Just out of Reish | Published in May 2012

Getting Older

The graying of the American work force

By PLANSPONSOR staff | June 2012
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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 living.

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.