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3 challenges delayed employee retirement presents to business planning

Thomas  Charla

Posted on January 06, 2021

Thomas Charla is an expert in financial planning and wellness as well as business markets for MassMutual.
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As a business owner, you may have long-term plans for the company. Passing it onto the next generation or selling it once you are ready to retire are just some of the options you have. If you are focused on leaving a legacy behind, you’ve probably put plans in place to help ensure you can achieve your future goals. But have you covered all your bases?

One thing you may be aware of, but aren’t sure how to handle, is the ability of your own employees to retire on time. In MassMutual’s 2017 Small Business Employee Financial Wellness study, business owners said that 42 percent of their employees would not be able to retire on time because of inadequate finances.

Six in 10 business owners surveyed have seen first-hand their employees put their retirement plans in jeopardy by taking loans from their retirement accounts, reducing or eliminating completely their retirement account contributions, or simply withdrawing money without regard for taxes and penalties.

When your employees are unable to retire on time, the impact can expand beyond just the employees and their families. It can impact you and your future plans for the business. (Related: Gauging exit readiness)

There are three pivotal challenges for a business owner that can emerge when employees can’t retire on time:

  • Increased future costs: As a business’ payroll ages, overhead costs can be expected to rise as well. Employees who stay on the job past the traditional retirement age can create higher costs for the business through increased payroll and benefit costs.
  • Delayed exit and succession plans: Business owners who are proactively planning for their own exit from the business often seek to groom their successor by rotating them through various leadership roles in the company. Their flexibility to rotate them from department to department may be limited if more senior managers or leaders have delayed their retirement.
  • Perceived lower business value: In the event that the business owner is seeking to exit from the company through a sale or acquisition event, an aging workforce may negatively influence the buyer’s perception about business’ sale price – especially if the company’s senior management team isn’t expected to remain in place for an extended period.

As a business owner, you have taken on the responsibility, to a certain extent, for the financial well-being your employees. By providing your employees with financial education early and often to help them better address financial issues while they work towards a timely retirement, you can better position yourself for your own eventual exit.

Learn more from MassMutual…

Ways to increase the value of your business

The right business successor: Key to retirement

Are you doing enough to protect your highest earners?

This article was originally published in December 2018. It has been updated.


The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.