As aging Baby Boomers retire in large numbers, employers are seeing decades—if not centuries—of cumulative knowledge and skills walk out the door. If they have not prepared for those departures, organizations could end up with critical gaps in their talent and knowledge bases.
To protect themselves, employers need to monitor the state of the workforce and predict when workers may retire, both those who may retire soon and those whose retirements are farther in the future.
"The key is to be proactive and not wait until people start retiring," said Jonathan Price, senior vice president of consulting firm Segal in New York. "Waiting for retirements to happen is more expensive, while planning for these retirements allows opportunities to solve any problems incrementally." This is true whether retirements will occur within the next 12 months or the next five to 10 years.
But making these predictions isn't easy. Employees can retire whenever they want and may not give much notice. As a result, many employers find themselves at a loss to identify ways to manage losing retiring employees and their skills and knowledge.
The 2018 Longer Working Careers Survey of 143 large U.S. employers conducted by consultancy Willis Towers Watson found a widespread:
- Lack of workforce-retirement projections. Only 53 percent of respondents believe they understand when employees will retire.
- Lack of process management. Just 25 percent have a process to effectively manage the pace and timing of employee retirements.
Conduct Workforce Planning
The biggest obstacle for employers is that there is no definitive way for them to know when an employee will retire, since age is not necessarily a reliable indicator. Some workers may retire at age 57, while their colleagues of similar age may work much longer.
Employers could ask employees about their retirement plans, but they must do so with caution and advice from legal counsel. They must not create the impression that they are pushing older workers into retirement.
Employers can also look at overall workforce data. Using these numbers, they can answer a few questions that can help them better plan for retirements:
- What will the workforce trajectory look like if older employees retire at a specific age, and how will that impact operations?
- Which business units could be significantly hampered if they have a large number of older workers who retire?
Employers should also identify areas of operations in which people are not retiring as expected, limiting promotional and learning opportunities for younger workers.
Analyze Benefit Data
Employers can find signs of impending retirements by looking at the past, said Lauren Hoeck, a director in the retirement practice of Willis Towers Watson in Arlington, Va. She suggested looking for historical retirement trends for specific employee segments, by job or location or for the whole employee population.
"Look at data that correlates to past retirements and compare it to the population today," Hoeck advised. For example, the data could show that employees over a certain age who do not renew required training or certifications are apt to retire within a certain amount of time.
Employees' use of health benefits can provide insight into when they may retire.
Employees' use of health benefits can provide insight into when they may retire, Hoeck added. For example, if employees are purchasing the most expensive health plan offered, they may be putting more discretionary income toward paying for current health care for themselves or family members rather than funneling that money into the 401(k) plan. Those employees may stay on the job longer to maintain that coverage or because they may not have enough saved for retirement.
How much employees are contributing to health savings accounts (HSAs) and how they are using those funds could also indicate when an employee will be ready to retire. Are employees rolling over all or some of their HSA funds year after year for use in retirement, or are they using those funds to pay for current medical expenses?
Other analyses can look at employees' past use of benefits such as:
- Retirement plans. Compare defined contribution plan account balances and expected pension plan benefits to employees' salaries at the time of retirement. This can show how much income employees may want to replace before retiring.
- Retiree health coverage. If the organization offers retiree health benefits, factor this, along with how long employees might have to wait to be eligible for Medicare coverage, usually available at age 65, into any calculations on their ability to retire.
Any analyses of data on current workers should be done with care. For that reason, Price urged HR leaders to involve the CEO, as well as leaders from the technology and legal departments. The legal department or outside counsel can provide guidance on appropriate use of employee data, while technology leaders can ensure that doing so is not considered a data breach or violation of privacy policies.
Focus on Knowledge and Skills Transfer
At a very basic level, data can also show where older workers reside within the organization. For example, if a specific department or facility has a large cluster of employees ages 55 and older, that could indicate that the employer must develop or improve processes for knowledge transfer and succession planning.
"If an employer is concerned about the loss of knowledge and skills, it has several options," including redeploying older workers and including them in training programs to facilitate knowledge transfer, Hoeck said.
Employers may be able to keep older workers on the job long enough to share their knowledge or skills by offering them new roles that might be less intensive, such as moving them from manager to individual contributor, or allowing them to work part time or only part of the year, she suggested.
[SHRM members-only toolkit: Employing Older Workers]
Maintain a Dialogue
Talking to employees can reveal their retirement plans. This does not mean asking them directly when they plan to retire. Instead, employers and front-line managers and supervisors can use insight gained during career discussions and annual reviews about employees' career plans to determine when they might retire.
If employees offer information about when they want to retire, that discussion becomes an opportunity to structure a working arrangement to support a longer work life or a transition period if that's what both sides want or need.
"It is easier to engage in these conversations early on," Price said. "Closer to retirement, these conversations become harder to conduct," since employees may already have made specific retirement plans.
Joanne Sammer is a New Jersey-based business and financial writer.
Related SHRM Articles:
Many Older Workers Would Prefer to Ease into Retirement, SHRM Online, November 2019
Targeted Benefits Help Baby Boomers Stay at Work, Prepare to Retire, SHRM Online, November 2019
For Employees Approaching Retirement, Health Coverage Decisions Loom, SHRM Online, November 2019