Why work past retirement age? 60% of older workers have less than $500K in savings

More workers seem poised to work after retirement out of necessity, and employers should refine retirement planning to help them, according to a new report.

The report, “Employment Extenders: A (labor) force to be reckoned with,” resulted from a survey of older adults working past retirement – which the report calls employment extenders – that was commissioned by Voya Cares in collaboration with Easterseals and conducted by Edge Research. Respondents included both those who are 50 and older who previously retired from one career but are working at another job today and those who are at least 65 and plan to continue to work past retirement age, retiring at age 70 or later (or not at all).

According to the Bureau of Labor Statistics data cited in the report, the workforce participation of those past traditional retirement years is expected to climb to 32% by 2030, compared to 27% in 2020 and 19% in 2000.

The top three financial concerns or considerations cited by survey respondents for continuing to work past the typical retirement age was maintaining their current lifestyle, preparing for inflation or an increased cost of living and having a safety net. Although most employment extenders said they have not saved enough for retirement, the majority said they are working later in life by choice for reasons such as a sense of purpose, staying active and enjoyment. However, the report suggests that many who claim they are choosing to work longer are doing so out of necessity – “plugging away at their work” rather than facing some “hard truths.”

Related: Time to reframe retirement readiness: Most Americans lack ‘longevity literacy’

“The current economic and business climate is also changing calculations about retirement,” according to the report. “The economic impact of inflation and market instability makes this audience want to save more before they stop working for good. In addition, they are now experiencing increased flexibility in workplace norms, including greater ability to work from home. Overall, the tendency to keep working has increased, while the reasons to stop have decreased for many older Americans.”

Jessica Tuman, vice president of Voya Cares and ESG Center of Excellence at Voya Financial, said the alarming gap in retirement preparation leading many to work after retirement out of necessity is not a new development.

“Under-preparation for retirement is a longstanding issue, due to a decades-long decline in employer-sponsored pension plans and under-contributing to 401k plans, among other factors,” Tuman said. “The recent economic downturn may have further affected the tendency toward lower retirement savings balances, leading to a need to work longer.”

As an example, Tuman pointed to insights shared by one of the survey participants.

“I wish I could retire, but that’s not in the plan, so I work all day…. There was the recession, and I lost two jobs,” the participant said. “I am still paying a mortgage, and I had to use savings for a year and a half. Even after I was working again, it was very difficult to save again, and the cost of everything went up. I’m working because I need the money…. I have a 401(k), but it’s very little. I don’t have enough salary to add to it. I have no idea when I will be able to retire.”

Tuman said employment extenders have unique retirement planning needs, such as added streams of income that need to be reallocated. Tuman said those who have retired and returned to work may have a pension, and older employment extenders also may be collecting required minimum distributions from a tax-advantaged retirement plan and Social Security payments.

“All of these income streams may not be needed, in addition to receiving a salary,” Tuman said. “Employment extenders need a plan to reallocate this income to retirement savings.”

Other needs are not unique but “are much more imminent” for employment extenders, Tuman said.

“As life expectancy increases, more retirement savings needs to be accumulated over a shorter period of time,” Tuman said. “Only 37% of employment extenders are planning to be sure they do not outlive their savings. They will need education on ways to do that, including using catch-up contributions.”

Since 60% of those surveyed said they had less than $500,000 in retirement savings, Tuman said employers should strive to provide education around topics that most interest employment extenders. Topics that drew the most interest from them in the survey included help transitioning to retirement (59%), how to maximize benefit dollars across health and wealth benefits (54%) and estimating income needs in retirement (53%). Meanwhile, 52% of respondents are interested in emergency savings accounts at work to help save for retirement in the face of financial difficulties.

Tuman said employers do not need to offer unique or unusual benefits to serve employment extenders, “but rather they may need to provide unique positioning and education around how existing benefits apply to their unique needs.” For instance, health savings accounts can be used to carry over savings into retirement for medical expenses, Tuman said, and 55% of employment extenders said they are interested in a guaranteed stream of income with regular payments to ensure they do not outlive their savings.

According to the report, the combination of an aging workforce, an exodus of workers and a shift in worker attitudes suggest “a paradigm shift” for many employers.

“Far from encouraging their aging workforce to retire ‘on time,’ older employees may

be encouraged to continue their employment past the generally recognized retirement age,” according to the report. “Employers who are ready to make this shift may have an advantage that their competitors who are slow to change will not.”