Managing unplanned retirements requires employers to rethink approaches, adopt flexibility and phased retirement plans, says expert
Nearly half of Canadian workers are behind on retirement savings, yet the average Canadian still leaves the workforce at 59. That disconnect—between readiness and reality—is forcing organizations to confront a painful truth: employees are retiring earlier than planned, with employers largely unprepared to support the transition.
The 2025 Manulife Financial Resilience and Longevity Report exposes a gap between what employers provide for retirement and financial planning support, versus what employees need.
Due to unexpected health challenges and caregiving demands, employees are being forced out of the workforce years before they anticipated. This plus a widespread shift from defined benefit pensions to defined contribution plans has placed the burden of retirement planning squarely on individual employees.
For Christian Cook, professor of human resources at Mount Royal University, this transition reflects a profound change in the employment relationship – where previous generations could rely on employers to manage retirement funding in exchange for organizational loyalty, today's workers must navigate complex investment decisions, market volatility, and long-term financial planning on their own.
“Employers, for a few reasons – the financial burden, but also people just aren't staying at organizations for 40 years anymore – they're saying, ‘I'm still going to help you out with your retirement. But it might not be the old school defined benefit pension program, where you will work here for 40 years, and then we'll fund your retirement for the next 25,’” Cook says, adding that this shift places financial literacy demands on workers who may have no background in investing or portfolio management.
Phased retirement: from sudden exit to gradual step-down
The Manulife report emphasizes that employees should be preparing for a potential 40-year retirement. But it also says most organizations lack frameworks for managing early retirement transitions.
Rather than all-or-nothing approaches that offer only full retirement or full-time employment, Cook advocates for gradual step-downs, a flexibility that can benefit both retiring employees and their employers.
“There needs to be some flexibility, and from a wellness perspective, there's evidence to say that a lot of people do well by gradually stepping down, especially from high-paced kinds of positions,” she says.
Effective retirement support also needs to go beyond the purely financial, she adds, as many employees retire, only to find they are completely unprepared.
"There's no legal obligation on an employer to prepare employees for retirement, but I think it's a very smart thing to do.”
Phased retirement allows more mentorship, knowledge transfer
For organizations, gradual transitions can allow institutional knowledge to transfer systematically, rather than disappearing as employees retire. This point is especially important now, as entry-level positions are taking a hit.
Organizations lose critical institutional knowledge when experienced workers depart abruptly, particularly knowledge that is rarely documented, such as how decisions really get made, which internal relationships matter most, where the organizational culture truly resides.
“The first five years of an employee's career may be replaced with AI. They might not get the chance to do that, learn the ropes, figure out the organizational culture,” Cook notes.
This creates an opportunity for employers to take advantage of phased retirement to fill in knowledge gaps created by entry-level job elimination, by incorporating mentorship duties more intentionally into employees phasing into retirement.
“Maybe if I'm a full-time employee and I have a five-year horizon to retirement, maybe 0.8 of my job stays as-is, 0.2 is me mentoring people, or designing programs to transfer knowledge to the new people,” Cook outlines.
“Or maybe gradually, it's 0.6 at my job, 0.2 doing that stuff, and then 0.2 away … and then maybe gradually, I step down. Retirees have a chance to kind of experiment with retirement, and see if in fact, they're ready for it.”
This approach provides psychological benefits to departing workers, allowing them to gradually transition their identity from full-time employee to retirees, while also contributing to organizational continuity, she adds. “They could maybe even create some prestige around a mentorship role like this, I think then that could really get some of the right people very interested.”
Aligning retirement planning with total compensation
According to Manulife's findings, 91 per cent of Canadians say financial benefits impact their commitment to their employer. However, Cook emphasizes that the foundation for any retirement support initiative must be competitive base compensation.
“The less an employer gives, the less an employee gives, the more likely this whole relationship becomes quite transactional,” she says.
“Employers are trying to provide employees with wellness plans and financial literacy and things to help their health. But if the rest of the deal … doesn't permit them to take any advantage of that, then it can actually backfire.”
However, this can be mitigated by employers offering genuine support however they can, even if it’s not financial. When employees feel valued, the relationship fundamentally shifts from transactional to relational, she explains, and this shift has profound implications for engagement and retention – employees will speak more positively about their employer in the community, refer friends and family to open positions, and demonstrate greater willingness to go beyond minimum job requirements.
“Anytime an employer is doing something for their employee that makes them feel like this organization cares about me, that's probably a good investment.”
