A pair of articles in Employee Benefit News recently spotlighted two seemingly opposing trends: Americans’ 401(k) savings rate has hit an all-time high. Nonetheless, many retirees are choosing to return to work, prompted by high living costs, inflation, a lack of savings, and even boredom.
The first Employee Benefit News article recapped the results from Vanguard’s 2024 “How America Saves” report, which found that the average 401(k) contribution rate was 7.4%—the highest rate the financial behemoth has ever recorded. In combination with employer matching contributions, Vanguard found that the average 401(k) savings rate is 11.7%—a record high.
Capitalize, a fintech company, had similar findings. The firm, which helps customers roll over old 401(k) accounts, found that the average 401(k) balance was $90,101 in 2023. That’s up 8% from 2022. Vanguard attributes these improvements to better plan design. Features such as auto-enrollment, auto-escalation, and target date funds, are influencing 401(k) plan participants to adopt better savings behaviors, improving overall retirement readiness.
The bull market in stocks may also be a reason for the surge in retirement savings. People tend to invest more when markets are on an upswing for fear of missing out on potential gains, according to John Power, principal of Walpole, MA-based registered investment advisor PowerPlans, who was quoted in Employee Benefit News.
In stark contrast to this encouraging news, a second Employee Benefit News article looked at the results from a ResumeBuilder.com survey, which found that one in eight retirees plans to go back to work. Data from Flexjobs showed that among pre-retirees, a third expect to return to the workforce part-time.
Federal Reserve data finds many Americans aren’t financially prepared for retirement, despite the optimism demonstrated in Vanguard’s recent research. According to the Fed, only a quarter of employees feel they’re on track for retirement. Moreover, Schroeders found that among current retirees, 68% are afraid their savings won’t last their lifetime.
There are bright spots to older people coming back to work. It can help them combat boredom, as well as give them a sense of purpose, fulfillment, and overall well-being. A study from the Journal Economics and Human Biology quoted in EBN found that retirees who returned to the workforce reported better mental health and less loneliness than long-term retirees. Another benefit is that employment provides an additional income stream, which may help support retirees’ existing retirement funds and increase financial security.
Employers benefit from an influx of older employees, too. Seasoned workers bring knowledge and experience to the table that they can share with younger workers, ensuring that key information and insights get passed down to the next generation. Nonetheless, employers should also be mindful of the unique needs of an aging workforce, including flexible schedules, part-time work, and a health work-life balance. Flexible hours and job-sharing can provide benefits for both older employees and employers, while contributing to additional productivity and employee satisfaction.
While retirement savings rates are on the rise, older people are coming out of retirement to return to the workforce for a variety of reasons, including insufficient savings. These are trends worth watching to spot opportunities to improve retirement readiness across all generations while taking advantage of the knowledge, wisdom, and experience of older employees who are choosing to come back to work.
