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Baby boomers' exit to leave huge
gap in work force

Retirements may strain companies

By Alan Earls, Globe Correspondent, 7/13/03

It is common knowledge that the size of the baby boom generation could well shake the foundations of the Social Security system. What is less well known and only now coming into focus is the potential impact boomer retirements could have on many businesses and industries. The large bulge that transformed the work force so spectacularly from the mid-1960s to the mid-1980s is now preparing to exit in equally dramatic fashion, potentially draining organizations of more talented and skill-rich individuals than succeeding, numerically smaller generations will be able to replace.

To be sure many organizations are continuing to target older boomers for early retirement as a quick way to save money, since older workers usually collect higher salaries than young workers. But that could change. Consider that, according to an article in the most recent issue of Connection: The Journal of the New England Board of Higher Education, "The retirement rate among Maine state employees could reach as high as 50 percent over the next five years . . . "

How bad is the problem and what can individual boomers do to position themselves for a sea change in employability. For starters, many of those charged with watching the economy are deeply concerned. An article by a US Bureau of Labor Statistics researcher, Arlene Dohm, states that boomer retirements in coming years could hinder prospects for economic growth and perhaps force those remaining in the work force to work longer hours. She warns that the situation could be especially grim in areas like health services and education where workers deliver crucial services one-on-one.

Similarly, the Conference Board is warning that companies will face a severe shortage of badly needed skills in this decade, unless they act now to entice top-performing older employees to delay their retirement. In a statement, Howard Muson, author of the report, "Valuing Experience: How to Retain and Motivate Mature Workers," said, "The fierce competition for talent during the 1990s will return with a vengeance once the economy recovers."

"The world's industrial economies face a gathering storm of demographic realities," added Muson. "Experts are predicting a veritable tsunami of retirements in this decade and the next by members of the generation born between 1946 and 1964 - the baby boomers," he said. "The prediction comes with a warning: unless companies find ways to retain aging boomers' skills and experience, productivity in many organizations is bound to suffer," he added. As an example, notes Charlie Cahill, senior vice president, Aon Consulting, Boston, fields like nursing and education attracted many of the boomers now approaching retirement but few others. So there is the possibility that "a whole cadre of nurses" could leave the work force at the same time, he said.

But recruitment and career specialists say organizations will probably be slow to respond to this demographic threat, acting only when it becomes a crisis.

"Even though these demographic trends can be predicted decades in advance, companies still face these issues on a just-in-time basis," said Marcie Schorr Hirsch, principal of Hirsch Hills Associates in Newton. As a consequence, "we have terrible discrimination against older people in the workplace even though employers are going to be needing these people before long," she added.

Typical, said Schorr Hirsh, is the behavior of a large financial services employer, which offers older employees a handful of take-it- or-leave-it early retirement options. "If you don't take the option of early retirement, you lose out on benefits later," she said. Further complicating the equation, older boomers may have their own complex set of motivations for staying in the work force. Cahill, who is the leader for the Aon retirement practice in Boston and chairs the company's national retirement practice that helps companies develop compensation strategies, points to the stock market. According to Cahill, many boomers have already chosen to delay retirement because the value of their 401(k) portfolios shrank so dramatically in recent years. "If the stock market goes back up dramatically," said Cahill, "we think there could be a retirement boomlet." If not, boomers may be tied to their jobs for years to come. Additionally, according to Cahill, there is a large number of boomers that can't retire because they lack adequate savings and investments.

A less obvious but powerful incentive to stay in the work force is the widespread shift from defined-benefit to defined-contribution retirement plans. Defined-benefit plans - the norm at employers for decades - guaranteed a certain benefit level upon retirement, usually based on having achieved a particular milestone, often 30 years of continuous employment. Defined benefits kick in at a specific age and delaying retirement, in effect, "cheats" the retiree of some portion of those potential benefits. By contrast, defined compensation plans set aside a certain amount of money for each year and month of employment - an amount that can then be drawn against upon retirement. Retire later and you simply add more to the retirement pot. "That's giving many people an incentive to keep working for a few more years," said Cahill.

And, recognizing that they may not want to encourage their employees to leave, "some companies are getting rid of their retirement plans entirely," he said.

But don't expect older boomers to exhibit the same workaholism that characterized them in their youth. Cahill said those choosing to stay in the work force are more and more interested in alternatives to 9-to-5. "They want to work but they also want to have time for golf and family," he said. Cahill said more and more employers will probably be forced to find ways to accommodate part timers and adjust benefit levels appropriately. There may even be some opportunities for individuals to negotiate "partial retirement" where they take some portion of their retirement benefits each year and supplement it with earnings from work, he said. For now, though, both Schorr Hirsch and Cahill agree, most employers are not likely to make things easy for older boomers. "While I like the idea of people trying to talk to their employer and being proactive," said Schorr Hirsh, "the reality is that they are probably still going to be focused on cutting costs and won't necessarily value wisdom and experience." Some older workers may find ways to become self-employed or accept contract work but the majority will simply have to find ways to adapt, she said. "Demographics will only become a leverage point for older workers when the economy picks up and real labor shortages begin to develop," she said.

Still, notes Cahill, the retirement situation isn't all bleak. "The reality is that people are living much longer than when retirement ages were first established," he said. "I myself look forward to retirement but I'm not sure I want to spend 40 years retired," he added.

Alan Earls can be reached at alan@alanearls.com.

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