Retirements are spiking in The Great Resignation: Are new retirees prepared?

In my last post, I shared why I think The Great Resignation offers companies an opportunity to lean into their values to attract the best workers for their team. But there’s another important effect of The Great Resignation to consider: the scores of Americans retiring from the workforce altogether. According to recent analysis from Goldman Sachs, 3.4 million of the 5 million Americans that have left the workforce in the pandemic are over the age of 55. Forty four percent of the people 55 years of age and older are “early retirees,” while another twenty nine percent retired within an expected timeframe.

At the surface, this seems like an understandable reaction of The Great Resignation. After all, why would someone in the late stages of their career want to stick out the workplace uncertainties of the pandemic? Still, the swell of retirements raises important questions. First, are these early retirees prepared for the income, healthcare, and lifestyle considerations of retirement? And, if not, where will they get the help needed to navigate this complex journey??

Retirement planning is so much more than contributing to your 401(k). Central to good planning is determining how you want to live in retirement and how income will be deployed to support your lifestyle. Yet, many late-career employees seem more focused on ending their careers then preparing for retired life and the complexities it brings. This can create downstream consequences. Rising medical costs, lengthening lifespans, evolving benefits offerings, inflation and lifestyle considerations will impact everyone’s post-professional life.

What does this mean for employers? When someone is working for your organization, there are certain guardrails in place to guide their financial decision-making. Many employees are offered a 401(k) plan or similar employer-sponsored savings plan as well as access to financial education, advice and often advisors. And, during open enrollment, they’re likely led through benefits offerings to decide what best aligns with their needs. These mechanisms and touchpoints help keep employees engaged and thinking about their financial futures.

Once an employee retires, many of the guardrails disappear. The system that helps lead employees to retirement goes away the moment they begin relying on savings for income. It’s a difficult irony, and adding to the complexity, vehicles for retirement income have changed drastically in recent decades. The 401(k) was once seen as a tool for supplementing fixed income plans like pensions. Today, many, if not most, people use a 401(k) or equivalent workplace savings plan as a primary income vehicle, demanding a nuanced calculus around withdrawals. The benefits landscape is also shifting, as our Social Security system is under tremendous strain and will likely need massive reform to remain solvent in the decades to come. Each of these factors will impact retirees’ livelihoods.

For employers, it may seem like there’s not much to be done to support employees once they are ready to retire, but in reality, there are several ways to help protect near-retirees from poor irreversible decisions. One simple step is to implement pre-retirement benefits reviews for those planning to leave. ?Employers should strongly urge employees to meet with a financial adviser to guide them through key decisions in the retirement process. Our own research found that 42% of employees are not even aware that leaving their money in the 401(k) plan may be an option, allowing them to benefit from the employer’s institutional buying power and high-quality plan design.1 Another key step is providing access to an in- plan retirement income solution that can help employees drawdown their savings for spending. Our experience is that employees can benefit from income offerings that provide flexibility and access to a financial advisor who can tailor retirement planning to the specific needs of each of your employees.

The key for employers is to understand that no two retirements are the same. It’s easy to assume that employees choosing to retire are not only fully aware of their retirement income and spending needs but also confident in their ability to meet them. The unfortunate reality is that many of the millions of people who retired during the pandemic are not fully prepared, and the stakes are high.

My advice to employers? Review the financial guardrails you’ve carefully constructed to support your employees while they are accumulating their savings and evaluate whether you’re providing enough support to those nearing retirement. Building a comprehensive near-retiree program can go a long way toward assuring that your outgoing employees – whether they’re retiring early as a result of the Great Resignation or they’re traditional retirees – are set up for a long, healthy retirement. ?

1 Edelman Financial Engines Reconsidering the 401(k) Rollover, 2019.

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