November 2017

Who is Ready to Retire — or Not?

There Are Consequences for Organizations

As business leaders plan for the future, acquiring and retaining exceptional talent should be a top priority. Understanding where potential workforce vulnerabilities exist now or may exist in the future allows leaders to make more informed decisions about succession planning, restructuring and other issues. 

One key question that many organizations need to answer is where their employees stand with regard to retirement. Are late-career employees having to work longer than they want? Are any younger retirement-eligible employees preparing for a sudden exit?

There are numerous reasons why employees today are commonly working to older ages than in the past: people are living longer, they are healthier, and advances in technology have eliminated many barriers to continued employment. However, organizations that understand their employees’ retirement situations are better equipped to predict and address problems that could alter the natural progression of the workforce. One such problem could be a potentially less-productive portion of the workforce made up of employees who would like to retire but who are not yet financially prepared to do so. Another problem could be skill gaps that occur if employees retire earlier than expected.

This Ideas is the first in a series on retirement readiness.

Why Helping Your Employees Meet Their Individual Retirement Goals Is Important

Generally, late-career employees are valuable resources, providing a human database of skills, experience and institutional knowledge. Some organizations, however, may find themselves with disproportionate numbers of late-career workers who are not prepared to retire, which can generate a number of issues. Late-career employees that cannot yet retire:

  • Can slow the promotional pipeline, which may cause some other employees to look elsewhere,
  • May be less engaged, which can have a negative impact on their own productivity and the productivity of others, and
  • May consume a disproportionate share of the organization’s resources in the form of higher salaries and benefits.1

Reluctance to retire often stems from employees not having — or thinking they do not have — sufficient income to retire.

Maybe They Didn't Save Enough?


Source: Department of Labor statistics cited in “Working Past 70: Americans Can’t Seem to Retire,” by Ben Steverman, posted by Bloomberg on July 10, 2017.

Helping Your Employees Meet Their Retirement Goals

To encourage late-career employees to retire, many organizations use strategies such as Voluntary Separation Incentive Programs (VSIPs), which offer additional benefits, often in the form of lump-sum payments, as an incentive to voluntarily separate. VSIPs can help renew the workforce and can provide opportunities for restructuring and reducing operating costs; as such, they can be a very valuable tool. However, they also can be time-consuming, expensive and, by their nature, reactive. Moreover, organizations need to take care to avoid sending employees a negative message.

An alternative approach to enabling timely retirement begins with understanding the organization’s culture. The most effective organizations regularly evaluate their culture by measuring a number of data points, including employee morale, productivity, and engagement. Organizational leaders can then use that information to strategically manage the workforce and ensure the culture encourages the timely retirement of late-career employees.

Sibson has several tools for gathering employee feedback and providing regular updates on the organization’s culture. These include assessments, surveys and focus groups to measure morale and engagement and key leadership interviews to identify where productivity is lagging or problems exist.


VSIP Costs

Sibson has found a typical VSIP can cost between six months and a full year of salary or more for each participating employee, plus an additional lump sum or supplement to assist with ongoing health insurance costs (at least until age 65). Organizations may realize long-term cost savings, either through eliminating positions or through rehiring at a lower level.



Case Study: Trust Improves DC Plan Participation

A Sibson culture assessment found that employees at one organization who had a high degree of trust in the organization participated in the defined contribution (DC) plan at much higher levels than those who did not. (Ninety percent of those who had a high degree of trust in the organization participated in the 401(k) plan compared with just 60 percent of those who exhibited low and normal trust levels.)

In this situation, creating trust with employees correlated with higher 401(k) plan participation, which often links directly to retirement readiness. This is a clear indication that by digging into the data, surprising individual-level retirement readiness statistics can be uncovered.

Employees Who Trust, Save

Source: Sibson Consulting, 2017


In summary, it is important to position the organization for the most successful planning strategies by getting out in front of potential risks, identifying them early and monitoring them often. The financial impact of renewing the workforce and increasing productivity and engagement can be substantial.

Why Early Retirement Can Also Be an Issue

The unexpected retirement of a critical mid-career employee can catch an organization off guard. This can create a gap in institutional knowledge in a key area and leave the team unprepared to fill the vacated role.

Sibson often sees cases where an organization is forced to pay a higher salary and/or a retention bonus to keep a departing employee on board. In some instances, the organization has had to retain the person who wants to retire for a few months after his or her replacement has been hired to assist with training and knowledge transfer, paying multiple salaries and benefits in addition to recruiting costs.

