Accommodating employees who work past traditional retirement age

For many of today's U.S. retirees, longer life expectancies mean more time to travel and enjoy grandchildren. But they can also mean increasing inflationary pressures on fixed incomes and the need for expensive medications or long-term healthcare.

As a result, many employees are working past the traditional retirement age of 65 to either make ends meet or enjoy their desired lifestyle. Early retirements are decreasing. Instead, older workers are turning to phased retirements and working retirements as they strive to remain financially and physically healthy into their "golden years."

Faced with skyrocketing healthcare costs and an ever-expanding pool of pension recipients who are living longer, employers are feeling the strain of offering benefits to retirees. For many midsized companies, helping employees plan for retirement without breaking the bank will be critical to the bottom line for the foreseeable future.

Abler and Working Longer
A longer life span means a longer retirement-planning horizon. For some older employees concerned about retirement costs, continued work and savings may be the only answer. According to Putnam Investments, many of the working retired are well-educated, relatively high-income professionals who find themselves with a mortgage later in life—and one third say they are working, not by choice, but out of necessity.

The good news? Healthier people who live longer these days can generally expect:

• More time to plan and save for retirement
• Fewer serious health conditions and related expenses (Recent studies show a decrease in mortality from heart disease and cancer, for example.) 
• The ability to work later in life should the need arise.

The Center on Aging and Work/Workplace Flexibility, along with the Families and Work Institute, released a joint report finding that a large percentage of workers of all ages say they plan to be their own bosses someday. To retain more experienced or senior employees, the report encourages companies to look at what makes self-employment appealing, such as autonomy and flexibility. Incorporated into the workplace, these same values can also make the economic transition to retirement easier for employees. Increasingly popular options for employees of traditional retirement age include:

• Phased retirements, in which older employees begin reducing their work schedules and pay while maintaining benefits.
• Job-sharing, in which two employees share the responsibilities of a full-time position for benefits and reduced pay. 
• Sabbaticals, in which employees take an extended leave with benefits to pursue personal or professional development. 
• "Flex years," in which employees work only part of the year and have the remaining months off, with benefits.

These options enable older employees to begin to enjoy time off without going "cold turkey"—moving to a fixed income and reduced or nonexistent healthcare benefits without a sufficient safety net.

Investing for the Long Term
The longer you live, the more healthcare you require. While the most expensive forms of healthcare tend to concentrate in the final six months of life, the longer one takes prescription drugs or requires ongoing institutional or in-home health assistance, the more retirement savings they consume. For those who reach their 80s and 90s, more geriatric health issues arise—problems that often require new, high-tech treatment or long-term care such as a nursing home.

As a relatively new area of insurance coverage, long-term care coverage is not well established or widely available in the workplace. It also faces the same cost-benefit obstacles of other benefits.

For employers, the issue is the once and future cost of subsidizing such coverage for retirees. With more retirees living longer, the cost of offering any healthcare benefit to them may be substantial and difficult to predict. And the cost of such insurance over time for employees who start paying these premiums later in life may be nearly as expensive as long-term care without coverage.

Employees, on the other hand, may hesitate to pay for such coverage for the same reasons that a certain number don't contribute to a 401(k) retirement plan or fail to undertake estate planning: the benefit seems too far off; the cost too much. Long-term care insurance is cheapest when purchased early in life, when most workers are least prepared or inclined to spend money on their retirement years.

The best first step any employer can take to help employees adequately prepare for retirement is to encourage, sometimes with incentives, healthy lifestyles and early retirement savings. Even your youngest employees should consider contributing as much as they can to a 401(k) or other employee-funded retirement plan and taking advantage of preventive healthcare coverage to keep tabs on their overall wellness. Older employees can sometimes make up ground on their retirement savings by contributing more than the standard allowable level if they meet certain criteria. iBi