Report Cites Big Employer Price Tag for Delayed Retirements

Financial wellness proponents often tout the ROI of helping workers prepare and retire on time.  A new analysis puts a price tag on the cost of deferring retirement.

In a publication aptly titled “Why Employers Should Care About the Cost of Delayed Retirements,” Prudential found that a one-year increase in average retirement age results in an incremental cost (the difference between the retiring employee and a newly hired employee) of over $50,000 for an individual whose retirement is delayed.

Moreover, the report notes that it results in an incremental annual workforce cost of about 1.0%-1.5% for an entire workforce. This represents the incremental annual cost of a one-year delay in retirement averaged over a five-year period. Prudential notes that 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.

According to the analysis, on a national basis, a delay in retirement of:

  • One year may cost as much as paid sick and personal leave, or more than twice as much as life and disability insurance.
  • Two years may cost as much as either DC retirement plans, DB retirement plans or paid holiday leave.
  • Three years may cost almost as much as paid vacation leave, or over one-third as much as health insurance.

Those findings notwithstanding, Prudential cautions that the true cost of delayed retirement is likely understated in this analysis, because qualitative costs of delayed retirements — as the impact on productivity and on promotion and advancement opportunities in the workforce — are not considered.

Moreover, the authors note that while this analysis focuses on national averages, both qualitative and quantitative costs may vary significantly from employer to employer due to several factors.

The report cites data from the Stanford Center on Longevity that projects that by 2020, 7% of the workforce will be over age 65, up from 4% in 2010, and that a full quarter will be over 55 in 2020, up from 18% in 2010.

The report outlines several best practices for employers to help workers retire on time, including:

  • Consider adopting retirement programs with features (lifetime income, QDIAs, automatic enrollment, matching contributions) that help employees retire on time.
  • Provide education to help employees proactively make informed financial decisions.
  • Adopt a holistic approach to improving employees’ financial wellness.
  • Consider using data analytics to customize the cost of delayed retirement analysis for your organization.

Add Your Comments

2 Comments

  1. Bernard Peter
    Posted April 11, 2017 at 11:07 am | Permalink

    This report shows that employers are not looking at the long-term impact of closing defined benefit pension plans. Many employees simply cannot save enough through a 401(k) plan to retire because their earnings are not sufficient to put away the necessary amount. Thus, they will continue to work until they drop which, as this report shows, is quite costly and is not best for the employee or employer. They need at least some sort of defined benefit plan which provides $1,000 -$2,000 a month. When this amount is combined with their 401(k) benefit, Social Security and personal savings it would be enough to retire.

  2. Posted April 12, 2017 at 7:51 pm | Permalink

    Bernard Peter, That’s a really interesting point and I’d agree. One thing to consider though is that companies with pensions still suffer from this problem. Companies like duPont and Lockheed Martin, which have rich pensions for current employees that are 65+ today, still struggle because employees are afraid of the unknown. So in either case employee financial coaching and planning would help people visualize retirement t and get comfortable with it. But certainly to your point a defined benefit would be a huge help.

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