It used to be pretty simple. American workers finished school, got a job they hopefully enjoyed, and worked their way as far up the ladder as possible before it was time to retire. They tried to put something away each month, so they had more to show at the end than just a nice watch and a pension check.
Today, things are more complicated. Many working professionals entering their 50s have had many jobs in several industries. They have financial obligations their parents never had to struggle with and a complex array of investment strategies they may or may not understand. And for this generation of workers, many feel like they’re on their own.
“The difference is that savings is completely up to us at this point,” says Kathleen Whitmore, a senior associate on CAPTRUST’s retirement counselor team. Whitmore spends most days talking with employees about their plans for retirement and helping them plan and save for the future.
Employers are trying to help the over-50 crowd with more extensive financial wellness programs. And it’s more important than ever that they do. Employers are uniquely positioned to help their older workers build wealth, set expectations, and plan for the future. And with life expectancies in this country continuing to rise, it’s a future that could be quite long and productive.
Pressure from Both Sides
The reality is that many Americans over 50 are financially unwell. They are in the middle of a precarious sandwich, squeezed on one side by obligations to their kids and on the other by the need to support aging parents.
The growing responsibility of caregiving eats up a huge amount of emotional and psychic energy for workers entering their 50s, not to mention the financial burden caring for an elderly parent can impose.
Those demands are often underestimated—and they can be huge. In fact, Forbes recently reported that families spend more on caring for elderly parents than they do on raising children. These are the same workers who are putting children through college or graduate school, paying off their student debt, and even supporting them with rent money or other expenses.1
“Financial wellness is important at any age,” says CAPTRUST Wealth Solutions Manager Nick DeCenso. “But when you think about folks that are 50 and up, they are on the second half of their career and have done a whole lot of spending money in the first half.”
“We talk to people all the time who are making a lot of money, but money’s going out the door just as quickly,” he says.
These ongoing expenses coupled with a lack of financial guidance mean plenty of 50-something employees are not even sure they will have the means to stop working. And to meet more immediate needs, many workers have already dipped into their retirement accounts. According to a 2018 PwC report, 42 percent of employees say they’ll likely need to use retirement money for something else. For employees impacted by student loans, that number jumps even higher, to 64 percent.2
Employees who are financially unwell feel that pressure on more than their spending habits. These people feel the effects of financial stress in their daily lives—mentally and physically.
“There is a complex, multidirectional relationship between financial, physical, and mental health throughout the life course,” said New York Academy of Medicine President Dr. Judith Salerno in a statement released by the Global Coalition on Aging. As their report points out, “There is a measurable correlation between stress and health, and people report being stressed about short-term financial pressures, even when they are optimistic about the future.”3
Financial Health Affects the Bottom Line
It isn’t only individuals who lose out when financial fitness is lacking. Employers also feel the strain of an overstretched workforce.
The necessity of caring for aging parents costs businesses an estimated $34 billion a year, according to the Global Coalition on Aging. A 2016 Financial Finesse ROI Special Report found that “employees who suffer from overwhelming financial stress or who struggle to maintain financial stability tend to incur both immediate and future financial costs for their employer in the form of absenteeism, garnishments, payroll taxes, and delayed retirement.”4
These older employees, who are often already the most expensive on the payroll, end up costing their companies more in benefits. They also cost their plan sponsors $10,000 for every year they put retirement off.5
“Some organizations, like universities, pay a disproportionate amount of their salaries to tenured professors,” explains DeCenso. “They want them to retire on time. They know that if they start that conversation two years out that it’s not going to move the needle.”
So it comes as no surprise that an ever-growing number of plan sponsors are investing in advice and financial wellness for employees. They are doing this through company-wide courses, “lunch and learns,” workshops, and contests. These activities educate workers and keep them accountable to their financial goals. Many offer a digital portal where employees can access a trove of financial planning information and tools. Tools such as, calculators that help workers gauge their own financial fitness, and access to third-party advisors.
Employees who take advantage of these programs spend less time thinking about or dealing with personal money matters at work. And according to 2017 research commissioned by Prudential, they report greater productivity, higher satisfaction, and increased participation in retirement plans.6
The Age of Opportunity
Workers in their 50s are in the home stretch for earning, with another decade or two of employment ahead of them. At this stage, DeCenso says he sees people wanting to hit the reset button. After years of paying for kids and schools and mortgages, they start to refocus on saving for retirement.
For these employees, DeCenso recommends an eye-opening exercise that seems deceptively simple: Take a look at your budget.
“Most people do not know where their money actually goes,” DeCenso says. “You probably know how much money you make roughly; you know what assets you own; you probably have a guess of what debt you have outstanding. The hardest thing to pin down is expense: how much you have and where it’s going.”
