Traditionally, the Social Security’s full benefit retirement age has been 65 years old, but that number is slowly increasing. Currently, the full benefit age is 66 for people born between 1943-1954, and will gradually rise to 67 for those born in 1960 and later. That being said, recent research has shown that many older workers today plan on staying in the workforce beyond retirement age. Increased life expectancy coupled with concern about savings has lead many to question whether a retirement of potentially 20+ years is financially feasible, or even desirable. In fact, according to a Merrill-Lynch Age Wave study, 72% of pre-retirees over the age of 50 say that their ideal retirement setup will include paid employment in some shape or form.
This new reality can bring about some problems for employers. Having higher numbers of older employees may cause bottlenecking in the advancement process, making it more difficult for younger workers to progress. This can be problematic because while every company needs experienced workers, young talent is also vital to keeping any organization going strong. So, what is the solution?
Some employers have begun to turn to the option of phased retirement, in which employers allows employees who are of retirement age to shift from working full time to part time, either with shorter days, or less days worked per work. This gives these employees the opportunity to slowly ease into a life with less work hours and less income coming in, rather than having to go from everything to nothing, a change that can be daunting and challenging for many. This also creates a unique opportunity for new, younger employees to be mentored by older employees that are phasing out.
While phased retirement is an attractive option for many employees reaching retirement age, it is not formally included in many workplaces. According to the Society for Human Resource Management, only 4 percent of employers provide formal programs for phased retirement. This could be because phased retirement programs can create some design and operational challenges for employers, and may cause complications with ensuring compliance with provisions and laws related to discrimination.
That being said, SHRM’s 2017 Employee Benefits Survey Report states that 13% of employers offer informal phased retirement programs. One reason is that employers prefer to maintain control and offer phased retirement only to top performers and those possessing in-demand skills. Still, informal phased retirement approaches also have the potential to pose some legal risks. HR departments should closely monitor both employee desires and needs, and the legal landscape, to try to find solutions that can please employees verging on retirement that are also compliant.
Employees are expressing a growing desire for phased retirement programs, and employers will begin to feel the mounting pressure as the years go on and this large segment of the workforce approaches retirement age. Ideally, this will drive employers to develop more formalized programs that they can use to both provide more options for retiring employees, and to attract and retain top talent.