Why should employers care about their employees’ delayed retirement? At plan sponsor events around the country each year we get to meet with hundreds of plan sponsors. When the subject of employees delaying their retirement is addressed, most plan sponsors feel that delaying retirement is a personal decision by the employee that is unavoidable and that it’s one of those “oh, well” moments they don’t or should not become involved in; not actively at any rate.
In a recent study by Prudential Financial, they looked at the costs to companies as a result of employees putting-off retirement. Prudential sponsored the University of Connecticut’s Goldenson Center for Actuarial Research to build a model that quantifies the impact of delayed retirements on employers’ costs. The results are significant. If your employees cannot retire on time, there are a number of factors that can add-up to a lot of money in direct cost, productivity loss and staff continuity disruption.
The research indicates that a one-year increase in average delayed retirement age results in:
An incremental cost of over $50,000 for an individual whose retirement is delayed. This represents the cost differential between the retiring employee and a newly hired employee.
Incremental annual workforce costs of about 1.0%–1.5% for an entire workforce. 3 For an employer with 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost about $2-3 million.
To put this in perspective, the study compared the cost of delayed retirement to other types of workforce costs, and found that, on an aggregate national basis, a delay in retirement may cost employers about as much as:
The study concludes:
While having employees able to retire “on time” is a desirable outcome, employees, on average, are expected to delay their retirements beyond their desired retirement ages due to financial concerns. As the average retirement age increases, employers face workforce management and economic challenges.
Prudential’s research indicates that a one-year delay in retirement age may add an incremental 1.0%–1.5% of annual workforce costs to employers’ costs. We conclude that the cost of delayed retirements is significant as compared to other workforce costs and compared to the increase in healthcare costs during years of rapid growth. Delayed retirements of two or three years—which may not be unrealistic—would be, of course, even more significant. Employers may want to consider best practices to help their employees retire on time.