A Long, Winding Road to Retirement

By Lauren Dixon

Feb. 28, 2018

A comfortable retirement is nearly impossible for most of the American workforce.

Longer lifespans, a major savings shortfall and increasing standard-of-living costs — particularly around health care — are just a few of the reasons why Americans face a retirement savings deficit of between roughly $7 and $14 trillion, according to the National Institute on Retirement Security. The median retirement account for workers nearing retirement age holds only $12,000, whereas the conventional advice is to have about $1 million, or at least 10 times someone’s annual income.

Today’s most recent crop of retirees are those that were born between 1946 and 1964, also known as the baby boomers, a group that faced major changes to the retirement landscape during their working years, according to Susan Weinstock, vice president of financial resilience programming at the American Association of Retired Persons, a Washington, D.C.-based nonprofit advocacy group.

Among other things, the decline in employer-sponsored pension plans, where employers saved and provided a worker’s retirement income until they died; the rise of defined-contribution plans, or 401(k)s, where employees primarily contribute to their savings, with an employer match; and the financial crisis and ensuing recession in 2008 dealt a blow to boomers’ savings. According to a 2012 study by Social Security Administration, the recession led to an overall decrease in wealth of near-retirees by up to 8 percent. Those who retired six to 12 years prior to 2008 saw wealth grow about 5 percent at retirement, due to a healthy stock market and rising housing prices.

“Retirement has become a do-it-yourself project, with much of the risk now placed on workers who too often do not have access to a retirement plan, and if they do have access, do not have the information needed to make informed choices to maximize their savings,” Weinstock said.

In other words, America’s retirement landscape swung from monetary guarantees for employees to burdens of financial risk, said Jack Abraham, principal and retirement benefits practice leader at professional services firm PricewaterhouseCoopers. Employers didn’t want to maintain the huge cost uncertainties that came with pensions. However, employees often lack the ability to make sufficient long-term financial decisions on their own.

“There has to be some way to meet in the middle,” Abraham said.

What’s more, changes to retirement don’t only influence those currently nearing the end of their careers. Millennials, the largest generation in the workforce, born roughly between 1980 and 2000, expect for 32 percent of their retirement income to come from their personal savings and investments — nearly twice what was expected of baby boomers, according to a 2014 retirement study from Bank of America Merrill Lynch and Age Wave. Those who are able to retire often remain working, both for financial and non-financial reasons. According to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey, nearly 30 percent of retirees worked for pay during their retirement. About 90 percent say they work to stay active, physically and mentally, but 42 percent said they remain working to make ends meet financially.

Influence of an Aging Workforce

Solving the retirement savings puzzle is a major issue for companies. Making sure workers have enough saved isn’t just the right thing to do; there are major employer benefits as well. Making sure older generations of workers are able to retire on their terms helps companies manage their generational talent pipelines in the most cost-effective way. It also ensures that younger generations of workers with the most up-to-date skills and relevant experiences are stepping into leadership roles at the right time.

Still, this dynamic doesn’t mean older generations of workers don’t still have a valuable role to play if they decide to stay in the workforce well into their retirement years — something more are opting to do. This is a good thing, because many older workers still have a lot to contribute.

“Employers, I think, are coming around to the idea that older workers actually have real value,” said Matt Rutledge, research economist at the Center for Retirement Research at Boston College.

Part of this is due to older people being in roles where they can hire. “You get that virtuous cycle of older people hiring more older people and making it that much easier to work at older ages,” Rutledge said. Older workers today are living longer than previous generations, have more education and work in less physically demanding jobs. As long as workers have the mental capacity to work, they remain assets to the workforce.


However, this trend leaves behind those who do work in physically demanding jobs. “We don’t have a good answer for them yet,” Rutledge said. These workers must consider what their future employment prospects could be as they age, or if a disability that removes them from the talent pool occurs. Still, physical work can lead to more health problems and fewer retirement years as a result, putting them at an advantage in terms of retirement savings — albeit a morbid one.

