Companies of all sizes and industries face a challenging new landscape: labor shortages, supply chain disruptions, market volatility, accelerated technology advancements, rising rates of inflation and interest, and more.
Workers are navigating obstacles, too. Upheaval everywhere is affecting employees’ concerns about their financial security in retirement, reflected in trends and retirement statistics from 2022.
A big generation of Baby Boomer business owners and employees is in the midst of a retirement wave expected to crest in 2024, with the highest number turning age 65. At the same time, an even bigger Millennial generation is facing its 40s and still struggling to save for retirement.
From major stakeholders of closely held companies to the youngest generation of new employees just starting to save for retirement, workers worry about when and how to make an exit — and how to pay for it.
Tomorrow’s retiring business owners should spend today learning about all their exit options and considering the benefits to themselves, their companies, and their employees.
Many sellers discover the after-tax net proceeds of an ESOP sale rival or exceed those of a third-party sale. And an employee stock ownership plan’s retirement benefits have proven wealth-building effects, especially among lower-wage employees.
One key lesson from 2022? Workers need and want help saving for retirement. Employers that effectively address this concern stand to win in the battle for talent.
Wave of Baby Boomer Retirees Continues to Rise
Until 2020, Baby Boomers were the largest living adult generation in the U.S. That position now belongs to Millennials, but Boomers continue to influence business, industry, and the world around them. While the estimated 74.9 million Baby Boomers own more than half of U.S. wealth — compared with Generation X at 28.9% and Millennials at just 6.5% — the Boomers have begun to move some of those assets.
Over the next decade, a large part of the $60 trillion Great Wealth Transfer is likely to include business ownership, as Boomer owners look to unlock equity they’ve built to enjoy their retirement years. Company owners in these circumstances need to scrutinize exit strategies and get a succession plan in place.
Some retirement-track Boomers who own their own businesses are also looking for legacy opportunities that align with their personal values. Take, for example, Patagonia founder Yvon Chouinard’s decision to gift his shares to an environmental trust. Not every business owner has a billion-dollar stake, but that doesn’t make legacy opportunities any less important.
The upshot on Baby Boomer retirement trends? With the right guidance, these business owners face a terrific opportunity to:
- Access liquidity from the company they built
- Continue to lead if they don’t want to retire today
- Establish a plan to help employees build retirement wealth
- Leave a legacy of good jobs in their communities
Checking in With Younger Generations
With the Baby Boomers and their wealth getting so much attention, it’s easy to lose sight of the other working generations. But their experiences working, saving, and planning for retirement deserve a look, too.
Across the board, workers say they’re struggling to save enough for retirement, even though one 2022 study found saving for retirement to be workers’ most commonly cited priority, no matter their age or generation.
And while more than half of workers agreed with the statement, “I don’t have enough income to save for retirement,” respondents reported deferring the following income percentages for investment in 401(k) and similar accounts:
- Gen X – 10%
- Millennials – 15%
- Gen Z – 20%
Average 401(k) Balances Fell 25% in 2022
As of March 2022, 66% of private industry workers had access to employer-sponsored defined contribution retirement plans, such as 401(k) and similar plans. But among private industry workers with access, only 48% participated in those plans.
Those who contribute say it’s not easy. Multiple recessions, student debt, high housing costs, and caregiving — for aging parents, children, or both — have many younger workers struggling.
What’s worse, 401(k) plan participants saw their retirement accounts’ balances fall from a starting balance of $135,000 to finish the year with an average of $101,000. That’s a loss of about 25%. In the context of higher rates of inflation, that’s an especially discouraging loss.
Defined Benefit Pensions Continued a Long Downward Trend
In 1975, there were more than 103,000 U.S. private, defined-benefit pension plans; by 2020, that number fell to 46,577. For many workers, the certainty of lifetime income in retirement is a thing of the past — especially coupled with the majority of younger workers’ concerns about Social Security’s solvency.
Young workers aren’t counting on Social Security or the likelihood of a pension, yet they acknowledge they’re struggling to set aside retirement funds on their own. And when one year’s market performance eats away at 20% of workers’ retirement savings, it’s easy to understand the level of anxiety around retirement security.
Takeaways on 2022 Trends in Retirement
Employers that aim to reduce employee churn and improve recruiting and retention will prioritize building employee wealth and improving retirement confidence among workers. Popular 2022 benefits included wellness initiatives, financial education programs, and retirement-focused benefits.
In many ways, it looks like employers are throwing the kitchen sink at the employee retirement savings problem. Benefits include free financial planning, increased employer matching funds for 401(k) contributions, group discounts for life insurance, and with an ESOP, ownership stakes in the company — at no cost to the employee.
Which of these benefits do you think employees were most interested in? Well, we asked, and workers answered. Click the link below and find out in our Recruiting and Retention Report.