MassMutual recently did a study comparing the well-being of pre-retirees vs. retirees. Below is an excerpt of an article written about the study by Tom Foster, Assistant Vice President, Strategy and Relationships, for MassMutual Retirement Services. This underscores the importance of employers getting involved with their pre-retiree and/or near-retiree population in helping them make retirement planning a priority. Providing clarity for this group of employees on their future path, allowing them the see “a light at the end of the tunnel” and showing them how to retire on time can have the following benefits at any organization:
- Reduction in employee related cost: The average Workman’s Compensation claim for the 45-65 age group is 56% higher than the 20-34 age group with the average duration being 25% longer for the older group (NCCI Holdings – Workers Compensation and Aging Workforce, 2012).
- Leverage younger “high potential” employees into stronger growth positions: The Corporate Leadership Council found that less than 8% of employees possess the tools necessary to be a top performer in a more senior or critical role. They also found that one of the most effective levers to keeping these employees is to identify the riskiest, most challenging positions across the company, and assign them to these rising stars. (Corporate Leadership Council High-Potential Employee Management Survey, 2005) So it is imperative that older employees have the financial wherewithal to move out of key positions and into retirement to continue to provide upward mobility within the organization and retain younger key performers.
- Financial Security and future clarity puts people at ease: Gallup identified Financial Security as being 3 times more effective at increasing a person’s Well-Being than income alone. (Rath, Harter, The Economics of Wellbeing, Gallup Press 2010) A tenured employee that is at ease and comfortable with their financial future is going to be much more open to being a mentor to the up-and-coming employees within an organization which can result in some of the highest job satisfaction for both groups. Conversely, a tenured employee that does not have a clear picture on retirement could feel that they have to “defend their turf” from the younger set because they need to keep their job.
Money and Emotion
The study finds a strong relationship between happiness and planning as retirees who express the highest levels of satisfaction are also those who took concrete planning steps at least five years before retirement:
- 73% calculated the best time to collect Social Security benefits. Although financial planners once recommended that retirees take Social Security income as early as possible, the thinking has changed in recent years. Many retirees are holding off until later ages as Social Security payments increase 8 percent annually until age 70.
- 65% calculated a target for how much money they needed for retirement. Many consulted a financial advisor to help them determine how much money they would need to maintain their desire lifestyle throughout retirement.
- 60% estimated their medical and dental expenses in retirement. Fidelity Benefits Consulting estimates that a 65-year-old couple retiring in 2014 will need an average of $220,000 in today’s dollars to cover medical expenses throughout retirement.
- 58% worked with a financial advisor. Nearly everyone who worked with a financial advisor found that person to be helpful for retirement planning (pre-retirees: 96 percent; retirees: 93 percent).
- 51% created a budget for retirement as well as increased their savings before retirement. The 2015 contribution limit for 401(k) plans is $18,000 and the limit for the catch-up provision for those age 50 and older is $6,000, for a total of $24,000.
On the emotional side, the happiest retirees built stronger relationships before retiring:
- 50% made new friends, reconnected with old friends or both. Social networks are important for everyone but especially so for retirees. Expanding those networks before retirement is especially important.
- 44% focused on their relationship with their spouse or partner. Empty-nesters may find they need to reconnect as their children leave home. Reinvigorating relationships pays dividends in retirement.
- 23% developed a new hobby or other interests. The most successful retirees have a vision for their life in retirement and determine how they will spend their days once they stop working.
Planning for retirement is a highly individual exercise and experience for everyone, so actual plans and how they contribute to success vary from individual to individual. However, the common theme for those who report the highest levels of happiness and satisfaction are planning as early as possible, preferably more than five years.