Navigating The Changing Retirement Landscape

People are not financially ready to retire, and it is creating major workforce management issues for companies. It's time to look at a new approach.

The way Americans retire has evolved significantly over the past decades. When traditional employer-sponsored pensions were commonplace, people frequently retired in their early 60s and spent their golden years enjoying the fruits of their labor. In today’s world, people are delaying retirement and working longer, with many employers offering a flexible path to retirement. However, this shift affects workplaces, leaving many younger employees frustrated with a perceived lack of mobility. 

 People aren’t financially ready to retire 

Since the 1980s, defined contribution (DC) retirement accounts (such as 401(k)s and IRAs) that rely on individual contributions and investment returns have been predominant. These self-funded retirement plans put the responsibility on individuals to accumulate sufficient savings. According to U.S. Census data, fewer Americans are meeting their retirement goals — 50% of women and 47% of men aged 55 to 66 have zero retirement savings. 

Considering how many Americans are not financially ready for retirement in their 50s and 60s, it is no surprise that the average retirement age in the U.S. increased from 62 to 65 between 1990 and 2021. Increased life expectancy is another contributing factor, growing from 75.21 years in 1990 to 77.28 years in 2020. As a result, individuals need to sustain their retirement savings for an extended period, prompting many to work longer to accumulate additional funds. 

 Flexible paths to earning income past retirement age  

Americans are choosing different paths to work longer, from staying at a job past the usual retirement age of 65 to getting a part-time job after retiring from a full-time job. Some are choosing to gradually reduce responsibilities in their position until they are ready to retire fully. Phased retirement is growing in popularity, with 23% of employers implementing a program to help retirees slowly step down, up from just 16% in 2016.

It’s not uncommon to see people start a part-time job at a new company after retirement because they want a change or because their previous employer has a set retirement age. Some retirees only realize that they need an income stream after they’ve retired. One in six retirees considered working again, with nearly half contemplating reentering the workforce because they need more money. Fear of outliving savings was cited by 32% of those interested in working again.

 A problem? Workforce management problems  

With Baby Boomers working longer, Gen X and millennial employees say they’re frustrated with decreasing upward mobility. In fact, 63% of workers who quit a job in 2021 cited lack of advancement opportunities as a reason for resigning, with 33% saying it was a major reason for leaving the job. With people hopping between jobs more than ever before, employers need to address the aging workforce dilemma.  

As Americans work longer, their quality of life decreases. Employers should consider robust retirement packages that enable people to retire in their early to mid-60s. Defined benefit (DB) plans offer a fixed income that people can count on without worrying about saving up to 15% of their yearly income or stock market fluctuations. While many companies turned away from DB programs because of high and unpredictable costs in the 1980s, the DB system has evolved significantly with modern plan designs with an expenditure like a matching 401(k) program. 

Not only will a pension plan help employees retire comfortably, but it also helps with workforce management issues. In a 2022 Voya Financial survey, 60% of working Americans said that an employer-sponsored retirement plan incentivized them to remain loyal to that company. It’s a natural solution to the turnover and upward mobility issues facing the modern workforce.  

Revamp your approach and provide your workforce with a cutting-edge DB plan design. With increasing competition to attract top talent in today's job market, proactively stay ahead and reach out to us for insights into our innovative retirement programs. Our expert professionals will guide you through the intricacies and tailor a plan to suit your organization's unique needs.