Many employees are working longer than planned, often because they don’t feel financially ready to retire. This is creating challenges for both individuals and employers. Explore common employer questions about the cost of delayed retirement and ways plan design can help support employees’ retirement readiness.
Retirement is no longer the predictable milestone it once was, as more employees have been working past the age they originally intended to retire. Some continue to work by choice, but many stay because they’re not financially prepared to leave the workforce. This shifting reality comes with rising costs and personnel challenges.
A recent Principal® analysis found that the cost per employee who delays retirement past age 65 averages $103,000 per year.
As employers navigate this new landscape, it’s clear that delayed retirement isn’t just an employee financial challenge; it can also carry measurable organizational costs. The analysis also shows that total employer contributions made over an employee’s entire career often cost less than one year of delayed retirement. By strengthening plan design, deploying automated features, and supporting retirement readiness early and consistently, employers can help ensure smoother transitions for their employees while managing the bottom line.
The following questions address the most common topics employers raise as they evaluate the cost of delayed retirement and look for strategies that support better outcomes for employees and organizations alike.
The updated figure reflects Bureau of Labor Statistics data that compensation and benefits costs for more tenured employees continue to rise. Higher salaries and bonuses, increased healthcare premiums, growing paid-time-off liabilities, and the broader effects of inflation all contribute to increased employer expenses.
The gap between an experienced employee’s cost and the cost of a new hire widens materially when late career compensation is typically higher. Rising healthcare costs further amplify this gap, as premiums tend to increase with age and years of service. This can be especially true in office-based industries where pay tends to rise sharply with tenure. Principal® analysis determined that average industry-specific costs now range from $75,000 to $126,000 per employee working past age 65, depending on sector, workforce demographics, and compensation structure.
No. The analysis focuses solely on measurable compensation-related expenses:
- Salary
- Bonuses
- Employer-paid health insurance premiums
- PTO value
While productivity challenges can occur when employees work longer out of financial need, those factors aren’t included in the model. Employees who are physically, mentally, or emotionally ready to retire, but financially unable to do so, may experience declines in productivity, even as their total compensation continues to rise.
At the same time, it’s important to note that the analysis doesn’t assume employees working past their planned retirement age are less productive. Many continue to contribute meaningfully to the workplace, and the model focuses solely on measurable compensation-related expenses rather than quantifying individual performance differences.
Principal analysis identifies a ripple effect that can occur if employees can’t retire when they want:
- Career progression can stall, limiting advancement for mid career employees
- Recruitment may slow with fewer openings available
- Succession planning may be disrupted, especially in roles requiring specialized skills
- Workplace culture may shift when employees feel financially unprepared for retirement
Industries with higher late-career compensation and less physically demanding roles, such as office-based positions, tend to face the highest per-employee delayed-retirement costs. In these sectors, the annual average cost can exceed $120,000 per employee who delays retirement. Because employees in these roles can typically remain in the workforce longer, compensation often continues to rise with tenure, while healthcare premiums and paid time off costs also increase. These extended career trajectories mean that when retirement is delayed, employers may absorb higher total compensation for longer, amplifying the financial impact.
Labor intensive industries, by contrast, see lower per employee costs (around $93,000 annually) but face different workforce pressures. Because these roles are physically demanding, employees are often unable to extend their careers much beyond traditional retirement ages, resulting in shorter career spans and less time to build sufficient retirement savings. As a result, employers in these sectors tend to focus on helping employees start saving earlier and contribute more consistently to support retirement readiness within a shorter window.
Yes, it’s likely. Organizations with a dual workforce often experience delayed retirement costs differently because the two groups typically have distinct career paths, compensation patterns, and retirement-readiness levels. These differences can influence how long employees are able or financially prepared to work, which in turn affects the overall cost when retirement is delayed.
Looking at office-based and production employees separately can help organizations tailor plan design, such as default contribution rates, automated features, and engagement strategies, to better reflect each group’s needs. This approach may improve retirement readiness across both office and production employees while helping manage the financial and workforce impacts of delayed retirement.
