middle aged or older woman with arms folded

A recent report found that 20 percent of retirement-age adults are still working — a number that has doubled since 1985.

Many surveys and projections suggest that this trend will continue. For instance, the Bureau of Labor and Statistics projects the following:

Labor force participation rates for those over age 65 will rise 2.5 percent by 2026, with an equal increase for those 65 to 74 and those over 75.
10 percent of Americans older than 75 will be in the workforce by 2026.

The Insured Retirement Institute surveyed adults nearing retirement:

59 percent plan to work past the age 65
26 percent plan to work until at least age 70

Many factors determine how long someone can work—especially health. Planning to work longer can easily be derailed by an unforeseen health problem. This trend also has far-reaching economic implications for employers and younger workers.

Factors determining when to retire

The Brookings Institution developed a life-cycle model that helps explain the decisions that lead to retirement. The steps include the following:

Assessing current financial status
Estimating future financial earnings from income and investments
Estimating life span
Determining inheritance levels for family members

Based on this information, the model shows steps people use to determine how much they need to spend and save so that they can retire at age 65. These models assume that, over a lifetime, people will choose to consume a similar amount at retirement as they do prior to retirement, a concept known as consumption smoothing.

This model says that people choose to retire when the benefits of working are no longer greater than the costs of working. In other words, when earning income is no longer of greater benefit than the time to do something else.

Unfortunately, this model does not consider real issues that affect American workers today, which include the following:

Elimination of private pensions: Private pensions or defined benefit pension plans (DBPP) are almost extinct, and most employees now have 401(k) plans. 401(k) plans give employees more choices over their retirement, such as how much to save, how to invest, when to retire, and how to manage their money after retirement.

With a DBPP, workers retire at a specific age because working longer meant that they paid more into the system without getting additional benefits.

With a 401(k), the longer you work and put money into an account, the more you have at retirement. This has encouraged some employees to work longer.

Lack of savings: In part, due to the elimination of DBPP, most Americans nearing retirement do not have enough savings to retire.

The National Institute on Retirement Security found that 57 percent of working Americans have no retirement savings, and three quarters of Americans fall short of age-adjusted retirement savings even when retirement doesn't start until 67. This forces some Americans to work longer.

Longer life expectancy: The average lifespan for Americans in 1960 was almost 10 years less than it is today (78.6). Americans have to save more money while working, consume less during retirement, work longer to save more money, or a combination of these.

Changes in Social Security benefits: Although Social Security is unlikely to go away, benefits are diminishing. Additionally, the typical retirement age is increasing, and seniors get more money per month when they choose to delay retirement beyond age 62.

For those counting on Social Security as a significant portion of their retirement income, they now have incentives to continue working past the traditional retirement age.

Health care issues: The cost of health care is rising, particularly for seniors who may need more care. JP Morgan found that even seniors who have Medicare spend 20 percent of their income on health care—8 percent more than those who retired a generation earlier.

Current state of the economy: The rate of return on employee 401(k) plans can affect retirement decisions. When the rate of return is high, employees continue working in order to save even more money, thus delaying retirement.

Debt: The Survey of Consumer Finances by the U.S. Federal Reserve found that for Americans 65 to 74, the average debt is $108,700. Although somewhat better for those over 75, they still carry an average of $57,500.

In some cases, this debt is related to student debt, either their own or for a child or grandchild. The Government Accountability Office (GAO) found that default rates for student loans increased with age, with 37 percent of those over age 65 with loans in default.

Planning to work indefinitely Isn't actually a plan

Although it is possible to work longer and save more money for retirement, 37 percent of workers who planned to continue working found they had to retire earlier than expected, according to the Center for Retirement Research at Boston College.

In fact, the longer someone expected to work, the more likely they were to be unable to, due to unforeseen health issues for themselves or their spouse, job layoff or loss, age discrimination and the inability to continue handling the stress or physical demands of the job.

Delayed retirement affects younger workers

A USA Today and LinkedIn survey found that as Baby Boomers delay retirement, Gen Xers and millennials are not moving up the corporate ladder. More than 40 percent of millennials stated they cannot advance in their field, and 30 percent of all adults feel the same way.

This leads to younger workers changing jobs to seek advancement. In fact, 25 percent changed jobs within the last year and 30 percent plan to change within the next year.

Delayed retirement affects employers

A 2019 Fidelity Investments study found that when employees delay retirement, the company suffers:

73 percent of employers reported increased costs
31 percent said that delayed retirements inhibited strategic planning
27 percent said productivity suffered

Prudential found that the cost for employers is $50,000 per employee per year for a one-year delay in retirement. For employees that delay two or more years, the costs get even higher.

How an employee financial wellness program can help

Offering an employee financial wellness program can help employees retire on time by teaching effective ways to become financially secure well beforehand, including:

Encouraging employees to participate in company retirement programs through matching contributions and automatic enrollment. It is estimated that one quarter of all employees do not take advantage of their employer's 401(k) matching program, resulting in an estimated $24 billion in lost investment capital each year.
Educating younger employees on the benefits of compounding interest, which can be a very strong impetus for them to begin participating in retirement plans
Teaching budgeting for all ages and situations, such as how to pay down student debt while saving for retirement.

Most importantly, a financial wellness program should go beyond literacy and lead to lasting behavior change, offering employees tools to take control of their finances once and for all.

Kris Alban is executive vice president of iGrad, a San Diego-based financial technology company that provides artificial intelligence-powered financial wellness solutions to employers, financial institutions, colleges and universities. Its Enrich Financial Wellness platform is used by more than 20,000 employers and more than 300 financial institutions to provide behavior-changing financial literacy education to employees, customers and members.

Instant Insights /

Working indefinitely is a risky retirement plan: How financial wellness programs help employees prepare

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