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Not Planning for Early Retirement Threatens Employees’ Financial Security

11.27.18

Employees often are unfazed by retirement calculators or other recommendations telling them they’ll need to step up the pace of their retirement savings to retire at a “normal” age. The Employee Benefit Research Institute’s (EBRI’s) latest “retirement confidence survey” compared what employees say their retirement timing plans are to when people in general (not the same people stating their intentions) actually do retire.

Just the Facts

While many participants believe they’ll continue to work past retirement age, nearly half (47%) of retirees retire sooner than expected, according to the survey. The survey found that over three-quarters (78%) of active workers who reported a change in their anticipated retirement date pushed back the time they expect to retire. Thus, it can be a risky assumption for participants to make, based on the data.

EBRI’s survey found that workers report a median anticipated retirement age of 65, while retirees report they retired at a median age of 62. Nearly one-third (31%) of surveyed workers expect to retire in their 70s or beyond, or not at all, vs. only 7% of surveyed retirees who did so.

Notably, only 3% of surveyed retirees reported that they had retired later than they had originally planned. That figure has drifted downward since a high of 9% in 2012, in the wake of the financial crisis.

The bottom line: “A considerable gap exists between workers’ expectations and retirees’ experience,” according to EBRI.

A Little Reasoning

The most common reasons workers give for their plans to delay retirement are financial. Reasons included workers who:

  • Believed they couldn’t afford to retire,
  • Lacked faith in Social Security,
  • Feared health care costs, and
  • Wanted to make sure they have enough money to retire comfortably.

The primary reason given for people leaving the workforce earlier than planned was a health problem or disability. But a fortunate 24% cited the fact that they could afford to retire earlier than expected as the reason.

Should this disconnect matter to you, as a plan sponsor? The answer is probably “yes.” A common concern among some employers is that undersaving employees will remain on the payroll beyond their most productive years, not that they’ll retire prematurely.

As an employer, you want productive, engaged employees. When employees know you’re genuinely concerned for their welfare, they’re more apt to be committed to doing their jobs well. Keeping employees informed about matters that could have a significant impact on their lives is one way to demonstrate your concern.

When you motivate employees to save at a pace that allows them to retire at a normal age — or even sooner — and they maintain that pace, their anxiety level over their personal finances shouldn’t be a source of distraction at work. Finally, as a plan fiduciary, you’re charged with safeguarding the interests of plan participants. While it’s unlikely that you could be sued for failing to inspire, cajole or otherwise cause participants to save adequately for retirement against their will, the spirit of fiduciary responsibility under ERISA might suggest you try your best anyway.

What to Do

This all means you should follow your participant communication best practices. Simple and direct messages, presented in multiple communication channels, work best.

A bold statement like: “You might be retiring sooner than you think. That could be a problem” or “Postponing retirement? Don’t count on it” might be good attention-getters, leading into a basic message explaining the basis for it. The “call to action” is for participants to do their best to adjust their retirement plan deferral rate to put them on track to retire, at a minimum, at a “normal” retirement age, if not a year or two sooner.

As with other participation and deferral increase promotion messages, stress the importance of moving as quickly as possible toward an appropriate deferral rate, even if it cannot be accomplished immediately.

Avoid Surprises

If you’re successful in moving the needle, the benefits might be as great for you as an employer as they are for plan participants. Be consistent in your communications with employees and an early retirement won’t come as a surprise to either your employees or you.