The Real Cost of Delayed Retirement for Plan Sponsors
By Chris Cristallo, CFP® | 401(k) Advisor at BEAM/BGA Wealth
Retirement is no longer a predictable milestone. For many employees, it has become a moving target.
Some individuals choose to work past age 65 because they enjoy what they do. Many others continue working because they cannot afford to retire. When retirement is delayed due to financial shortfalls, the impact extends beyond the individual and may affect workforce planning, compensation structures, benefit costs, and long-term business strategy.
According to recent retirement research, 40 percent of U.S. workers are not saving enough to maintain their lifestyle in retirement. ¹ Only 14 percent of Generation X workers believe they have saved enough. ² At the same time, the labor force of employees over age 65 is projected to increase by 28 percent by 2033.³
For employers, this shift carries potential cost. A comprehensive analysis shows that organizations pay an average of $103,000 per year for each employee who works past age 65 compared to the cost of replacing that employee with a new hire. ⁴
These figures are based on industry research and represent generalized model assumptions, which may not reflect the experience of any specific employee.
That number should get the attention of any leadership team.
Why the Cost Is So Significant
The cost difference is driven primarily by total compensation. Employees who remain in the workforce longer typically command higher salaries and bonuses. Healthcare premiums are often higher. Paid time off accrual tends to increase with tenure. ⁴
Experience and institutional knowledge absolutely matter. However, when an employee is physically or emotionally ready to retire but financially unable to do so, productivity can vary while total compensation continues to grow. ⁴ Over time, that imbalance may increase overall workforce costs.
When multiplied across multiple employees in the same organization, the impact may be meaningful depending on workforce demographics.
The Industry Impact
The financial effect of delayed retirement varies by industry. Office based sectors such as finance, professional services, and technology face estimated annual delayed retirement costs of approximately $126,000 per employee age 65 and older. Healthcare and education average $121,000. Labor intensive industries average $93,000. Service oriented industries average $75,000. ⁴
In a 1,000-employee organization, the annual cost tied to employees working beyond age 65 can range from $5 million to more than $9 million depending on industry mix.⁴
Higher compensation structures amplify the issue in professional environments. Specialized skills complicate transitions in healthcare. Physical demands shape workforce patterns in labor intensive roles. Turnover and wage constraints affect service sectors. Different industries experience different pressures, but the common thread is retirement readiness.
A Smarter Financial Comparison
Many plan sponsors hesitate to increase automatic features out of concern for employer contribution costs. Long-term math tells a different story.
The same research shows that the total employer contributions made over a 40-year career under automated plan features can cost less than one single year of delayed retirement. ⁴
In other words, investing earlier in automatic enrollment, automatic escalation, and consistent re enrollment may be significantly less expensive than paying for extended employment at the end of a career.
When employees begin saving earlier and gradually increase their contribution rates over time, compounding works in their favor. Retirement may become more attainable . For employers, that means potentially improved visibility in workforce transitions and cost management.
Viewed through this lens, plan design is not just a participant benefit. It may also support broader organizational planning.
Broader Workforce Effects
Delayed retirement does not only affect payroll expense.
Career progression may be affected when senior roles do not open as expected. Succession planning becomes less predictable. Recruiting new talent may become more difficult when advancement opportunities are limited. ⁴
Organizations operate most efficiently when workforce transitions are well-planned. Retirement readiness supports that stability.
Practical Design Considerations
There is no universal blueprint, but several plan design strategies are commonly used to improve outcomes.
- Higher default contribution rates, often in the 6 to 8 percent range, can help establish long-term savings habits from the outset.
- Automatic escalation features that raise employee contributions by 1 percent per year until reaching a target of 10 to 15 percent can provide a manageable path for participants to improve their savings rate.
- Stretching the employer match can promote higher savings behavior without dramatically increasing employer cost.
- Implementing Immediate eligibility, when feasible, allows employees to begin contributing to the retirement plan as soon as they join the company.
- Periodic re-enrollment campaigns can help reengage nonparticipants and those contributing below recommended levels.
These strategies may not be appropriate for all plans; plan sponsors should consider their specific workforce, budget, and fiduciary obligations before adopting any changes.
Final Thought
Delayed retirement is not simply about age. It is about preparation.
When employees are financially prepared, retirement becomes a choice rather than a constraint. When retirement timing is predictable, employers may gain clarity in budgeting, succession planning, and talent development.
Delayed retirement can influence workforce dynamics in many organizations.
This raises an important consideration for employers, whether the current plan design supports retirement readiness or may inadvertently contribute to these dynamics.
Together, let’s evaluate the way we approach retirement programs.
Sources
1 – Center for Retirement Research at Boston College, The National Retirement Risk Index, February 2024.
2 – Schroders, 2024 U.S. Retirement Survey, August 2024.
3 – U.S. Bureau of Labor Statistics, Employment Projections: Civilian Labor Force by Age, August 29, 2024.
4 – Principal®, Cost of Delayed Retirement Analysis, September 2025. Based on Bureau of Labor Statistics data.
