Empowering Your Employees for a Confident Transition into Retirement

A new report from McKinsey1 finds that nearly half of Americans nearing retirement say they lack financial sufficiency for their retirement years, and only 13% are “retirement ready” in both financial sufficiency and confidence. The report underscores the challenge of “decumulation,” converting retirement savings into a sustainable income stream that lasts through retirement, which is particularly daunting during economic downturns. The lack of confidence among employees stems from several factors. Navigating the complexities of financial planning, including investments, taxes, and healthcare costs, can be overwhelming without professional help. Economic instability and market fluctuations erode savings, creating uncertainty about maintaining a stable retirement income. Increased life expectancy means savings must last longer, heightening fears of outliving assets. Many have not saved enough for retirement due to low income, lack of employer-sponsored plans, or poor planning. Rising and unpredictable healthcare costs cause anxiety and entering retirement with debt strains financial resources.

Organizations can face unintended consequences when retirement-eligible employees remain in place either because they have not saved enough through their workplace savings plan to retire or because their total rewards packages contain outsized incentives to stay put. A major reason we’ve observed for why employees are not retiring is simply because they are unsure if they can.

Many employees lack a clear understanding of their financial readiness for retirement, often due to inadequate financial planning resources, insufficient education on retirement savings strategies, and uncertainty about future healthcare costs and lifestyle expenses. Without a comprehensive retirement plan and confidence in their financial security, employees are hesitant to take the leap into retirement.

If a significant portion of your workforce is retirement eligible and a substantial number choose to delay retirement, there could be major impacts, including increased costs for employers. These costs can encompass higher salaries for senior employees, increased healthcare expenses, and the potential loss of institutional knowledge if delayed retirements lead to abrupt, unplanned departures. The cumulative effect of these factors can strain organizational resources and negatively impact overall workforce morale and productivity.

Another consequence could be a bottleneck in promotions and career advancements. When senior employees delay retirement, many younger employees may experience promotion delays, leading to frustration and reduced productivity. This stagnation can diminish employee engagement and hinder the development of future leaders within the organization.

Employers can do much more to help their employees financially prepare for retirement while maximizing the value and effectiveness of their retirement benefits. Here are some ways employers can help employees successfully prepare and transition into retirement:

STRATEGY ONE

Facilitate a Flexible and Phased Transition into Retirement

Employers can support employees approaching retirement by optimizing workforce management efforts, improving succession and continuity planning, providing valuable training and mentoring, and enabling pre-retirees to retire on their own terms. This approach helps in retaining talent and experience while ensuring smooth transitions. Proactively engaging with employees as they reach a certain age can significantly enhance this process. By meeting with pre-retirement demographics, employers can provide a retirement readiness checklist, educate them on the resources available, and begin building a tailored plan to phase them into retirement. This proactive strategy ensures employees are well-prepared and confident in their retirement journey, ultimately benefiting both the individuals and the organization.

STRATEGY TWO

Evaluate Your Company’s Retirement Education Offerings

Many employers with a defined contribution 401(k) or similar plan provide basic retirement-planning education through their retirement plan providers. While this provides a solid foundation, partnering with an organization that offers comprehensive retirement readiness programs can significantly enhance these efforts. Such programs extend beyond basic education topics, adopting a personalized approach to each employee’s unique retirement landscape. They help employees understand critical aspects of retirement, including the role of Medicare, timing of enrollment, and associated costs. Additionally, they offer guidance on maximizing late-career benefits, understanding retirement contributions, and planning for post-retirement taxation. These programs provide insights into life insurance, long-term care, and property insurance through various formats such as informational seminars, meetings, webinars, and workshops. These services are designed to thoroughly prepare retirement-eligible employees for a smooth transition, whether retirement is imminent or still five years away. Regularly assessing and improving these offerings ensures that employees remain well-informed and better prepared for their retirement journey.

STRATEGY THREE

Offer Assistance for Financial Transition to Retirement

Pre-retirees face numerous complex financial decisions regarding when and how to transition into retirement. Employers can collaborate with a partner to provide personalized one-on-one consultations with financial advisors. These consultations can include retirement income modeling to address the common concern of having sufficient funds in retirement and guide employees on how to effectively draw income while maintaining their desired lifestyle. Additionally, this assistance can help in evaluating and adjusting investment allocations to ensure financial stability for 20+ years into retirement. A thorough review of an employee’s financial situation can identify actionable next steps to continue meeting financial goals, such as analyzing their current financial health and determining necessary actions to stay on track. By offering this comprehensive support, employers can significantly aid employees in their financial transition to retirement.

Collaborating with a partner to offer a comprehensive retirement readiness solution significantly benefits employees. By doing so, organizations can provide tailored retirement planning that goes beyond the basics of a 401(k) plan. This partnership allows for personalized consultations with financial advisors, offering a detailed analysis of employees’ current financial situations and determining necessary actions to stay on track with their financial goals. Moreover, employees receive essential education on Medicare, life insurance, long-term care, and post-retirement taxation through various formats like seminars and workshops.

These resources ensure that employees are well-prepared, confident, and able to maintain their desired lifestyle throughout retirement. Ultimately, this holistic approach not only enhances the employees’ financial security but also fosters a sense of support and loyalty towards the employer, benefiting the organization as well.

In today’s competitive job market, offering comprehensive retirement planning sets your company apart. Demonstrating a commitment to employees’ long-term well-being and financial security makes your organization more attractive as an employer of choice.

Personalized retirement consultations and late-career education underscore your dedication to each employee’s successful transition into retirement, boosting loyalty and morale. A strategic approach to retirement readiness also ensures seamless progression within your workforce. As experienced employees retire, opportunities arise for emerging talent, fostering a vibrant and diverse workplace culture. Preparing employees for retirement helps secure the long-term health of your organization by ensuring smooth transitions, reducing disruptions, and facilitating effective future workforce planning.

By proactively providing these resources to retirement-eligible employees, employers create a supportive environment that promotes financial security and confidence. This holistic approach benefits both employees and employers, fostering a productive, satisfied, and forward-looking workforce.