RSM Resources

For many of today’s U.S. retirees, longer life expectancies meanmore time to travel and enjoy grandchildren. But they also can meanincreasing inflationary pressures on fixed incomes and the need forexpensive medications or long-term health care.

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

Facedwith skyrocketing health-care costs and an ever-expanding pool ofpension recipients who are living longer, employers are feeling thestrain of offering benefits to retirees. For many midsized companies,helping employees plan for retirement without breaking the bank will becritical to the bottom line for the foreseeable future.

Retirement by numbers
Theaverage life expectancy of U.S. citizens in 2005 was 77.6 years,according to the National Center for Health Statistics. As theworkforce ages, experts see the growing importance of retirementbenefits. According to the 2005 Transamerica Retirement Survey:

• 74percent of workers regard a 401(k) or other employee-funded retirementplan as "very important" — 8 percent greater than in 2004.
• 61 percent consider a company-funded pension plan as "very important," up 15 percent from 2004.
• Only 20 percent of workers feel they are saving enough for retirement.

Inan October 2005 joint study, MetLife Mature Market Institute and ZogbyInternational saw similar results: The number of baby boomers "worried"about retirement has doubled since 2001, and the number who feelretirement will improve their lifestyle declined by more than half, to13 percent in 2005 from 27 percent in 2001.

"Boomers are placingincreasing importance on financial independence," says SandraTimmermann, director of the MetLife Mature Market Institute. "Whenasked about their primary consideration for satisfaction later in life,they are just as likely to cite finances as health and are veryconcerned that they will outlive their money, forcing them to scaleback their current lifestyle."

Boomers’ concerns about theirretirement income are well-founded. At a time when employees seethemselves as increasingly reliant on retirement benefits, manyemployers are cutting back to save money — especially on expensiveretiree health-care programs. In addition, many traditional pensionplans are not indexed to inflation, so a moderate fixed income couldlose its purchasing power and become increasingly insufficient overtime.

Abler and working longer
A longer life spanmeans a longer retirement-planning horizon. For some older employeesconcerned about retirement costs, continued work and savings may be theonly answer. According to Putnam Investments, many of the workingretired are well-educated, relatively high-income professionals whofind themselves with a mortgage later in life — and one-third say theyare working, not by choice, but out of necessity.

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

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

TheCenter on Aging and Work/Workplace Flexibility along with the Familiesand Work Institute released a joint report finding that a largepercentage of workers of all ages say they plan to be their own bossessomeday. To retain more experienced or senior employees, the reportencourages companies to look at what makes self-employment appealing,such as autonomy and flexibility. Incorporated into the workplace,these same values also can make the economic transition to retirementeasier for employees. Increasingly popular options for employees oftraditional 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.

Theseoptions enable older employees to begin to enjoy time off without going"cold turkey" — moving to a fixed income and reduced or nonexistenthealth-care benefits without a sufficient safety net.

"The baby boomers are going to redefine retirement," Ellen Galinsky, president of the Families and Work Institute, told HR News in December 2005. "[There will] be periods of work and periods of leisure."

Thetransformation is already under way. According to the Society for HumanResource Management and Putnam Investments, roughly 7 millionpreviously retired U.S. workers have returned to the job after anaverage "breather" of 1-1/2 years.

Investing for the long term
Thelonger you live, the more health care you require. While the mostexpensive forms of health care tend to concentrate in the final sixmonths of life, the longer one takes prescription drugs or requiresongoing institutional or in-home health assistance, the more retirementsavings they consume. For those who reach their 80s and 90s, moregeriatric health issues arise — problems that often require new,high-tech treatment or long-term care such as a nursing home.

Accordingto the MetLife study, baby boomers realize they probably will needlong-term care, but they are not purchasing long-term care insurance.Many incorrectly believe that federal programs will pay for this care —instead, health care will consume more and more of retirees’ shrinkingfinancial pie.

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

For employers, the issue is the once and future cost of subsidizing such coverage for retirees. Withmore retirees living longer, the cost of offering any health-carebenefit to them may be substantial and difficult to predict. And thecost of such insurance over time for employees who start paying thesepremiums later in life may be nearly as expensive as long-term carewithout coverage.

Employees, on the other hand, mayhesitate to pay for such coverage for the same reasons that a certainnumber don’t contribute to a 401(k) retirement plan or fail toundertake estate planning: The benefit seems too far off; the cost toomuch. Long-term care insurance is cheapest when purchased early inlife, when most workers are least prepared or inclined to spend moneyon their retirement years.

The best first step any employer cantake to help employees adequately prepare for retirement is toencourage, sometimes with incentives, healthy lifestyles and earlyretirement savings. Even your youngest employees should considercontributing as much as they can to a 401(k) or other employee-fundedretirement plan and taking advantage of preventive health-care coverageto keep tabs on their overall wellness. Older employees can sometimesmake up ground on their retirement savings by contributing more thanthe standard allowable level if they meet certain criteria.