Given the new employment scenario – unemployment at 3.6% and the number of jobs advertised exceeding the number of available workers, HR has to be creative. Coupled with baby boomers retiring at about 10,000 per day, employers are facing both the loss of irreplaceable workers as well as a knowledge fund that can sustain the business as it adapts to various disruptions, whether technology or demand.
Phased retirement solves multiple needs for organizations. First, it keeps skilled workers working. Second, it keeps a knowledge fund at the organization, that if managed correctly, could be documented, retained, and passed on. Third, it allows the career lattice to have vertical movement and allow for promotional opportunities for employees who otherwise might leave because of the firewall. HR has to manage this movement and expectations, so the retiring employee is utilized correctly without creating a perceived environment of age discrimination, and the younger employees don’t see a logjam blocking movement.
Nothing is easy for HR is it?
"The whole concept of what retirement means has gotten fuzzier," Alan Glickstein, managing director, retirement at Willis Tower Watson, told HR Dive in an interview. In the past, retirement benefits were targeted to start at a certain age. Now, with the decline of traditional pension plans and upswing of defined contribution plans, together with increases in life expectancy, retirement plans no longer deliver a strong message of what the normal retirement age is.
Moreover, many workers are facing the reality that social security will be their primary source of income and their pensions, if any, and/or 401K balances are not enough if people live another 20 to 30 years after retirement. According to a report by the Center for Financial Services Innovation, 42% of adults aren’t saving for retirement at all.
Interestingly enough, a 2018 Government Accountability Office study found that nearly one-third of Americans age 55 and older don’t have any retirement savings. And if they do, it averages about $163,577. Those 65 to 74 have even less in savings. The study found that if that money were turned into a lifetime annuity (like social security payments) it would only amount to a couple of hundred dollars a month.
This isn’t just a baby boomer issue. Millennials generally have average retirement savings of approximately $31,000. Those older Millennials and Generation X workers are estimated by the Economic Policy Institute to have the following: age 32 to 37 have saved around $31,644, age 38 to 43 have about $67,720, and age 44 to 48 are at $81,349. Those 50 to 55 have saved an average of $124,831.
MetLife's 17th Annual U.S. Employee Benefit Trends Study found that 52% of respondents said they expected to postpone their retirement due to finances, up from 37% in 2015. Another study by Gallup found that workers will wait until 66 to retire, when in the 90s it was age 60. The great recession didn’t help either. What this tells HR and employers is that it doesn’t matter how old the employee is, this situation will continue for a long time. Workers will have to continue working through their retirement years.
So, what is phased retirement? Phased Retirement is a human resources tool that allows full-time employees to work part-time schedules while beginning to draw retirement benefits. Many attendees in a recent ASE roundtable said they often offer these employees to work remotely. When an employee turns 66, the employee can earn as much as they want without impacting social security benefits. Yet most employers don’t have any programs in place to allow for this transition, whether moving to part-time or to a less stressful job. And possibly most importantly, many do not have mentoring programs in place to pass along the knowledge fund.
HR needs to bring this issue and solutions to the C-Suite. It is especially important to coordinate with finance regarding the financial impact of the various options and with legal about any possible discrimination issues that may arise from the programs implemented. Finally, it will be important that HR focuses strongly on financial wellness programs, such as debt management and financial planning. This will build brand value to these workers.
Additional ASE Resources
Succession Planning – ASE works with several experienced partners to help organizations create an effective succession plan for key positions. For more information, please contact Michael Burns.
Workflow Process Mapping - Workflow Process Mapping helps you model, clarify, or improve the business practices and processes that you use daily to execute your organization’s strategies and policies. It’s an efficient way to maintain the knowledge fund of exiting workers. For more information view this case study or contact Michael Burns.
Source: HR Dive 7/10/19, Motley Fool 1/28/29, Investopedia 6/25/19