Human Capital & Careers

The Retirement Age

Baby boomers will soon be leaving the workforce in droves. Are you ready to replace them?
Melissa HennessyFebruary 22, 2006

It’s no secret that the 76 million Americans born between 1946 and 1964 — the baby boomers — have been driving cultural trends since their infancy, from rock ‘n’ roll to Rogaine to real estate. But the next boomer trend will likely have the biggest impact on Corporate America yet: retirement.

With one-fifth of American workers reaching retirement age by 2020, an estimated 25 million people are poised to leave the workforce. The mass exodus will not only create a shortage of workers to fill jobs — one Bureau of Labor Statistics estimate put the shortfall at 2.3 million by 2014 — but it will precipitate a “boomer brain drain” that will be felt for decades.

The loss will hit some harder than others. In fact, sectors with higher concentrations of older employees, such as retail, utilities, manufacturing, and health care, could suffer a shortage of skills large enough to have a dramatic impact on their global competitiveness. “This can be viewed as a crisis,” says Stacey Wagner, managing director of the research and education arm of the National Association of Manufacturers. “But it’s a skills crisis versus a simple loss of bodies.” She says that many manufacturers have done a poor job of filling the pipeline behind retiring experts with workers who have the education and skills to master increasingly complex manufacturing technologies and processes.

A CFO survey of senior financial executives (see “Hard Choices“) found that 63 percent of respondents are concerned about the loss of human capital due to impending retirements. Given the potential loss of workers, many companies are starting to make an effort to protect against such a skills drain. They are offering more training to younger workers, developing formal mentoring programs, and enticing older workers to stay on the job past retirement age by embracing partial retirement, telecommuting, and job-sharing arrangements. “Those who aren’t on top of this issue are taking a big risk,” says Daniel Weinfurter, CEO of Capital H Group, an HR consulting firm based in Chicago. “The bottom line is that there aren’t going to be enough highly skilled people to go around.”

It’s not entirely bad news. Some industries could actually benefit from mass retirements. Charles Fay, a professor at the Rutgers University School of Management and Labor Relations, says that the government sector, higher education, and highly unionized industries that still operate on seniority could see some benefits from large-scale retirements, because their older workers are more costly. In general, they use more health care and earn more, and in labor-intensive jobs, they are less productive. However, those benefits could be a long time in coming. The impending retirement wave will inaugurate a protracted graying of the workforce that will increase the average age in most industries for some years before it starts to drop again. The youngest baby boomers won’t generally start retiring until 2026. “The average worker age is not likely to go down for a long time,” says Fay.

Increases in productivity and outsourcing, as well as the need or desire of some workers to remain employed beyond age 65, are also likely to lessen the worker shortage that could result from the baby boomers retiring. In fact, some equate the idea of a vanishing workforce with Y2K: a much-ballyhooed crisis that never quite materialized. “It’s just not an issue for us right now,” says Tom White, CFO of transportation-management company Hub Group Inc., in Downers Grove, Illinois. “For our workforce, we’re really not anticipating any shortages.”

What is clear is that in industries that are already facing a shortage of workers, things are likely to get worse. And the problem is not limited to certain industries. Companies operating in regions with higher costs of living, especially the Northeast, may also see greater losses as older workers relocate to warmer climates and more-affordable areas.

At Miller, It’s Time

When SABMiller PLC took a close look at its staff, it realized that many of its highly skilled employees would be retiring in the not-too-distant future. “We saw this coming,” says Pat Henry, SABMiller’s director of strategic projects for brewery operations. “We have lots of baby boomers and lots of turnover ahead.” In fact, the brewer projected that between 2005 and 2008 roughly 40 percent of its managers in brewery operations would reach retirement eligibility, based on their age and length of service. The reason so many Miller workers are reaching retirement at the same time? In the 1970s, the company grew substantially, building and staffing four new breweries. Many of the managers hired when the breweries opened have been there ever since. And replacing them won’t be easy. These workers are considered highly skilled craftsmen, and learning how to apply the precise blend, temperature, and timing in the brewing process takes years.

To make sure that older workers don’t take the bulk of the company’s collective wisdom with them when they leave, Miller decided to focus on capturing the knowledge of retiring workers before they walk out the door. A three- to five-year strategic staffing initiative for its six U.S. breweries is already under way. As part of the process, Miller is undergoing a targeted staffing analysis of current jobs, forecasting future needs, and determining who has what skills.