A good look at the budget can help someone understand which retirement goals are within reach and what changes he or she needs to make.
“A lot of them have savings, especially if they’ve had access to a retirement plan,” says CAPTRUST Senior Director Phyllis Klein. “They just don’t have a lot of clarity on whether or not it’s enough savings. They just don’t have any type of measuring stick to tell them how they might look.”
For employees entering their 50s who don’t have a flush retirement account already in place, DeCenso says it’s not too late to build up a nest egg. “You can always work on improving your budgets; you can improve your tax situation; you can save more for retirement, including making catch-up contributions,” he says. And with several decades of life potentially ahead of them, “the decisions they make in their 50s can still have an impact down the road.”
Ask What Your Company Can Do
Companies are well positioned to help this group make smart choices and set themselves up for a rewarding retirement. Set your pre-retirees up for success. Impress on them the importance of financial wellness to their overall health and well-being.
Providing financial knowledge and advice is often the first and easiest step. The more information that employees have, the better. Employers can encourage their workers age 50 and up to maximize catch-up contributions to retirement plans and can push for participation in health savings accounts (HSAs) and other savings opportunities.
Ensuring workers have staples like wills and insurance policies can be low-hanging fruit that makes a difference. “Life gets busy,” says Whitmore. “These things fall by the wayside.”
Most people have a pretty good handle on one of their biggest future expenses: housing costs. But many older employees have not fully calculated their future healthcare costs. This is something Whitmore calls “the big black hole and often the most expensive thing.”
They also need to understand how to strike the right balance between aggressive and conservative investments. Klein suggests targeted offerings like webinars, seminars, and on-site meetings where employees just starting to think about retirement can talk about Social Security benefits, Medicare, and proper asset allocation.
Employers can also ensure their workers age 50 and up are getting individualized information they can trust by partnering with third-party advisors. According to DeCenso, offering that kind of benefit sends a clear message to employees.
“Working with a recordkeeper or an outside firm is one way to show their employees that they take a serious interest in this,” says DeCenso. “Because most companies are not in the business of providing financial wellness to their employees, they’re in the business of something else.”
With workers increasingly staying in jobs for just a few years at a time, Whitmore says she often runs into individuals who have several 401(k) accounts from prior employers that are out there but not really being managed. Financial advisors can help older employees figure out if they should consolidate these accounts, what kind of investment mix they should pursue, and what kinds of estate planning they need to put in place.
Independent third-party advice can also help employees understand where their income is going to come from. And it can answer the big three questions Whitmore says every age 50-plus employee starts to muddle over: When can I retire? Do I have enough to retire at a certain level of comfort? And how long will my money last?
“Every conversation I have with every person is truly different,” says Whitmore. “It depends on what type of investor they are, how much risk they can tolerate, how much we can project their money to grow to, how much they’ve saved, their assets, their health, and when they might take Social Security.”
“The one thing that drives results the most is these one-on-one meetings because they’re so customized,” says Whitmore. “I can’t overstate how crucial third-party advice is.”
These personalized offerings can help employees start to grapple with something beyond the dollars and cents of retirement, too. Klein and Whitmore both recommend employers help their workers start thinking about the psychological ramifications of ending their careers.
Retirement changes a person’s relationships within their family and social group. This is something Whitmore says people often don’t think about. “We work hard and we know we need to save, but to what end?” says Whitmore. “Because retirement isn’t just about the financial picture.”
Without the routine, career-long obligations of getting up and shaving and commuting to work, she says, decisions about the future expand even beyond paying for healthcare and planning out smart investments.
“How do my relationships change?” Whitmore says employees facing retirement must ask. “How do I recreate myself?”
The answers to these questions may take a bit of soul-searching for employees going into the last third of their professional lives. But making sure everything is in order at this point can set the stage for a happy and meaningful retirement. With the right information, tools, and advice, employees don’t have to wonder whether they’re set up for success in retirement. They can take the steps to make sure they are.
Sources:
1Gleckman, Howard, “Families Spend More to Care for Their Aging Parents Than to Raise Their Kids,” Forbes, 2017.
2“2018 Employee Financial Wellness Survey,” PwC, 2018.
3“Financial Wellness for Longer Lives: New Approaches to Working and Saving,” The New York Academy of Medicine, 2018.
4“ROI Special Report,” Financial Finesse, 2018.
5Cornfield, Jill, “Financial Fitness Is Goal of Plan Sponsors,” PlanSponsor, 2013.
6“Benefits and Beyond: How Employers Think About Financial Wellness,” Prudential Financial, Inc., 2018.