For some organizations, phased retirement may be a practical way to support employees who need to keep working longer while also helping employers manage workforce transitions more smoothly. By allowing employees to gradually reduce hours or responsibilities, phased retirement may help:
- Support knowledge transfer and smoother handoffs
- Provide flexibility for employees who still need income but want to begin transitioning out
- Help employers plan succession more effectively
- Align compensation more closely with an employee’s reduced role over time
For employees, phased retirement may offer a more secure and less abrupt shift into retirement, and may help them:
- Maintain income while reducing hours, to help soften the financial shift to retirement
- Delay withdrawals from retirement accounts, to potentially give investments more time to grow
- Postpone claiming Social Security, which may help increase their lifetime benefit
- Reduce financial and emotional stress, with a more predictable transition into retirement
Phased retirement doesn’t eliminate the financial drivers of delayed retirement, but it may ease the impact on both employees and the organization.
Younger and newly hired employees typically face a number of competing financial priorities, and saving for retirement may seem too far away to prioritize. Employers can help bridge this gap by making it easier to participate and save.
- Use auto-enrollment to help simplify the first step. Nearly half of employees now expect to be automatically enrolled in their employer’s retirement plan when they start a new job.
Principal® Retirement Security Survey --Nonparticipants, September 2025 Enrolling by default can help overcome inertia and help employees begin saving when eligible. - Pair auto-enrollment with strong onboarding communication. Simple messages—what the plan is, why saving early matters, and how the employer match works (if applicable)—may help younger workers understand the long term value of participating from day one.
- Implement auto-increase to help employees contribute more. Though not specifically intended to encourage participation, raising contribution rates by 1%-2% annually, up to 15%, may help employees save enough for them to retire when they choose.
- Re-engage those who may have opted out. Annual re enrollment gives newer employees who initially opted out—or who weren’t ready when hired—another chance to join once their financial situation stabilizes.
These strategies help meet younger employees where they are—new to the workforce, balancing competing priorities, and looking for support to make confident financial decisions —while helping employers build stronger long-term participation.
Beyond automated features, several plan design elements can also help employees stay on track over time. Employer match strategies, vesting schedules, and thoughtfully set default contribution rates all play a role in helping strengthen long term savings behavior. These design choices, combined with ongoing plan features, may help employees build meaningful retirement savings throughout their careers.
Principal analysis highlights several plan design practices that can help strengthen retirement readiness across industries, including:
- Auto-enrollment at higher default rates (e.g., 6–10%)
- Auto-increase of 1%–2%, up to 15%
- Simple employer match to encourage participation
- Stretch the match to encourage higher contribution rates (e.g., 50% on the first 8%)
- Immediate eligibility, especially in office-based jobs to capitalize on higher earning potential
- Lower eligibility age, particularly for those in labor-intensive roles, to help start saving sooner
- Annual re-enrollment for nonparticipants and those at low contribution rates
DB plans can provide strong retirement security, but they're often harder for employees to understand—especially younger workers. When the value of a DB plan isn't clear, employers may find it harder to compete for talent with organizations that offer more visible DC employer matches, even if the DB benefit could be more valuable over time. Many employers that offer both DB and DC plans worry that shifting emphasis toward the DC plan could weaken incentives tied to tenure or age, or make it harder for employees in physically demanding roles to retire sooner. However, DC plans can be designed to support many of the same goals. Employer contributions can increase with years of service, age, or both, helping reinforce retention while remaining easy for employees to understand. (Additional compliance testing would be required.)
For workforces with shorter or more physically demanding careers, DC plans can also be structured to encourage earlier and more consistent saving. Features like immediate eligibility, lower entry ages, automatic enrollment, and automatic contribution increases can help employees start saving sooner and stay on track—supporting retirement at a time that works for both employees and the organization.
Employers can help employees strengthen their financial readiness as they approach retirement by taking steps such as:
- Offer options for late‑career employees. Education about catch‑up contributions, phased retirement options, or personalized planning support can help employees understand their choices, make informed decisions, and transition on their preferred timeline.
- Provide access to targeted financial guidance. Offering access to financial professionals, retirement planning tools, and income projections can help employees assess whether they may be on track and identify the adjustments needed that seek to improve their readiness.
By taking these actions to support late‑career employees, employers can help more workers retire when they choose, while also reducing the organizational pressures associated with delayed retirement.
As organizations look to manage both the financial and operational impacts of delayed retirement, now may be an ideal time to reevaluate current plan features and identify opportunities to better support employees’ long term savings. Thoughtful updates to plan design may help more employees retire on their preferred timelines while creating a more predictable workforce strategy. If you’re exploring potential enhancements or want deeper insights on how plan design can reduce delayed retirement pressures, contact your Principal representative for more information.