Henry tries to keep track of individuals who are considering retirement to ensure that they share their knowledge with others. The intention, she says, is to “replace employees in a thoughtful fashion.”

Meanwhile, Miller is filling its talent pipeline on the other end with a college-age program to recruit and train younger workers. It’s important to “bring people in right out of school,” says Henry. “They earn money while they’re learning the business, and it’s a perfect opportunity to transfer specialized knowledge, especially in jobs where skills are scarce.”

A tack Miller is not taking is motivating its older workers to stay in the workforce longer. Henry says it’s tough to sell employees on postponing their retirements. “They tend to have a date in mind, and when they’re ready to go, they’re ready to go,” she says. But Miller encourages older folks to act as mentors, coach younger workers, or return for short-term projects or consulting assignments during peak periods. Older workers are valued for their knowledge and abilities, and “in a sense, they can’t be replaced,” says Henry.

But that won’t stop Miller from trying. Ultimately, the brewer hopes that its recruiting, retention, and retirement efforts will result in a multigenerational workforce that is insulated from future demographic ebbs and flows.

Sticking Around

Unlike Miller, some companies are trying to persuade older workers to stay on the job longer. In the health-care field, a sector already facing substantial labor shortages, the specter of a broad swath of professionals walking out the door is frightening. The industry is already working hard to find ways to hang on to older workers. In fact, when the AARP released its latest rankings of the 50 best companies for workers over 50, the health-care industry accounted for nearly half the firms cited.

Number two on AARP’s list is San Diego–based Scripps Health. The health-care provider estimates that it will have to replace 40 percent of its 10,000 employees within the next five years. And in certain departments, such as imaging and outpatient diagnostics, that figure is closer to 70 percent. “With our average employee now over age 40 and more than a quarter over 50, we’re going to see a staffing crisis in key revenue areas,” says Vic Buzachero, senior vice president for human resources. “It makes good business sense to hold on to older workers until we get enough people coming in behind them trained and proficient.”

To encourage older workers to stay on past retirement age, Scripps is doing everything from restructuring jobs to offering phased-retirement plans. In October 2004, for example, the company created the role of “clinical mentor,” which allows experienced nurses to forgo some of the more physically demanding aspects of their jobs, such as moving and lifting patients, in favor of acting as expert resources to those with less experience. It also permits workers with 10 or more years of experience to reduce their work hours while retaining full benefits. And Scripps modified its retirement-plan rules in the spring of 2004 to let some older employees tap funds to supplement reduced work schedules. So far, the steps seem to be paying off. More than 16 percent of its 10,400 employees are over the age of 55.

HR and finance conduct monthly operating reviews to quantify the costs of such programs. “It’s clear that keeping older workers is a savings for us,” Buzachero says. “Every aspect of our retention strategy has a clear cost/benefit and ROI attached.” Part of that equation, he says, is that highly skilled older workers tend to be more productive.

And keeping some workers from full retirement has an immediate benefit by lowering turnover. It costs Scripps as much as $50,000 to replace a nurse, says Buzachero. Another significant expense in this labor-challenged sector is per diem (contract) staff. Scripps’s efforts to hang on to its own employees have allowed it to cut its per diem expenses by one-third, saving about $10 million.

In the near future, employers will have no choice but to court older workers. Employees over 55 now represent 14 percent of America’s workforce, according to the AARP. In six years, that number is expected to jump to 19 percent, adding 10 million workers to the 55-and-over category. Home Depot, Verizon, and Walgreens are just a few employers actively recruiting older workers, according to the AARP.

Still, many companies remain idle. “Despite the demographic evidence, there’s a general sense that the aging workforce is ‘not going to affect us,’” says aging and employment specialist Helen Dennis of the University of Southern California’s Andrus Gerontology Center. But unlike Y2K, which vanished from the national consciousness as soon as the clock struck midnight, the retirement of the baby boomers is an issue that companies will have to grapple with for years to come. Employers that wait too long might run out of time, warns Dennis. “At least go through the data and look at your own workforce. Then if you decide it’s irrelevant, fine,” she says.

With the first round of baby boomers turning 60 this year, the time to take action may be now.

Melissa Hennessy is a freelance writer in Grafton, Massachusetts.

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