As companies have slowly moved their retirement plans from defined benefit pensions over to defined contribution plans, thereby shifting the risk onto individuals, they have gotten away from offering insured products to help protect employee assets. The situation has begun to shift back, however, as corporations increasingly look to the expertise of insurers to manage longevity risk in the DB plans and begin to offer guaranteed lifetime income products within their DC plans, according to a report by Prudential.
Individuals also are looking to insurance products to protect them against the possibility of outliving their retirement savings.
As a result, workers must save larger amounts to self-insure their longevity risk, and will likely need to work for more years to accomplish this goal. In a recent survey of financial executives by Prudential and CFO Research Services, 69 percent indicated that they believe employees will have to delay their retirement due to inadequate savings. Employees who participate in DC plans are also vulnerable to investment risk. Should individuals suffer significant investment losses in their retirement savings prior to retirement, they may need to extend their working careers even further.
Delayed retirements may create workforce challenges for employers, as older employees who cannot afford to retire translates to fewer advancement opportunities for younger employees. Employee morale may suffer. Delayed retirements may also result in higher workforce costs. Older workers typically command higher salaries than younger workers; healthcare costs for older workers are much higher as well.