The Retirement Wave Is Here: Are You Prepared?
See what a surge in retirement could mean for the workplace, and how you can attract and retain talent in a competitive environment.
For several years, the aging of America has meant an exodus of millions of Baby Boomers from the U.S. labor force. But what was once a steady flow has become a wave of retirement, accelerated over the past year and a half by the COVID-19 pandemic. The decline in the labor force participation rate, from 64% in 2006 to 57% in 2020, was almost entirely attributable to people moving out of the labor force into retirement.1
But this wave of retirement isn’t just a Boomer phenomenon. Even some workers in their late 40s and 50s have been offered early retirement packages as companies trimmed their workforce during the pandemic and the economic anxiety that initially followed.
Other economic forces have contributed to the wave. Growth in both home values and 401(k) balances have provided some with the financial security to exit the workforce earlier than expected. For many others, though, retirement wasn’t by choice: Among people with incomes at or below the national median, 55% of recent retirements were involuntary.2
Let’s take a closer look at what the retirement wave means for today’s workplace, and some steps employers can take to better compete in this new environment.
The retirement wave has had both positive and negative impacts on the workplace, creating challenges yet sparking opportunities.
Many businesses are being forced to allot expenses to creating plans and hiring consultants to deal with the loss of workers.3 But there’s an even bigger cost, in the form of less diversity in the workplace across age, gender, race, and education level. Experience and institutional knowledge may be lost, as older workers were more likely to have an unplanned retirement spurred by a job loss.4 And older Black workers in particular were more likely to be pushed into retirement than white older workers5, which also puts a spotlight on the current retirement race gap.
Despite these hurdles, new opportunities may emerge in the wake of the retirements. Younger workers could have a clearer path to promotion and growth. What’s more, to deal with the retirement wave, workplaces may need to streamline more processes and automate more functions, which many have already been doing since the pandemic began. With these developments, the already-rapid modernization of the workplace through technology could further quicken.
There’s an even bigger cost, in the form of less diversity in the workplace across age, gender, race, and education level.
As the retirement wave leaves a shortage of talent, the emphasis on retention strategies will be greater than ever. Employers may need to offer training to help employees upskill or reskill. And they’ll likely need to be more flexible in offering part-time and work-from-home arrangements, especially since remote work proved to be successful for many workers and businesses during the pandemic.
Culture may also be a great differentiator, as employees more and more want to feel connected to a mission and part of something purposeful. But they also benefit from being connected to each other. To that end, knowledge-sharing programs that pair younger and more experienced workers can help boost morale, performance, and productivity.
Finally, employers can take a more active role in easing their workers’ journey to retirement. Retirement and other financial worries have long been a major source of employee stress, and they’ve only been exacerbated by the pandemic. As employers rethink their benefits, they may want to focus on tools and education that help enhance retirement readiness, help employees identify when they’re ready to retire based on their goals, and discourage behaviors like taking early retirement plan withdrawals.
Knowledge-sharing programs that pair younger and more experienced workers can help boost morale, performance, and productivity.
Of course, with so many companies vying for talent, employers will also have to work harder to appeal to new workers. At the same time, hiring strategies must be blind to age, because as the job market improves, some older workers who retired prematurely may be drawn back to the workforce. And in fact, the share of Americans over 65 still active in the workforce is 50 percent higher than it was 20 years ago.6
Many of the same workplace features used to retain workers—from an inclusive, purposeful culture to support of employee career growth, work-life balance, equity ownership in the company, financial wellness, and retirement readiness—will be important in attracting them. But talent acquisition efforts can go even further. With five generations in the workforce for the first time in history, benefits plans will need to be designed for and tailored to a diverse spectrum of needs.
As competition for talent heats up, benefits will also need to leverage technology to be more accessible to workers, facilitate engagement, and help them build wealth at work. Examples range from financial literacy portals and retirement planning apps to live webinars, online skills training, tools and calculators, and virtual financial coaching.
With five generations in the workforce, benefits plans will need to be designed for a diverse spectrum of needs.
The retirement wave has brought both new challenges and new opportunities—for employers and their people.
It’s a chance for companies to create more competitive talent acquisition and retention strategies, with benefits that meet the needs of a workforce spanning several generations. As a result, employees can have a clear path to learn and advance at work, while enhancing their financial wellness and improving their own retirement outlook.
Morgan Stanley at Work can help you and your workers access the support you need to thrive. With a comprehensive range of retirement and benefits solutions aligned to your organization’s strategic goals, thoughtful guidance, and a focus on better outcomes for all, together we can make the most of a changing retirement landscape.