Aging Workforce Solutions Deliver Savings Education
Aging workforce solutions are needed for both the older workers and their employers. Older employees in the workplace are becoming commonplace these days. Many employees who are close to or who have reached retirement age are choosing to remain on the job longer, and that is causing employers to think about how to respectfully and gracefully transition this cohort into retirement.
The U.S. Bureau of Labor Statistics (BLS) predicts that by 2024, the labor force will grow to about 164 million people. That 2024 statistic includes approximately 41 million people who by then will be age 55 and older. Thus, creating the need for aging workforce solutions. Your organization may already have a large number of older employees who are either approaching or are over the age of 50. It is now a good time to motivate that group into thinking about their post-work years. Employees within that demographic need to realize the importance of the aging workforce solutions over the next 10 to 20 years. These employees face a critical time-period, as older employees have a limited amount of working years remaining in which to set themselves up for financial success in retirement.
A recent article in USA Today offered three aging workforce solutions as tips when assisting workers age 50 and older to prepare for retirement. Consider communicating these tips to your older employees to remind and educate them on how they can make the most of their working years during this pre-retirement phase:
Tip #1: Take advantage of catch-up contributions: Older individuals have a plethora of options when it comes to topping up their retirement savings later in life. Those age 50 and older are eligible to contribute an additional $6,000 annually to 401(k)s and similar employer-sponsored retirement plans, as well as an additional $1,000 annually to Individual Retirement Accounts (IRAs). Individuals age 55 and older can make an additional $1,000 contribution each year to a health savings account (HSA), which can help to offset healthcare and other expenses in retirement. Those over age 65 are not subject to the 20% penalty for non-qualified HSA withdrawals, however, they still have to pay income taxes on the distribution.
Tip #2: Understand how individuals can access their savings if they retire early: Older employees who decide to retire early, should understand how to access the various bucket of savings in the most tax-efficient way possible. For example, employees who leave their employer at age 55 or later can start taking penalty-free withdrawals from a 401(k) immediately. However, that rule only applies to the retirement account at the employer they worked at when they turned 55 and subsequently left. Employees who leave their most recent employer before turning 55 are not eligible for this rule, and they’ll need to wait until age 59 1/2 to withdraw their savings without penalty, just as they would for a traditional IRA or another retirement account. Speaking of traditional IRAs, the typical rule of thumb is that withdrawals before age 59 1/2 are subject to a 10% penalty. Exceptions include higher education expenses, large medical bills, and up to $10,000 toward the purchase of a first home. There are complexities and nuances to IRA distributions as well. It is in most individuals’ best interest to hold off on tapping their savings for as long as possible.
Tip #3: Get the most out of Social Security: For many of your older employees, Social Security will likely comprise a portion of their retirement income. Thus, they’ll need to be thinking about when to access those benefits. Early benefits are available at age 62, and full retirement age benefits at age 66-67. Benefits are tied into the 35 top-earning years of an individual’s career. Therefore, it can be helpful for older employees in their 50s, who are also likely in their peak earnings years, to plan to take steps to maximize their benefits.
There are many ways for employers to incorporate aging workforce solutions. Aging workforce solutions include maximizing their savings once they get there, and solid education for employees during the pre-retirement years. The time to begin the narrative around aging workforce solutions seems to be at age 50 – a prime time to start planning. The fact remains, there is no better time to begin the process, than the present.