C.S. Wolfe & Associates LLC. In the near future, “there will be pressure for them to save more now.”
An Uncertain Future
Fidelity Investments, the nation’s largest record keeper, crunched numbers for Workforce and found these soon-to-be retirees (people currently ages 55-59 and 60-64) are around the recommended 15 percent savings rate, with the youngest group saving 14.6 percent and the 60-plus set at 15.9 percent.
Despite the aggressive percentages, average account balances are anemic. The 55-59 group had an average $198,700 in 401(k) savings while the 60-64 bracket has a few more dollars with $201,200. Many participants take advantage of the Internal Revenue Service “catch-up” contributions, allowing those over age 50 to add $6,000 more per year than regular limits allow, said Meghan Murphy, vice president at Fidelity.
“What we see is that as folks get closer to retirement, they see an opportunity to increase savings rates,” Murphy said.
Murphy pointed out that many of these savers may have more savings accounts outside the Fidelity spectrum. Looking at the Fidelity numbers though, Murphy noted that neither of these averages covers the $280,000 Fidelity estimated couples will need to cover retiree health care costs, as well as household expenses like gas and groceries.
Even with the extra help, these last-minute catch-up savings rates may not be enough, experts agree. It’s part of the reason most Americans currently in the workforce plan to stay on the job past retirement age, many studies show. The problem with this is that most employers don’t have a strategy to manage workers staying longer than the traditional retirement age.
In fact, it could be argued that some organizations’ strategy is to find ways to simply fire older workers. One recent study showed that 56 percent of workers ages 51-54 reported being laid off with serious financial consequences.
The December 2018 report by the Urban Institute showed older worker layoffs did not vary by gender, race, education or industry. What’s more, 90 percent of laid-off older workers who found another job said they earned less in that one compared to the first one.
“Employment becomes increasingly precarious as workers age,” the report noted. “The steady earnings that many people count on in their 50s and 60s to build their retirement savings and ensure some financial security in later life can vanish, upending retirement expectations and creating economic hardship.”
Unfazed By Phased Retirement
Employers should realize that it is only natural that people who are living longer lives want to extend their working careers, said Josh Gotbaum, guest scholar in the economic studies program at the Brookings Institution. Phased retirement is a little-used concept that allows an employee to gradually transition to not working at all. During this stretch, employers get time to have the older worker’s skills and information passed on to other workers.
Studies have shown that older workers tend to want to stay at their current employment but in a different, often less time consuming or less stressful role. Highly skilled workers in particular are not interested in moving to the local museum or discount store to greet guests.
“What most people want to do as they get older is to phase down at work and many organizations do not offer that,” Gotbaum said. “Why not find a way to make employers think twice about doing that?”
Gotbaum and Wolfe co-authored a paper for Brookings that looked at helping workers extend their time on the job. The two suggested amending the Age Discrimination in Employment Act to charge employers with age discrimination if a phased retirement program was not offered. Employers not interested in phased retirement could provide proof that the program would be too costly or impractical.
“This could provide an incentive for employers to change their current practices,” Gotbaum said.
Indeed, employers are hesitant to offer phased retirement programs. A January report by Alight Consulting found that while 65 percent of respondents were very likely to expand financial well-being programs, only 4 percent wanted to evaluate phased retirement alternatives this year.
The GAO’s report showed 71 percent of employers are reluctant to offer phased retirement programs because federal tax and age discrimination laws are vague; in addition, some rules may hurt employee benefits and certain Internal Revenue Code nondiscrimination rules can be tricky too. For example, some defined benefit plans use an employee’s salary in the last five years of work to determine a final benefit. Reduced hours may severely damage that worker’s final payout.
Interestingly, the GAO found a handful of organizations that were able to set policies working around these types of obstacles. Five companies set age and service policies to their phased retirement program to bypass IRC nondiscrimination policies. Some identified the program as meeting a business need. To avoid discrimination issues, some employers said they do not advertise the program. They wait until performance reviews or other likely scenarios where the topic naturally comes up.
Overall, companies that offered phased retirement found it helpful to their organizations, the GAO reported. They had an even knowledge transfer, a smooth transition to retirement for employee and employer, as well as increased employer confidence in workforce planning.