Avoiding Unexpected Early Retirement

One strategy to mitigate the problems generated by unexpected early retirement is to conduct a workforce analysis to determine which departments or locations are most vulnerable to having valuable employees retire early. Another effective tool is a workforce projection, which involves studying retirement statistics to predict future retirement trends for certain groups. An organization can use this kind of analysis to develop focused and strategic succession plans.


Data Analytics

Qualitative and quantitative analytic techniques can identify workforce trends and issues that provide invaluable insights for plan design and organizational planning, particularly when coupled with data derived from an in-depth analysis of the organization’s DC plan. Sibson combines its knowledge of retirement plans and broader HR and workforce expertise to strategically analyze participant-level data for distinct or unique patterns within cohorts of the population as well as other notable group tendencies.



Case Study: Forewarned is Forearmed

In a recent review of an organization’s DC plan participants, Sibson uncovered a large number of business-critical employees in the IT department who would be financially “retirement ready” within a few years. This analysis gave leadership an opportunity to identify and mentor internal successors and recruit new employees who could retain important knowledge. Not only was the organization more prepared in case the employees unexpectedly retired, but it reduced the financial burden of having to use retention incentives.

Note that the concern for late retirees was also evident, as only two of the 20 graphic designers over age 55 were projected to be ready to retire in a timely fashion (based only on plan information and not including any outside financial resources).

Employees Age 55+ Who Are
Ready to Retire Now

Employees Age 55+ Who Will
Be Ready to Retire at Age 65

Source: Sibson Consulting, 2017

Key Takeaways

As organizations plan for the future, it pays to take the “retirement pulse” of their employees. This can help identify late-career employees who are (or think they are) unable to retire, which can affect productivity and workforce progression and drain resources. It can also identify mid-career employees who are already financially prepared for retirement, and could decide to leave, creating a knowledge vacuum and generating unnecessary costs.

The next article in Sibson’s retirement-readiness series will cover how to determine if your employees are on a smooth path to retirement.

How We Can Help You

Sibson’s strategic deeper dive into DC plan data helps plan sponsors analyze changes in staffing based on growth, unexpected early retirements and aging workforce populations. In addition to workforce planning — from rewarding critical roles and high-potential employees to considering investment decisions and deferral patterns and even integrating employee engagement — DC analytics can reveal useful insights that shape your HR recruitment and retention strategy. Sibson uses methodical diagnostics to create customized reports about your plan’s patterns that are measurable and actionable.


1 For more information, see “Put a Lid on Salary Compression Before It Boils Over,” by Jim Kochanski and Yelena Stiles, Sibson Consulting, which was posted on the SHRM website on July 19, 2013. (Return to the publication.)


Questions? Contact Us.

For more information about retirement readiness and/or to discuss how Sibson Consulting can help you help your employees prepare to retire, contact your Sibson consultant, the nearest Sibson office or one of the following professionals:

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Sibson Consulting is a member of The Segal Group.


Important Note

The subject matter of this series involves complex issues that might require consideration under a number of different federal laws including the Employee Retirement Income Security Act (ERISA) and the Age Discrimination in Employment Act (ADEA), as well under the developing area of non-health data privacy protection. Sibson, in coordination with plan counsel, is prepared to help guide you through this maze for the benefit of the plan and its participants, and for the incidental benefits that otherwise may be available to the organization.

Ideas is for informational purposes only and should not be construed as legal advice. On all issues involving the interpretation or application of laws and regulations, organizations should rely on their counsel for legal advice.


Analyzing participant-level data strategically can both uncover HR issues in your organization and identify DC plan successes and challenges. The following areas highlight different perspectives of your workforce to examine:

  • Retirement Readiness  Are your employees transitioning successfully into retirement as they approach the latter part of their careers to allow for successful workforce planning?
  • Employee Deferral Patterns  Are certain groups of employees decreasing their deferrals to the DC plan, and, if so, why?
  • Employee Engagement  Have you considered the correlation between employee engagement with the DC plan and overall employee engagement with your organization?
  • Rewarding Critical Roles  While your DC plan benefits all of your employees who participate, are your key employees utilizing the plan appropriately? Are you allocating your retirement contributions in line with your desired performance allocation?
  • Investment Decisions  Do the asset allocations of certain participants indicate that they may not be investing wisely?

Sibson creates customized reports based on your DC plan data to unearth compelling information regarding both HR issues and DC plan patterns. We then partner with you to develop an action plan that can subsequently be measured for success.

We hone in on specific employee groups to see differences in plan behavior, which can help identify cohorts that may or may not be appropriately benefiting from the DC plan, as well as other notable group tendencies.

Learn more about Sibson’s Strategic DC Analytics services.



Copyright © 2017 by The Segal Group, Inc. All rights reserved.

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