What strategies will work for seasoned employees?
“With longevity increasing, employers need to focus
even more on the levers that impact retirement readiness.”
—Holly Verdeyen
U.S. Defined Contribution Leader
Mercer
By Thomas A. McCoy, CLU
Major employee benefits offerings have broad appeal to workers of all ages and tenures. Ideally, new hires find an organization’s benefits attractive, they stay with the employer for the same reason, and they remain productive until they retire.
Unfortunately, motivating employees as they age is not always that simple.
It is useful for benefits planners to consider the demographics of a workforce when evaluating a benefits plan’s effectiveness. Are employees in the 50-plus age group, those with significant tenure with an organization, being motivated as effectively as they were when they first walked in the door?
Employers have invested time and money in these individuals and benefitted from their acquired knowledge and skills. Are there adjustments to the benefits plan that would have special appeal to this older age group?
One reason for an employer to ask this question is the sheer number of older workers involved. Yvonne Sonsino, total well-being and longevity lead at Mercer, pointed out at a recent Mercer webinar that some 4.1 million baby boomers reached age 65 in 2024. “That kind of growth is expected to continue over the next three years,” she said.
Will Self, workforce strategy and analytics leader at Mercer, said this demographic wave “is going to fundamentally reshape the labor market and how we think about our talent strategy. It’s going to affect all employers across all sectors and geographies, especially those that have a lot of employees with really long tenure.
“According to Bureau of Labor statistics, the natural growth in labor market participation will not be sufficient to keep up with the kind of economic growth we’ve been accustomed to,” Self noted. “The competition for talent is going to be tight for the foreseeable future.” Employers will have to respond by building an effective retention strategy, and that includes effective use of older employees, he stated.
Employers can’t assume that their workers reaching age 65 are going to want to retire. Sonsino noted, “Our research shows that, worldwide, 86% of workers expect to continue working past normal retirement age. Many will do so for financial reasons, but many also so that they can remain in purposeful activity.”
The Bureau of Labor Statistics estimates that, by 2033, approximately 25% of the U.S. workforce will be age 55 and above. The number of workers aged 75 and above in the United States is expected to grow from the current 8.9% of the workforce to 11.7% by 2030.
No matter what age an employee ultimately leaves the full-time workforce, one certainty is that the retirement plan is the benefit that today’s older workers are most interested in. Mercer’s ’23-’24 Inside Employees’ Minds study of 4,000 U.S. workers found that “the ability to retire” was the top financial concern of age groups 45-54, 55-64 and 65 and above.
For younger workers (ages 18-45) retirement readiness was not even among the top five concerns. Their top three concerns were covering monthly expenses, mental/emotional health and workload/life balance.
Employees both young and old will be forced to fund a retirement that is impacted by increases in life expectancy. Mercer’s research notes that Americans are living 10 years longer than their parents, and 20 years longer than their grandparents.
Holly Verdeyen, U.S. defined contribution leader at Mercer, said, “With longevity increasing, employers need to focus even more on the levers that impact retirement readiness: savings rates, investment returns and fees.” She urged employers to continue to conduct income replacement analyses that account for this added longevity.
Women face additional longevity challenges, she pointed out. “We know that women have longer life expectancies than men, and therefore need more savings for a comfortable retirement. But women have a retirement balance that is about one-third lower than men, primarily due to the gender pay gap and also time out of the workforce due to competing responsibilities.”
Vikki Walton, health equity leader at Mercer, noted, “It’s critically important that employers recognize the need to support the health needs of an aging workforce differently.” This may involve taking advantage of tools and support available from third-party vendors, she said.
“We know that 60% of adults in their late 50s and 60s have at least one chronic condition such as heart disease, diabetes or hypertension
“One way for employers to focus on health and workers,” Walton suggested, “is to educate about menopause so that those experiencing menopause will feel comfortable and included in the workforce.
“Another area of emphasis for aging workers is giving caregiver support,” she said.
Self suggested that employers pay attention to the physical demands of some jobs on older employers. “We do a lot of work with healthcare systems and we hear about nurses who get injured far before retirement age from lifting a patient or slipping in a hospital. Then they have to leave the workforce many years before they or their employers would like.”
Among the more innovative ways of supporting older employees and keeping them productive is by offering a phased retirement program. Mercer’s Global Workforce Longevity Practices Study found that 32% of companies proactively offer such a plan today.
Verdeyen explained that under this arrangement, “Employees nearing retirement can gradually reduce their work hours while still drawing partial retirement benefits. They typically have age and service requirements and a maximum duration.
“The advantage for employees is that they can continue to contribute to a retirement plan, while employers can take advantage of the wealth of knowledge of these employees and allow them to transfer that knowledge to other workers.”
Verdeyen continued, “Employers need to balance incentivizing people to retire eventually while ensuring the phase-out period is long enough to transfer their knowledge to the next generation, which sometimes takes longer than one might expect.”
Sonsino described one recent project for a U.S. company that fit this model. “We designed a balance of incentives for long-tenured workers with specific skills to continue working. These included monetary incentives, job-defining incentives and flexibility incentives, but with a timeline set so that there was certainty on both sides as to when these employees would retire.
“Other projects we’ve done have taken on a similar shape and often revolve around massive labor shortages or skill shortages in some locations. We are finding increased interest in this type of arrangement,” Sonsino stated.
Verdeyen added, “Other types of flexible work arrangements—such as flextime, compressed work schedules or part-time work—can almost be thought of as another form of phased retirement because they give people the opportunity to work in different ways, thereby incentivizing them to phase their retirement.”
Self said, “As employees put off retirement, working into later ages than previous generations did, they can be highly productive, and they need to be compensated accordingly. At the same time, employers need to understand where the talent of tomorrow and skills are coming from.”
The author
Thomas A. McCoy, CLU, is an Indiana-based freelance insurance writer.