Moreover, as people remain in the talent pool for longer, those just entering the workforce could feel they have fewer opportunities for advancement. Aging talent could stay in roles that their younger co-workers desire, putting the new generations behind in terms of their careers and, as a result, the savings that come with each respective bump in salary, Rutledge said. It could also hurt retention of those workers as they leave to seek advancement opportunities elsewhere. Nevertheless, Rutledge said more people working — no matter their age — means more spending and economic stimulus, leading to stronger businesses that create more jobs and a healthier, more productive economy overall. In this respect, more older workers are a good thing.

Living and Working in Retirement

A big part of solving the issue is managing the systems for saving for retirement. In the near term this means managing the transition from pensions to 401(k)s.


With the transition from pensions to 401(k)s come changes to the nature of retirement payouts. For the small percentage of workers who still have them, pensions provide a steady check, similar to paychecks during employment, whereas 401(k)s are designed as funds individuals withdraw from as they like in retirement. This makes them problematic for some, as it might be tempting to take out more money than is needed at a given time, potentially creating an income shortfall down the road, Rutledge said. He added that If 401(k)s had more elements of pensions — namely their payout structure — then they might be more attractive to retirees.

Even once that issue is resolved, there are other non-financial issues to address. In retirement, those lucky enough to have enough savings might still want to work. “A lot of older people struggle with the transition to retirement. You sort of lose that regimen to your day. You lose a sense of purpose. You lose sense of identity,” Rutledge said.

According to a 2014 Merrill Lynch and Age Wave’s study on finances in retirement, 52 percent of retirees who work took a break at first upon retiring. Yet many end up coming back to work. As the Merrill Lynch survey showed, 83 percent said they return to work because it makes them feel youthful. Indeed, 1998 research from the Social Security Administration found that men who retire early die sooner than men who retire at age 65 or older. However, 44 percent of men who remain working into their retirement years experienced a loss of skills; as a result, 43 percent of employers think these workers should accept less pay or a lower role.


Some say the rise of the freelance workforce, also known as the gig economy, could play an interesting role in solving this problem. And gig work is on the rise. According to a 2017 paper by the National Bureau of Economic Research, 16 percent of workers use flexible contract work as their primary form of employment, a 56 percent increase compared to a decade ago. What’s more, the popularity of these alternative working arrangements by both workers and employers has led to 40 percent of organizations saying they plan to increase use of contingent workers, according to a 2016 survey from professional services firm Ernst & Young.

Indeed, the gig economy can help those phasing out of the workforce or those who are seeking extra cash in retirement. But it can also set younger gig economy workers back in saving as well, Rutledge said.

Despite this, freelancing offers aging talent many of the perks they tend to seek in retirement: flexible hours, more time off and the ability to work from home. “They’ll end up using things like the gig economy and freelancing to extend their careers, which can only help,” Rutledge said.

The elements that draw retirees to gig work are the same that draw younger talent to the working arrangement, but this is less beneficial for the latter. These working arrangements often lack retirement benefits and steady employment. This instability will lead to gaps in earning history, no employer match to retirement accounts, less contributed to social security and additional hurdles to financial stability for young talent.

The Business of Retirement


“Navigating this new landscape of retirement will require business leaders to take a new, more holistic approach to retirement,” said Cyndi Hutchins, director of financial gerontology for Bank of America Merrill Lynch based in Baltimore, Maryland. Retirement planning today is about more than meeting an aspiring retirees’ larger financial goals. Instead, financial advisors should empower clients to take a comprehensive look at their life plans — including future living arrangements, travel or new career paths — and work to map out savings targets as a customized plan.

Employers, business leaders and policymakers should also drive new dialogues about the need to plan further ahead for retirement, encourage new discussions on the topic and evaluate retirement planning through a broader lens.

“Employers in particular can play a major role in motivating people to financially plan for their futures,” Hutchins said. This includes offering new employee resources, education and programs aimed at addressing retirement planning challenges and encouraging productive savings behaviors in general. As more retirees consider flexible work options, employers can also be a crucial resource in offering custom work plans that fit with an individual’s later-in-life goals, such as phased retirement, part-time or seasonal work, sabbaticals and mentorship positions, Hutchins said.

