Delayed Retirement Means an Aging Work Force

If an organization wants to retain their experience, knowledge and skills this can be good news. But when older workers must continue working longer than they (or the company) had planned, the consequences can be negative.

Many Americans are expressing anxiety about whether they will be able to retire. Two out of three people said that their top financial concern is not having enough money for retirement, according to a Gallup Poll. This concern also emerged in What’s Working 2011, a survey of employee attitudes about their jobs released by Mercer. A good retirement savings or pension plan was ranked second-most important on a list of 13 employer offerings.

The reasons for this unexpected emphasis on retirement benefits could be explained in part by the wariness mid- and late-career employees still feel after more than a decade of stock market volatility. Many still harbor ill feelings about the bursting of the tech bubble in 2000, when Internet stocks ravaged the markets for three years. Although the next five years saw significant gains, the credit crisis that began in 2008 caused many to rethink their retirement expectations once again.

Although tenure is often thought of as positive, it has the potential for conflict. Some of the adverse effects of employees working longer than they or the organization had anticipated include:

• Depleting the next generation of workers, who may look elsewhere for opportunities if they see their prospects for advancement being put on hold.
• A drop in productivity if some employees continue working merely because they cannot afford to retire.
• A cost increase in benefit programs in tandem with health and disability plan usage, which can be expected from an aging work force.

(Cont’d…)

Many employees are deferring retirement, either because of a lack of assets or because their confidence in the economy is shaky. This delay can affect an organization in different ways. One way to measure the impact is to look at the value attached to the increase in tenure that comes with delaying retirement. From this angle, tenure is as a proxy for issues that affect productivity or service delivery, such as:

• Experience, know-how and efficiency specific to an organization;
• Institutional memory;
• Internal networks of contacts; and
• External networks of customers and suppliers.

At one end of the spectrum are organizations that view long-term employment as an advantage. In these companies, talent development is emphasized, becoming a point of pride with senior managers and a key part of the business culture. These organizations value tenure because a wealth of experience and skills specific to the firm results in better customer relationships both internal and external, which in turn improves operating results.

At the other end of the spectrum are organizations that focus on hiring new talent. They do not value tenure because the necessary skills can be provided by the available labor market. These organizations may prefer contingent or contract employees to keep labor costs manageable and to counteract high turnover. This business model values current performance and knowledge, and positions can be filled easily from the outside. In this case, delayed retirement may have adverse implications for revenue and profits.

Retirement patterns will continue to change with economic conditions, employment prospects and increases in longevity, with a significant effect on business results.

More information about “Delayed Retirement and Effective Workforce Planning,” from Mercers Retirement, Risk and Finance Perspective series, is available here.