The delayed retirement crisis

With all the concern about economic recovery, here’s a wakeup call: many companies would be far better served preparing for a more menacing structural crisis.

Delayed retirement.

I founded a company to help employers tailor financial benefits to meet the unique needs of employees. Instead of a one-size-fits-all retirement plan, we designed our company to focus on the priorities that matter most at an employee’s particular stage of life. For some, that’s retirement; for others, it might be paying down student loans or buying a house.

We surmised our platform would offer a range of payoffs for businesses and employees alike. Less absenteeism and healthcare costs. Less attrition―and thus lower costs to find replacement employees. Higher engagement and more profit. More use of tax-savings benefits. And of course, the relief and satisfaction that comes with knocking off a pile of debt or sending a kid to college.

Our holy grail has long been about translating our common-sense thesis into bottom-line value. Recently, we explored just that with a detailed financial assessment of the value of employer-provided financial wellness. We sought to answer a simple question: when employees have access to a range of tools to solve their biggest financial challenges, what will make the biggest dent in boosting their financial picture―and ultimately help their companies thrive?

The findings floored us. While debt, major purchases and ongoing expenses all contribute to a healthy financial strategy, retirement readiness is the straw that stirs the drink.

Consider that employer-provided financial tools that help employees invest just three percent more of their salary can make a significant impact on quality of life. For example, for workers making $60,000 a year―just above the national average―saving merely $1,800 more per year could add an astonishing $134,000 at retirement. That is the future value of $1,800 compounded annually by the stock market’s historical rate of return (7%), starting from age 40 until retirement at age 67 (27 years).  With Fidelity reporting that the average 401(k) savings for anyone in their 60s is under $230,000, that means these tools can boost retirement savings by a life-changing 60%.

That’s not all―based on our calculations, a mid-sized employer of 5,000 workers can save $3.5 million each year by offering those same financial tools, even if just 30% of their workforce actually use them and make changes to their financial lives. (Assumes a 5,000-employee company with an average salary of $50,000 and a 5% annual turnover, with a 30% reduction in costs associated with healthcare premiums, payroll taxes, turnover, absenteeism and delayed retirement.)

Far and away the biggest potential savings come from on-time retirement, where employers can reduce costs by $1.5 million each year. (This assumes a 30% reduction in delayed retirement from a baseline of 2% of all employees, with each one costing the employer $50,000.)

Those numbers scale up and down depending on employer size and employee composition.

The payoff for financial tools that do not involve retirement are also compelling. At that same mid-sized company described above, each employee can gain on average $2,000 in annual value through employer-provided financial tools that help them achieve other goals, mostly through smarter use of tax-advantaged accounts like 401(k)s and health savings accounts, and by switching to a healthcare plan with lower premiums. (This assumes an employee with a $50,000 annual salary switches to a lower healthcare plan, increases HSA/FSA contributions by $500, takes 1.5 fewer PTO days, and increases their 401(k) contributions by 3% of their salary.)

But in context, there’s no comparison: on-time retirement fuels financial futures.

Delayed retirement is a massive problem that throws financial―and corporate―lives out of orbit. Prudential found that each year the average retirement age creeps up, workforce costs soar up to 1.5%. “What’s your number?” is the wrong question to ask, since life circumstances are different for everyone. And while some of us want to work into the grave, many Americans working past retirement age are doing so out of necessity, not because they want to. Survey after survey hits home that employee engagement is essential to fuel profits. No company wants clock-watching employees, at any level.

Let me be clear: ageism is illegal discrimination. But helping workers achieve their dreams of on-time retirement is clearly a good thing for employees―and the company bottom line.

Just as soaring pensions have wreaked havoc on public budgets in recent years, delayed retirement represents a looming crisis for corporations. Now is the time for companies to help employees take advantage of financial tools that enable them to retire on-time and be happy. I’m encouraging my customers to be far more persistent and creative about helping their people save for retirement. It’s a smart move for society―and I believe it will be table stakes for the next generation of great and profitable companies. 

Marthin De Beer is the founder and CEO of BrightPlan.