All of this is important because employers need the right mix of talent serving their businesses. When businesses transitioned from pensions to 401(k)s, many leaders failed to consider the long-term workforce implications, PwC’s Abraham said, citing succession planning as an issue when large numbers of older workers remain in the talent pool.

“They really traded one cost for another cost,” Abraham said. Top employees tend to be the best at saving and retire at a decent age, even though the business would rather keep them on. However, employees who aren’t as savvy at saving must continue to work, so they collect a paycheck beyond when the employer would like. “Both of those scenarios are very expensive for the employer,” he said.

Therefore, there should be more of a social responsibility on the part of employers to employees to help them retire. “From a business standpoint, they’ve got to solve this problem,” Abraham said.

Companies must offer financial education that includes retirement, as well as other aspects of financial wellness. Abraham said there is an increasing demand for employers to provide these sorts of programs, increase contributions to 401(k)s and offer insurance policies against employees outliving their savings.

To further help employees save more, employers can use a variety of tools to make saving easier. First, however, “we’ve got to get employees to where their day-to-day finances are in a strong position to then start thinking about retirement,” said Helen Calvin, senior vice president of customer success at Jellyvision, an employee communication software company based in Chicago.

Employees each have their own unique financial challenges, such as paying off student loan debt, covering child care and navigating increasing health care costs. “Retirement is getting harder to envision,” Calvin said. As a result, employers need to personalize and communicate a comprehensive financial wellness plan with individuals, while providing tools and programs for employees to take an active role in saving for their futures.

Calvin shared that her company’s primary product, a virtual benefits advisor called “ALEX,” aims to simplify the process for signing up for retirement, health care plans and other benefits, while making the experience more fun and less boring than combing through stacks of papers.

“The fact that we’ve taken retirement to such a complicated and boring place risks employees making good decisions,” Calvin said. “Boring is a huge hindrance in people making good decisions.” The more engaged and entertained they are, the more likely people will make good decisions that stick.

Despite trends toward helping employees save more to retire, not all agree that it will take off in the broader business landscape soon. “It’s naive to think that business leaders are going to take care of workers the same way that they did back in the day, when people were working for a firm for 30 years,” said Boston College’s Rutledge. But there is more that leaders can do to help workers retire.

Business leaders often want older workers to retire and make way for new talent, but simply laying off their older staff can open the door to larger problems like age discrimination lawsuits. “If it’s not paternalism that drives them, it’s at least the threat of legal action,” Rutledge said.

Simply offering a 401(k) account to workers can do a lot to help employees save, especially as only half of employees have a plan, according to government data. “Filling in that gap is the first step,” Rutledge said.

Automatic enrollment in retirement savings accounts is another option gaining traction. Last year’s Nobel Memorial Prize in Economic Sciences winner Richard Thaler, a University of Chicago economics professor and author of the 2008 book “Nudge: Improving Decisions About Health, Wealth and Happiness,” argues in favor of automatically enrolling workers in retirement benefits. He said that, based on his research, workers are more likely to participate in such programs if they’re automatic — meaning being in the program is the default, instead of workers needing to make a conscious effort to sign up.

Still, while this nudge means workers are also likely to save more over time, the system doesn’t ensure that they save enough, Thaler wrote in a 2017 Wall Street Journal report. Compared to companies that require employees to opt into 401(k)s, automatic enrollment produces 32 percent more participants, according to Bank of America Merrill Lynch.

In any event, employers that fail to help their workers save for retirement is a symptom of shortsightedness, Rutledge said. It’s in employers’ best interests to help their workers retire as their skills slow down, while finding creative ways to keep them involved in the workforce along the way. But a focus on shareholder returns quarter-over-quarter pushes this need years behind. Until then, it will likely take firms acting in unison, tax incentives, government mandates or social security expansion to most working Americans retiring comfortably at a reasonable age, if at all.

“I think it’s a bit of a leap of faith that business leaders are finally going to come around and do the right thing for themselves and for their people, but it’s kind of what’s necessary at this point,” Rutledge said.

Lauren Dixon is a Workforce senior editor. Comment below or email 

This story originally appeared on Workforce‘s sister publication, Talent Economy.


Lauren Dixon is a senior editor at Workforce.


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