Tuesday, May 8, 2012

Prepare for the Greying of Your Workforce

Only a few years ago, we were concerned about the departure of the Baby Boomers from the workforce and the "brain drain" of experience that would go out the door with them. What happened? Nothing. They can't afford to retire.

One questionably positive outcome of the market gyrations of the Great Recession has been the wake-up call for Americans on their retirement savings. Unfortunately, many investors made the classic mistakes of retail investors, selling into the panic of falling equities markets and then failing to capitalize on a 100% runup in the same markets over the past 3 years.

But the problem is not about those who "lost" retirement savings. It's about those who never had any to begin with and aren't on track to have a meaningful amount - ever. According to the Employee Benefit Research Institute, of those Baby Boom and Gen-x households in the third quartile (50%-75%) of income, only 50% have retirement savings adequate to maintain a lifestyle at 70% of their current income if they retire at age 65. Extend that retirement age to 75, and their odds improve to only 60%. Extend retirement to age 85 and it's barely 70%.

We are likely to see an age of retired Americans living in poverty, compared with their current standards of living. Why? Because they don't understand their current situation and are running out of options to resolve the shortfall in their retirement savings and investments.

Their only option? Keep working. Or return to work after they see their net worth evaporating much more quickly than they imagined. There's good data on the likelihood of this. As defined benefit plans were winding down, many workers received lump-sum payments of their accrued pension benefits. Most of those spent all that money in 3-5 years.

As employers, we're going to be seeing Baby Boom and GenX employees staying in or re-entering, vs. leaving the workforce. Most of us don't have very good strategies in place to cope with an elderly workforce and all the costs and issues that come with it. You'll have more sick leave, more "forgetful" mistakes and probably more accidents as workers pass 70, 75 and perhaps even 80.

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Terry Weaver

Chief Executive Boards International
Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

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