How to handle older workers delaying retirement

For years, we’ve heard about Canadians struggling when it comes to retirement savings.

So it’s probably not a surprise that rising inflation and cost of living are further taking a toll — more than half (54 per cent) of those 55 and older now say they are delaying retirement because of the increased costs.

And 62 per cent have already delayed retirement because they do not have enough savings or investment, while 40 per cent have done so because they have too much debt, finds a recent survey.

It's not just about the pandemic and the aftermath that is causing problems, says Nicola Bianchi, assistant professor at the Kellogg School of Management in Chicago.

“This decision of workers to stay longer in the labour force has been starting way before that. So it's something that employers, employees will have to face, and it's probably better to be proactive about this than just to react to it when it's too late.”

A lot of employers are struggling with this trend, says Mike Salveta, president of managed HR at Pivotal HR Solutions in Mississauga, Ont.

“Employers, I don't think saw it coming. They should have, but they definitely didn't plan or forecast. I think most employers still thought that people reach 65, maybe 66, maybe 67, and then they leave the workforce. But, in reality, in most industries, unless it's a heavy physically demanding job, if it is definitely white-collar, administrative and retail, people are delaying retirement.”

While the issue can cause headaches for employers, there are ways to soften the blow, he says.

“Yes, there's a cost to it, but there’s a likely bigger cause to somebody hanging on to their job because they can't afford to retire. So you're paying people and probably not getting the same level of productivity and engagement: ‘I really don't want to be here,’” says Salveta. “It’s not a visible cost but is a cost, and one that's more expensive than educating and training your employees and giving them help to retire a little bit earlier than they plan.”

Impact on younger workers

When older workers delay their departure, it’s not necessarily good news for employers, as seen in a 2018 survey by Willis Towers Watson. Almost half (49 per cent) are concerned about the additional costs to benefits, while 41 per cent are concerned about increased wages and salaries, and 37 per cent cite blocked promotions for younger employees.

Older and more tenured workers also place a significant burden on employers because of productivity uncertainties and defined benefit plan payouts, say the authors of the 2017 paper Extending Work Life: Can Employers Adapt When Employees Want to Delay Retirement?

Read more: Almost one in five (18 per cent of) Canadians aged 50 and up said they were planning to push out their retirement date, according to a 2021 report.

There are both good and bad elements to delayed retirement, says Bianchi, and it’s understandable that many people are working longer for their financial well-being.

“For employers, it might be good to retain expertise and experience that would otherwise leave the labour market and be hard to replace, at least in the short run.”

However, a study he undertook with other researchers in 2011 highlighted the downsides. When Italy tightened pension eligibility requirements, many workers postponed their retirement. As a result, younger colleagues’ wages grew more slowly, and they were given fewer promotions.

However, this was not true in all cases: younger employees at fast-growing companies were still able to advance, and wage growth fell only among workers over the age of 35, according to the study.

“In some organizations, you can have these conflicts where there's just not enough space... to allow the younger workers to have a fast growth if the older workers are staying for longer than what the employers thought originally,” says Bianchi.

When senior employees are less inclined to leave, it can limit a company's ability to keep key talent, the up-and-comers who are promised a successful future, says Salveta.

“It puts a severe block on career ladders for younger and mid-level employees… [employers] want to have a good succession plan in place, they want their youngest, brightest people to have a career path and be motivated and engaged in the future here. And those two goals clash a little bit.”

Increased costs, lower productivity

Delayed retirement can also lead to higher employee benefit costs — employers are seeing significant, double-digit increases in their health care programs in a high percentage of delayed retirement employees, says Salveta.

“They're not likely as healthy as the general population of employees, so there is a definite, non-planned cost impact for benefit plans and health plans.”

Read more: Currently, 21.8 per cent of working Canadians are aged 55 to 64 — an all-time high in the history of Canadian censuses.

And employee productivity issue is also a concern for employers, as many workers who delay retirement do so out because they have to, not because they want to, he says.

“A lot of employees did not want this deal either. They were under the impression they were going to retire at 65… And then reality started setting in four or five years ago: ‘I'm not going to make it, I have to work’… And that can impact somebody's mental health, their motivation, their drive, etcetera.”

Potential solutions for employers

In trying to combat potential downsides to workers delaying retirement, employers might want to start with their younger workforce. That’s because, too often, they over-promise when they’re not in a position to do so.

“There might be some firms that go through huge hiring periods, they hire a lot of people at the same time… But you need to think about the career growth tomorrow and in five years — you might not have the space for all those workers,” says Bianchi.

“These things have to be managed... things might change in ways that are hard to predict in advance, like if there is a huge recession coming in and many workers decide to stay longer. That might have an effect on your ability to deliver on the promises you made to younger employees, maybe five years ago, 10 years ago.”

But it can be “incredibly difficult” for employers when they’re trying to attract talent, says Salveta.

“Most businesses built their business on this lifeblood of a younger, recently educated, technology-savvy, up-and-coming workforce, so they're incredibly loath to lose these people, so they probably do over promise a little bit.”

But if they do, newer employees will run out of patience.

“If you just say to people, ‘We have training development programs and we do have succession in the company but, of course, it only happens when opportunities occur,’ people will hang around… But if you over promise, the timeline shrinks… [and] the younger, skilled worker is incredibly attractive to your competitors.”

When it comes to older workers, employers will be helped if they already have a strong, supportive culture, and have built up relationships based on trust and communication, says Salveta.

That can ease conversations around changing the role of an older worker, such as mentoring or training others.

“You’ve really got to open up the communication channel, make people feel welcome so they don't feel that you're trying to shove them [out the] door... make them a part of a business plan going forward,” he says.

“Just say, ‘I'd really like to involve you in something that I'm working on that is succession driven, building career plans for the mid level and young grads and whatnot. And you'll be a vital cog in that training and transition process, but it'll be on your terms.’”

It’s also recommended that employers build formal plans so employees feel comfortable moving into a phased retirement mode, says Salveta, such as flexible work arrangements.

“That way, they can still make enough money, they probably don't need the full salary, but still make enough money because they're invested when they delay their retirement, and their investments will grow.”

Many universities have used phased retirement policies, as seen during the pandemic, to ease the financial burden, says Bianchi.

“We've seen in cases like this, where… incentives to retire tend to be used and tend to be effective.”

Another option? Help potential retirees with retirement planning, says Salveta. That can include education around the Canada Pension Plan and Old Age Security, so people understand that by deferring these benefits, "their savings will grow exponentially.”

As part of that, talk to them about government programs and seniors programs that are available, such as drug plan assistance, he says.

“[It’s about] making someone comfortable with the fact that once they cut ties with their employer, there are lots of programs out there that can provide some assistance in some areas,” says Salveta, adding that employers might want to consider a limited retiree benefit program for things like group life insurance.

However, it’s important to note that workers are staying in the labour longer for reasons other than the financial markets, says Nicola, citing demographic trends.

“People are living longer. And they want to stay active in the labour market for longer for many other reasons, not just because they arrive at, let's say, 65, and they realize they don't have enough money. So yes, financial education is great. I mean, there's no downside to financial education. But it might not be the solution to all the problems.”