Just because affluent individuals are, well, affluent, doesn’t mean they’ll spend their retirement on a golf course. They are twice as likely to be working in retirement compared with the total population, according to Bank of America Merrill Lynch and Age Wave, a company that produces research on population aging and its social and financial effect on business and health care, among other issues.
Assets aside, many people say they would continue working even if they had no financial incentive to work. (See “Work Not Just About the Paycheck.”)
Deeper analysis from a recent study gives insight into how the affluent view and approach work in retirement, which most Baby Boomers are looking to reinvent. (See “Look Out, Retirement, the Boomers Are Coming.”)
Many survey respondents see retirement as a chance to try something new, with half (50%) of affluent working retirees having transitioned to a different line of work in retirement. Greater flexibility, the opportunity to experience new things, and the pursuit of a passion or interest were cited as the top reasons for doing so.
Given that affluent retirees see work in retirement as a chance to try something new, plan sponsors could look at the experiences of these candidates as an opportunity to bring new insights to their workforce, says Cyndi Hutchins, director of financial gerontology, Bank of America Merrill Lynch.
Older workers are looking for flexibility, points out Hutchins. “Employers can attract the 50-and-up crowd by developing flexible work schedules or allowing telecommute policies,” she tells PLANADVISER.
While prior experience may not directly translate to a new role within the plan sponsor’s business, plan sponsors should look at a candidate’s resume with an eye toward bringing fresh intellectual or “experience” capital to their existing workforce, Hutchins says.
Working Their Way
Older workers are looking for flexibility, points out Cyndi Hutchins, director of financial gerontology, Bank of America Merrill Lynch. Employers can attract the 50-and-up crowd by developing flexible work schedules or allowing telecommute policies.
Some clashes may be inevitable. “As a society, we have a lot of work to do to get employers to embrace the idea of an older workforce,” Hutchins says. But older workers have a number of advantages. As well as bringing fresh capital, Hutchins points out, they can provide value in passing on experience and knowledge to younger workers.
If older employees are still part of the workforce, an employer can factor in the cost of keeping them rather than spending the capital to retrain new workers. Employers need to discard their ageist mindset and see the value, not the downside, of these older employees, Hutchins says.
Affluent working retirees have certainly changed their views and, according to the survey, say that working in retirement helps people stay more youthful (81%). They also feel that not working in retirement can hasten the onset of declining mental abilities (67%) and physical abilities (61%).
Older workers are likely to participate in the plan, Hutchins says. Participation may also be an incentive for these employees to roll over balances from a previous employer or consolidate outside accounts into the plan to avoid required minimum distributions (RMDs). They can be good for a retirement plan, Hutchins feels. “They’re likely to stay in that plan longer because they won’t have a need to pull income out,” she says “They are usually the ones who have the higher balances in the plan, which is positive for the plan as a whole.”
Older workers can have an impact on some features of a plan’s design, Hutchins says. “Employers may want to place non-hardship withdrawal provisions in the plan to give these workers the flexibility to withdraw from the plan even if they continue working,” she says. This feature could be an incentive for an older worker to continue in the workforce.
Advisers will likely need to tailor investment recommendations for these workers if they are plan participants. A shorter time horizon and the ability to take on risk are key topics, according to Hutchins. Even though they may be affluent and in the workplace by choice, she says, “you still have to treat these workers as the age that they are and recognize that they don’t have the ability to take on the same risks as Millennial investors.”
Nonqualified plans, designed to meet the specialized retirement needs for key executives and other select employees, could be a good incentive for attracting and retaining affluent older employees, Hutchins says. These employer-sponsored plans that fall outside the guidelines of the Employee Retirement Income Security Act (ERISA) are exempt from the discriminatory and top-heavy testing that qualified plans are subject to, and they provide tax deferral for participants.
This Merrill Lynch study was completed in March, conducted in partnership with Age Wave and executed online by TNS. Data focuses on findings from the 782 respondents age 50+ with $1 million or more in investable assets, with a particular focus on the 203 who identify themselves as working retirees.
“Work in Retirement: Myths and Motivations” can be downloaded here.