One of the main talent challenges facing HR professionals today is the retirement readiness of their workers. The smartest HR professionals know preparing workers for retirement goes beyond establishing a 401(K) and engraving a gold watch as a token of gratitude for forty years of loyal service. Now more than ever, HR must prepare for the retirement plans of both your older workers and younger workforce.
According to the Washington Post, for the next 20 years, 10,000 baby boomers will retire every single day. In fact, an astonishing 56 percent of leadership positions in the US workforce are held by baby boomers. HR professionals must prepare for the exodus of baby boomers, paying particular attention to ensuring years of subject matter expertise isn’t lost to retirement. At the same time, more of the older generation of workers is more underprepared for retirement than ever before.
Read on to learn about the different retirement challenges you might face as an HR professional, how to navigate each scenario and how to best ensure your workers, and the business, are set up for success.
1. Older Workers Are Underprepared
In today’s working world, there is an interesting dichotomy between the retirement plans of each generation and the actual retirement readiness of workers. A report from the National Institute on Retirement Security (NIRS) found that Americans are vastly underprepared for retirement. In fact, 57 percent of American workers own no retirement assets at all, from 401(K) balances to individual accounts or pensions. Additionally, NIRS reports the median retirement account balance among all workers is $0.00. And finally, only about 70 percent of workers aged 55 to 64 have a retirement account that is equal to or even smaller than their annual income.
So, what does all of this mean to you? When older workers are underprepared for retirement, they tend to stay in the workforce longer. The good news is having experienced workers means your company is rich in knowledge, expertise, and even connections. Take advantage of that knowledge and set up a mentorship program. In 2018, Newport News Shipbuilding was faced with a sobering reality: more than 11,000 employees, or half of the company’s total workforce, were 50-years-old or older and 30 percent of those employees were eligible to retire within five years. In order to help prepare for a mass exodus of industry know-how, the company set up a mentorship program.
According to the Harvard Business Review, “the company [initiated] a formal program to entice experienced workers to mentor younger employees and pass along knowledge gleaned over their lengthy careers. Informal methods of transferring knowledge have been in place for years, but company leaders wanted to develop a more deliberate approach. Being able to document processes and procedures is crucial to the business’s future success.” Susan Jacobs, vice president of human resources and administration for the company, explained further, saying that, “fostering personal connections between employees at all levels may have the added benefit of lowering attrition among younger workers.”
Of course, there are challenges that come with older workers being underprepared for retirement. According to HR Dive, “Seniority often puts older workers at the top of wage and compensation levels, and they may incur higher healthcare and wellness expenses. They can also slow the promotion pipeline. When junior workers can’t see a path to move up because senior workers aren’t moving out, they may decide it’s time to move on.”
This brings us to our next scenario, which is all about how to retain younger workers in your workforce.
2. Junior Workers Move On Too Soon
As we said before, when junior workers don’t see opportunities for career growth, they are more inclined to find work at another organization. When this happens, your company loses top talent, pays more in recruiting and onboarding replacement hires and, without a solid plan to address retirement readiness, runs the risk of repeating this cycle in perpetuity.
So, how can you fix this with your company? One way is to reconsider the traditional career ladder and embrace a more non-traditional approach to career progression. Consider encouraging employees to propose their own job redesigns, look into job rotation or rethink the career ladder altogether. For more information, check out this article.
Another way to retain top talent is to foster a culture of future preparedness. According to HR Dive, there is considerable advantage to creating a culture that emphasizes its employees’ financial health and retirement readiness. “Erik Fromm, financial advisor at Janney Montgomery Scott, told HR Dive in an email, ‘If top talent is comparing possible employers and one of them states clearly that they will provide resources and guidance around organizing and managing their financial well-being, that could be the clincher.’”
This insight particularly applies to younger workers. The 2019 State of the Candidate Survey, a recent study conducted by Monster, found that workers aged 18 to 24-years-old plan to retire by 56, while older workers (aged 55-65) planned to retire at 67. In the same study, Monster polled respondents on preferred benefits and found retirement benefits ranked second on the list, tied with healthcare and just below flexibility in schedules and working from home opportunities.
What does all of this mean? Younger workers of today desire the ability to work hard during their working years so they can retire earlier and enjoy more of their golden years.
This brings us to our third scenario, which is all about how to create that culture of retirement readiness.
3. Create a Culture of Retirement Readiness
One of the best ways to solve each of the previous scenarios is to create a culture of future preparedness and retirement readiness. By doing so, you help ensure older workers are financially secure in preparation for their own retirement plans, as well as setting younger workers up for success in meeting their goals of an earlier retirement. We have three tips to help you begin crafting a culture of retirement readiness.
- Check Your Company’s Retirement Readiness: How much do you know about the demographics of your company’s employees? Don’t get caught by surprise when older employees retire. Work today to create a succession plan for your older employees to prevent losing their expertise when they retire. And, don’t forget to create succession plans for jobs with lower seniority but higher learning curves. In their article, Preparing for the Brain Drain: How to Capture Your Boomers’ Knowledge Before They Retire, HR Dive spoke to Raymond Lee, founder and CEO of Careerminds. Lee explains, “a common misconception is that the higher up you are, the more impact there is when you leave. But succession plans for innovators — those who have a direct impact on products, customer retention, inventions, patents and creativity — are the ones you’ll want to create five to 10 years in advance because the learning curve is so extensive.”
- Foster a Culture of Communication: Another way to create a culture of retirement readiness is to ensure conversations around future financial preparedness are not taboo. Fromm recommends, “creating a culture that promotes an open dialogue with employees entering the 5-10 year period ahead of a ‘normal’ retirement age.”
You can create this culture by offering your employees resources to assist them with financial planning for retirement. Whether those resources are experts within your own HR department or a trusted outside vendor, make sure your employees feel empowered and supported as they navigate planning for retirement readiness. As Fromm told HR Dive, ”An open dialogue reduces the likelihood of an early or delayed retirement being a surprise and increases the chance for the company to plan for the transition.”
- Examine Your Current Retirement Benefits: Finally, check your own benefits. Are you offering a strong 401(K) or pension program? Even if you’re unable to provide an employer match, establishing a retirement savings program up front is a worthwhile endeavor to help employees of all ages prepare for their future. Or, if you are unable to offer formal retirement benefits, consider holding lunch and learn sessions targeted around retirement readiness. Bring in financial experts who can speak to the benefits of different investment accounts, how to make the most of what your employees currently have at their disposal, and more. For more information on planning for a strong benefits package, check out this article.
However you decide to approach the idea of your company’s culture on retirement, establishing your company as one with a reputation for supporting employees in future financial planning and retirement readiness is a worthwhile endeavor. It not only protects your employees as they move forward into their futures, it protects your company from the expensive loss of expert knowledge and unnecessary employee turnover, saving you money, resources, talent and time.