The Business and Tax Aspects of an Aging Workforce

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Aging-Workforce As the baby boomer generation nears a collective retirement age, many employers are beginning to prepare for the consequences of a rapidly aging workforce in the U.S.  On average, over sixteen (16) percent of employed Americans in 2015 were between the ages of fifty-five (55) and sixty-four (64). Moreover, approximately five (5) percent of the workforce was at least sixty-five (65) years old. These two demographics combined result in a workforce where over twenty (20) percent of the total participants are over the age of fifty-five (55).  Additionally, over ten thousand (10,000) baby boomers in the United States will reach the age of sixty-five (65) on a daily basis until 2030, according to the U.S. Census Bureau.

To make matters worse, many of these older workers cannot afford to retire.  A 2013 Retirement Confidence Survey sponsored by the Employee Benefit Research Institute found that only twenty-four (24%) percent of workers at least fifty-five (55) years old have saved more than two hundred fifty-thousand ($250,000) dollars for retirement.  That amount will not sufficiently support a comfortable lifestyle for the average life expectancy of Americans.

According to the Bureau of Labor Statistics, over thirty (30%) percent of those workers aged sixty-five (65) to seventy-four (74) will continue to be actively working, as compared to just over twenty (20%) percent of the same age bracket in the workforce in 2002, and approximately twenty-seven (27%) in the workforce during 2012. 

Taking all these statistics together, not only will there be a much larger pool of older people overall, but they will also comprise a larger percentage of the workforce. The chart below shows the increasing percentage of workers aged fifty-five (55) and up by 2020.

As many older workers retire, there will be a shortage of workers across most industries.  Many employers therefore should take positive steps to retain older workers. One way to do this is with catch-up payments, which are available in some retirement plans for employees who are over fifty (50) years old. Congress recently added a new catch-up contribution option to retirement plans out of concern that baby boomers have not saved enough funds to allow for a normal standard of living during retirement. The option allows workers over age 50 to increase contributions towards retirement. According to the Plan Sponsor Council of America, nearly all (97.1%) of 401k plans permit catch-up contributions, and more than a third (36%) of those plans match the contributions. The option works by allowing the participant to make an additional six thousand ($6,000) pretax contribution to their 401k plan in 2015, on top of their regular pretax contribution limit.  The catch-up limit is not subject to any other federal and/or plan contribution limits. Catch-ups are made on top of, and in addition to, the current limits. After the maximum regular amount allowed is contributed ($18,000 for 2015) for the year, the participant may make an additional catch-up contribution.

Another available incentive that employers can utilize to benefit the older employee population is to offer phased-in retirement plans.  Phased retirement is a human resources tool that allows full-time employees to work part-time schedules while beginning to draw retirement benefits. 

As workers age, most of them will be enthused by a lightened schedule that allows them some autonomy and freedom but still offers them a means to earn income and retirement benefits as well. Also, employers should consider implementing and improving health and wellness programs to offset the costs of higher health insurance premiums.  A recent study by the International Journal of Workplace Health Management determined that an opt-in program encompassing biometric testing and a personal wellness profile to guide individualized telephonic health coaching combined with financial incentives led to improved health parameters, improved health age and reduced health care costs. These incentives benefit both the employee and the employer, who will have added confidence should he/she have to request that the employee retire down the road.

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Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Michael Wilshere is a Tax Analyst with R&D Tax Savers.