Will They Stay or Go?
According to the 2007 TIAA-CREF Institute Faculty Generations Survey, "Do Great Minds Think Alike? Faculty Perspectives on Career and Retirement," 40 percent of faculty are very likely to accept an offer for phased retirement, versus only 22 percent who would very likely accept an early retirement buyout.
Delaying retirement isn’t a growing phenomenon among faculty only. A May 2008 report of an Urban Institute study indicates that 14 percent of income on average for adults ages 65 to 74 in 2003 was spent on out-of-pocket health-care costs. Those aged 85 and older spent 22 percent for health care. The ripple effect showed older men and older women who expected high health-care costs for their spouses or for themselves delaying retirement by about 13 months and 12 months, respectively. The report, "Rising Health Care Costs Lead Workers to Delay Retirement," suggests that this greater out-of-pocket spending for health care may signal a growing threat to the long-term financial security of more Americans.
The resulting trend toward delaying retirement may be viewed as a two-pronged strategy by individuals: letting employers pay a greater share of health-care costs while also allowing employees to increase their retirement nest egg to make future health-care costs more affordable.
The Part-Time Pull
Meanwhile, a recent Gallup Poll has found that more Americans are already thinking differently about how they will fund their retirements, which includes plans by more Americans to work part time. "A Shift in How Americans Plan to Fund Their Retirement," released on May 8, 2008, reports that while only 3 percent of today’s retirees indicate that a significant source of their retirement income is coming from part-time work, approximately 20 percent of future retirees say they expect part-time work to fund a major portion of their retirement.
Future retirees also have lower expectations about relying on Social Security for their financial security. Only 31 percent of future retirees look to Social Security as a major income source, versus the 56 percent of current retirees who indicate the benefit is a substantive income source. Conversely, while only 20 percent of current retirees rely on tax-deferred investment accounts, 54 percent of future retirees anticipate having such accounts provide significant retirement income.
The poll suggests that providing opportunities for more future retirees to engage in part-time work or to delay retirement could benefit all: the federal government, through reducing some of the pressure on the Social Security system; employers, by helping fill projected labor shortages; and future retirees, by providing additional income to help them retire more comfortably.
Fears of Personal Financial Decline
That message of a more comfortable retirement is on the minds of future retirees. Another Gallup Poll, "Fewer Americans Expect a Comfortable Retirement," published on May 6, suggests that even while Americans are barraged with economic woes—from steadily rising gas prices to projected surges in food and health-care costs to declining home values and job losses—a chief concern centers on a fear that they won’t be able to retire comfortably. Only 46 percent of Americans polled who have yet to retire expect to live comfortably in their retirement, down 7 percentage points from one year ago and down 13 points since 2002. Worries about having enough money for retirement (63 percent) outpace anxiety about an inability to pay medical costs in connection with a serious accident or illness (56 percent). While 69 percent of Americans say they currently have enough money to live comfortably, that number is down from 75 percent in 2002. Summed up bluntly: One in four Americans is currently "very worried" they won’t be able to enjoy their current standard of living once retired.
Big questions for employers going forward include not only how to better accommodate more older workers on their payrolls—whether through jobs that are less demanding physically or through more part-time and flexible work arrangements—but also how to help all employees prepare for their eventual retirement.
Smart About Retirement
Numerous studies point to a much greater need for improved financial literacy among all Americans. Among them is an Urban Institute study published in May 2008, "Capitalizing on the Economic Value of Older Adults' Work," which highlights the conflict for workers between the lure of early-retirement incentives and early access to Social Security benefits on the one hand, and on the other hand, a lack of financial literacy among many who may not understand penalties for early retirement and the future financial security they may forsake as a result. "With the decline in defined benefit pensions, more responsibility for retirement planning is shifting to the individual, so society needs to better educate people about savings opportunities and risks," conclude the study’s participants, which included researchers, employers, and policymakers.
While Americans arguably need short-term relief stemming from a national economic downturn and higher consumer prices for almost everything, they may also need help with their long-term savings outlook. In a TIAA-CREF Institute report published in February, "Adjusting Retirement Goals and Savings Behavior: The Role of Financial Education," authors Robert Clark and Madeleine d’Ambrosio conclude that "Inadequate financial knowledge may cause workers to start saving too late in life or save too little to realize their stated retirement goals. As a result, they are unlikely to achieve an optimal balance between consumption while working and consumption in retirement."
In truth, many Americans may not possess the knowledge they need for developing realistic retirement goals and the strategies to reach those goals. Employer-sponsored education programs not only provide a great savings vehicle but also disseminate information that can increase the financial literacy of their employees, the report’s authors argue. They suggest that government regulations might also be needed to stimulate broad-based programs aimed at financial education, such as requiring companies that provide pension plans to offer financial education.
The study likewise stresses the need for ongoing monitoring and evaluation of financial literacy programs. While some employers offer financial information about retirement saving options, or have hired outside financial advisors to assist employees with developing retirement savings plans, or are instituting automatic enrollment in employer-provided savings programs, most of these practices are still voluntary.
The bottom-line finding: Financial education matters. "Quality educational programs encourage workers to reassess their retirement goals, to make more realistic plans, and to change their behavior in order to achieve their objectives," conclude the study’s authors. "As members of the baby boom cohort near and enter retirement, providing financial education programs for pre-retirees should become more of a national priority. First, pre-retirees need to have a better understanding of many of the one-time, irreversible choices that they must make in the next few years. These include whether to annuitize some or all of these retirement savings, when to start receiving Social Security benefits, and when to leave their career jobs. In addition, pre-retirees should develop investment plans about how to manage their assets during their retirement years. Employers interested in their older workers moving smoothly from full-time work into retirement should consider offering pre-retirement planning programs, evaluating these programs, and then modifying them to best fit the needs of their workers."
Whose responsibility is it to ensure that employees save enough for their retirement? Employers, or employees? According to TIAA-CREF Institute’s faculty generations survey, responsibility rests with both parties. When asked, "Who has primary responsibility for ensuring that someone has enough money for a financially secure retirement?," 63 percent of faculty surveyed responded that it is the responsibility of the individual; 32 percent put the onus on the institution. Those most likely to name the institution as the key bearer of responsibility were early boomers (41 percent), who are also those most likely to have a defined benefit plan as a primary source of retirement funding.
Regardless of who bears primary responsibility, most institutions could likely do more to help employees sort through their retirement income worries, including what they might realistically expect from Social Security, and by how much they may need to increase their personal savings.
Karla Hignite, principal of KH Communication, is editor of NACUBO's HR Horizons. E-mail: firstname.lastname@example.org.