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Many employees are continuing to work beyond the traditional retirement age of 65. A number of surveys have asked why employees continue working, and most employees report that they do so by choice. Employees of all ages report that they plan to continue working past age 65 (whether in the same career or in some other capacity) to stay active or to maintain social contacts.
However, as many as one in three individuals may continue working after retirement because they need the money.
Not surprisingly, younger workers tend to have a more optimistic outlook, with those under age 30 hoping to retire before age 60. In contrast, more than half of employees who are approaching retirement age (58 and older) expect to continue working past age 65. Many of these individuals evaluated their savings and projected retirement income, compared that with anticipated expenses, and made a decision to keep working.
While most employees who continue working after age 65 may do so by choice, many employees who would prefer to stop working may not be in a financial position to do so. Will this happen to some of your employees?
Serious approach
According to a 2014 survey conducted for Charles Schwab, about a third of employees reported spending less than one hour evaluating their 401(k) investment options. Another survey (TIAA-CREF 2014 IRA Survey) found that Americans tend to spend more time selecting a restaurant than they spend considering whether to invest in an Individual Retirement Account.
You very likely have employees whose approach to retirement planning is similarly casual.
You cannot tell your employees how much they should invest or which options they should select. However, you can encourage them to take a serious look at their retirement planning, help them understand the potential consequences of failing to plan adequately, and offer resources or best practices for saving.
For example, employees might choose low-risk investments that don’t provide as much growth, potentially resulting in a failure to reach savings goals. Your retirement plan might offer target date funds that automatically allocate assets based on the participants’ age and anticipated retirement date. Alternatively, if some employees prefer to direct their own investments but are reluctant to choose the higher-risk investments, perhaps they should consider saving a greater percentage of their income.
While you cannot make investment decisions for employees, you can encourage them to spend a reasonable amount of time evaluating options. Remind them that if they want to retire after a lifetime of working, they should be willing to spend a lifetime investing. If they work beyond the traditional retirement age, it should be because they choose to do so, not because they have to do so.
Medical retirement
Quite a few employees have to stop working sooner than expected due to medical conditions or disabilities. Surveys indicate that as many as 15 to 20 percent of employees will be forced to stop working for medical reasons.
While those individuals may become eligible for disability benefits through programs like Social Security, the income provided is only a fraction of the former working income, potentially necessitating a frugal retirement, to say the least.
Employees may find that private disability insurance is cost-prohibitive, but may discover that alternative options are more affordable.
For example, the most significant monthly expense for most employees is the mortgage payments on their homes. Employees may find that mortgage protection insurance (MPI) provides more affordable peace of mind. Individuals may usually obtain MPI through their homeowner’s insurance provider. It may even be available for employees in high-risk occupations who are unable to get disability income insurance.
In the event of a disability or major medical condition that prevents the employee from working, MPI will cover the mortgage payment (even if only for a limited period of time) and allow the individual to apply any remaining disability income to other obligations.