The graying of the American work force
Americans are living longer. That has significant
implications for employees and plan sponsors.
The U.S. Census Bureau estimates that by 2050, more than 600,000
Americans will be age 100 or older. That is up from approximately 2,300 in
1950. According to a study by the Society of Actuaries, there is a 31% chance
that, for a 65-year-old couple, at least one spouse will live past age 95. In
other words, it would be reasonable for employees (and particularly married
couples) who retire at age 65 to plan for at least 30 years of retirement
However, it may be unreasonable to retire at 65—at least for
most employees—because it is very expensive to fund a 30-year prepaid
retirement. It may be possible for natural-born savers, but for most people,
the required savings rate would cut back significantly on their standard of
living while they work. What does all this mean? I believe it means that 70 or
72 is the new 65.
If I am correct, that presents a number of issues for
employers. For example, if an employer wants to encourage employees to retire
early, which could now mean at 65 or 67, it may need to participate more
actively in the retirement process. That includes, for instance, making larger
401(k) contributions; automatically enrolling and increasing deferral rates;
providing retirement planning services to employees age 50 and older; and
offering income projections and information about retirement needs to all
employees. In other words, if an employer wants to promote retirement at or
around age 65, it needs to accept more responsibility to ensure favorable
retirement outcomes for its employees.
But what if an employer is comfortable with the idea of an
aging work force? Even then, changes are needed. For one thing, employers may
want to educate their employees about the integration of the company’s health
benefits with Medicare … which election should an employee make at age 65? Part
A? Part B? Part D? Those are complex issues—and better decisions will be made
if employers provide consulting and educational services.