Securing Retirement Futures: Strategies to Address Delayed Retirement

December 31, 2024

Does your 401(k) plan design support “on time” retirement?

Navigating the intricate rules and regulations that govern employer-sponsored retirement plans may seem overwhelming at times. Even the most diligent plan sponsors encounter retirement plan errors. In fact, it’s not unusual to discover a plan failure or error, especially after the 401(k) plan testing season is over.Delayed retirement is becoming increasingly common among Americans, impacting employers’ bottom lines, talent acquisition cycles, and overall productivity. A recent survey found that one in four employees anticipate working beyond their initially planned retirement age, and 9% fear they may never be able to retire.¹ This data supports a longer-term trend: since the early 1990s, rising labor force participation among older workers has lifted the average retirement age in the United States by three years.²

Impact of delayed retirement on employers

These findings have important implications for employers. While retaining seasoned, skilled employees with institutional knowledge and strong customer relationships has significant benefits, it also exacts a price that may affect management strategies, employee morale, and operational expenses. A recent study quantified the cost of delayed retirement on employers and found:³

A one-year delay in an employee’s retirement had an incremental cost of about $50,000, assuming one employee’s retirement resulted in other employees advancing up the corporate ladder and an entry level employee being hired.
A one-year increase in average retirement age across a company’s workforce resulted in an average incremental cost of 1% to 1.5% of aggregate annual workforce expenses. For an employer with 100 employees and workforce costs of $10 million, a one-year delay in retirement age could cost from $100,000 to $150,000.

It’s important to note that this analysis might understate the true cost of delayed retirement because of qualitative effects, such as the impact of delayed promotion, and limited advancement opportunities on employee morale, productivity, and turnover.

Strategic plan design supports “on time” retirement

Over the last decade or so, automatic enrollment, automatic escalation, and managed account advice have significantly improved retirement plan participation and savings rates. Now, employers are emphasizing the importance of additional features that can help employees save enough to retire on time, at full retirement age. These include:

Health Savings Accounts (HSAs) offer employees at companies with high deductible health plans (HDHPs) an additional tax-advantaged way to save. Any money not spent on healthcare can rollover and accumulate for future use. Building savings in HSAs can help near-retirees feel more confident about meeting healthcare expenses in retirement. In addition, after the age of 65, HSA funds can be used to pay non-healthcare expenses without a penalty. Distributions applied to qualified healthcare costs are tax-free, while those used for other expenses are taxed as ordinary income.
Retirement income funds are designed to provide a steady stream of income during retirement. They often include target date strategies that gradually shift allocations to more conservative investments, such as annuities, as retirement approaches. Some retirement income funds focus on generating a stable income through investments in financial markets, aiming for annual returns sufficient to support retirement needs.
In-plan annuity options give plan participants the opportunity to save and invest in guaranteed retirement income through their workplace retirement plans. Investing a portion of retirement savings in an annuity that will generate income for life can give near-retirees more confidence to retire. Income from an annuity can be augmented with income from other investments.

The SECURE Act made it easier to add a lifetime income investment to a workplace retirement plan by eliminating a key obstacle—portability. Annuities can now be directly rolled over into IRAs, converted to individually owned certificates or moved to new employers’ retirement plans, if the plan accepts annuities.

Strategic plan design can support employees, so they feel more confident about retiring on their own timeline, while also assisting employers overcome the costs and challenges related to delayed retirement. We are here to help if you have questions about optimizing your retirement plan strategies to promote on-time retirement and maintain a healthy workforce.

¹Nationwide. “In-Plan Guarantees Survey Report.” Sep. 2023.
²Munnell, Alicia. “How To Think About Recent Trends In The Average Retirement Age?” Jul. 2022.
³Prudential. “Why Employers Should Care About The Cost Of Delayed Retirements.” 2019.

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¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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