Retirement Readiness and the Silver Tsunami

By Erin Haynes Reed

Baby Boomers  – the age group born between 1946 and 1964 – have been known for their hard work ethic, loyalty, stability, and reliability in the workplace. But with 10,000 Baby Boomers turning 65 every day, America’s workforce and population is getting closer to retirement. And in other news, the sky is blue, and grass is green. All joking aside, employers across the country have a huge task in preparing for the “silver tsunami” and dealing with the challenges of this population leaving the workforce.  

Many employers are finding that one of the biggest concerns surrounding this generation is retirement readiness. Better life expectancy is allowing employees to work past the traditional age of retirement, not only because they can, but because they must. Research by the Insured Retirement Institute found that 45% of Boomers have no retirement savings, and out of the 55% who do, 28% have saved less than $100,000.

Additionally, there has been a shift in retirement plan offerings. According to research from Willis Towers Watson’s “Retirement Offerings in the Fortune 500”, over the past two decades employers have transitioned from providing Defined Benefit Plans (pensions) to Defined Contributions Plans (401(k)). Traditional Defined Benefit Plans provided employees with the information on exactly how much lifetime income they would have, well before they decided to retire. Now, as many workers rely on Defined Contribution Plans, employees are left feeling vulnerable, as the responsibility for financial stability is more heavily reliant on their actions and comprehension of their employer’s benefits. Furthermore, the impact of the Great Recession and the recent COVID-19 market volatility has added additional financial stress and caused many mature workers some hesitancy in their retirement timeline.

Helping older workers become financially stable is proving to be in the best interest of many employers. Financial instability leads to lower productivity in the short term and could prompt workers to delay retirement even if they become disengaged in the long run. But if employers are playing an increasingly vital role in helping employees prepare for retirement, what steps can they take to ensure their workers’ success?

START WITH EDUCATION

Financial stability in retirement doesn’t just happen – it takes years of planning and commitment. While many workers are still living paycheck to paycheck, the idea of saving for retirement can seem an unattainable goal. For many, the first step towards reaching financial stability is understanding where they currently are, and the gap between where they want to be – this starts with education.

Recent trends indicate that companies are providing employees with financial education through financial wellness programs. According to a study conducted by Prudential, 83% of companies surveyed offer financial wellness programs, and another 14% planned to offer them by this year. That means a vast number of employers are equipping workers to help address their personal finances by accessing information on an array of financial topics such as budgeting, debt-repayment, and saving for retirement.

The programs themselves have a variety of tools as well. Some employers offer online financial guidance through articles or videos, while others provide a collection of services both online and in person, including workplace seminars or assistance by phone. Either way, the purpose of financial wellness programs is to supply employees with a foundation of knowledge that provides them with better insight into their personal financial situation and the opportunities they have to reach their personal financial goals.

KEEP THEM ON TRACK

According to the Transamerica Center for Retirement Studies (TCRS), retirees who had a written plan prior to retirement had a total household savings of $553,000 as compared to $8,000 for retirees who did not have a plan. That’s 70 times greater. But having a plan in place isn’t the only challenge. Over the course of a lifetime, there are endless events that could derail a perfectly good retirement plan, such as marriage, children, buying a new home, divorce, health challenges, job loss and many more. The key is to stay focused.

“There are a variety of ways you can keep your plan on track,” explains Jim Trujillo, CFP®, retirement plan advisor at ARGI. “Once you’ve developed a goal-based plan, make sure your money is working the way you want it to. Periodically review your spending and saving, monitor your investments’ performance and your personal risk tolerance, make sure you are insured correctly in case of a financial emergency – these are a couple ways to ensure you’re on the right pace towards your goals. However, individuals are ultimately responsible for the management of their personal financial affairs, and they may need help along the way from a licensed professional. Nowadays, it’s common for retirement plan advisors to offer one on one financial advice as part of their participant services offering. This gives retirement plan participants the opportunity to discuss their personal finances with a financial professional and to gain advice on what their next steps should be.”

MAKE RETIREMENT A SMOOTH TRANSITION

One way to ensure an easy move into retirement is to have an open line of communication from the beginning. Retirement is a very personal situation and can mean a number of things for different individuals. Knowing the employee’s retirement intentions ahead of time can help employers better prepare them for the road ahead. However, studies show this is an area that needs much improvement.

A survey by TCRS found that 44% of current retirees say they would have liked more information and advice from their employer about retirement. What’s more, two-thirds of respondents in the study said their employer did nothing to help them transition into retirement. With this gap in guidance, employers have the opportunity to better communicate and educate their employees’ nearing retirement.

But what if the employer needs to conduct a reduction in force? Early retirement programs offering severance payouts, outplacement services, or pension payouts may be an enticing offer for workers nearing retirement age. Often, these voluntary early retirement plans can be complex and contain a wide variety of options available to the offeree. More and more companies experiencing attrition are collaborating with a financial professional to help guide them and their employees through these intricate situations.

The issue of the silver tsunami exiting the workforce is not going away any time soon. Employers that work more closely with their providers to establish clear solutions that fit their workforce’s needs and align with their objectives, programs, and measurements are front runners in making the transition from employee to retiree a smooth one.