We all know most 401k participants want out as quickly as possible, but a new study calculates the cost to employers for those who (either voluntarily or involuntarily) delay their retirement and stick around.
Prudential conducted research using “workforce composition and cost assumptions” based on national averages for private sector workers. It indicates that a one-year increase in average retirement age results in:
- An incremental cost of over $50,000 for an individual whose retirement is delayed. This represents the cost differential between the retiring employee and a newly hired employee.
- Incremental annual workforce costs of about 1 percent and 1.5 percent for an entire workforce. For an employer with 3,000 employees and workforce costs of $200 million, a one-year delay in retirement age may cost about $2-3 million.
“In a perfect world, all employees would be able to begin enjoying their retirement years when they wish, and employers would, therefore, be better able to manage workforce resources and costs,” the company notes. “However, in today’s society, many employees are expected to delay their retirements beyond their desired retirement ages due to financial concerns, such as having inadequate savings to sustain them throughout their retirement.”
To put the costs in perspective, Prudential compared the cost of delayed retirement to other types of workforce costs, and found that, on an aggregate national basis, a delay in retirement may cost employers about as much as:
- A delay in retirement of one year may cost employers about as much as paid sick and personal leave combined, or two times life and disability insurance combined.
- A delay in retirement of two years may cost employers about as much as DC retirement plans or DB retirement plans, or paid holiday leave.
- A delay in retirement of three years may cost employers about as much as paid vacation leave or more than one-third of health insurance
It also compared the cost of delayed retirement to rising healthcare costs. In the early 2000s, rising healthcare costs were a front-and-center concern for benefits and finance executives, as healthcare inflation costs exceeded inflation rates for other workforce costs.
From 2004 to 2015, healthcare costs as a percentage of total workforce costs increased from 6.6 percent to 7.6 percent, or an incremental 1 percent of workforce costs.
“This 1 percent increase is similar to the expected incremental cost of a one-year delay in retirement (1 percent to 1.5 percent),” the company concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
