Personal Finance

Should you worry about the graying workforce?

When should you retire?
When should you retire?

America's workforce is aging, with nearly a third of workers now over 50 and employees over age 65 outnumbering teenage workers for the first time since 1948. (Tweet This)

Should we worry?

Not at all, says a study by Aon Hewitt for AARP, the nonprofit membership organization for people age 50 and over. The report, published Monday, asserts that older workers bring key advantages to an employer, like maturity, experience and loyalty, and they are not nearly as expensive as conventional wisdom would have it.

"Just as today's 50+ population is redefining aging and eroding negative stereotypes, today's 50+ workforce is adding value by exhibiting traits that are highly sought after in today's economy," AARP CEO Jo Ann Jenkins said in a foreword to the study.

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The stereotype of an older worker is of someone with reams of experience but potentially fragile health, outdated skills and almost certainly a higher salary—hardly a draw for employers.

AARP poked a hole in that concept in 2005 when it published its first look at the business case for older workers. This new analysis, taking place after the Great Recession and the resulting spike in unemployment, finds additional evidence that older workers add value.

"We were surprised to see that the business case had grown even stronger," said Laura Bos, manager, financial security, education and outreach for AARP.

When employers talk about their older workers, "they talk about them bringing experience, maturity and professionalism," she said. "There is some mentoring and knowledge transfer."

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The 2015 study also found that along with perspective and experience, older workers have a slightly higher level of engagement than younger colleagues. Aon found that 65 percent of workers over age 55 were engaged, compared with 58 to 60 percent for younger workers.

High employee engagement is nice, but it also has tangible benefits for an employer's bottom line. An earlier Gallup survey found that organizations with the most engaged workforce had measurably higher productivity and significantly lower rates of absenteeism, employee turnover and safety incidents. Lower turnover alone is good for an organization. Research by the Society for Human Resource Management found that replacement costs can actually exceed an employee's annual salary.

"All my research points to that exact thing," said Kerry Hannon, author of "Great Jobs for Everyone 50+: Finding Work That Keeps You Happy and Healthy … and Pays the Bills." "The older workers really are more engaged. They are more loyal. They're not job jumping."

That may be in part because they know how hard it could be to find another job. AARP's Public Policy Institute recently published a study showing that 45 percent of job seekers age 55 or older were out of work for 27 weeks or more in 2014, and that those who did find work often wound up with lower paying jobs offering fewer benefits.

"There are older workers who have these skills and talents, and they have lost their jobs and they are looking for a job," said Bos. "On the other hand we know we have employers with skills gaps and brain drains."

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To be sure, older workers' health is a concern for employers, both in terms of absenteeism and cost. The report found that the average cost of healthcare claims paid by large employers in 2011 was more than double for workers aged 50 and up compared to those under 30. But while the absolute cost is higher, the report notes that the gap between older and younger employees is shrinking.

The difference in retirement costs for older versus younger employees has also narrowed. When defined benefit pension plans were the norm, older workers looked like short-termers who would come with large after–employment costs. But just 22 percent of larger employers currently offer those plans, down from 68 percent in 2004.

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In addition, companies' increasing use of automatic enrollment for 401(k) plans is boosting participation among younger workers, further shrinking the cost difference between older and younger employees, said Roselyn Feinsod, senior partner and east regional practice leader at Aon Hewitt, who participated in both of the older worker studies. While studies find that older workers are still more likely to contribute more to defined contribution plans, auto enrollment has "fundamentally changed the patterns in terms of having more consistent participation across all segments of the workforce," she said.

Changes in compensation practices also mean hiring older workers is less costly than in the past. Employers used to weigh time in a workplace heavily when calculating pay, but more and more, pay is based on performance: some 90 percent of large employers now base pay in part on performance, the study found. In today's job market, talented, contributing older workers may well command high salaries, but so will talented, contributing younger employees.

A number of companies are finding new ways to work with and benefit from a multigenerational workforce. For example, BMW made minor changes to the design and procedures of an assembly line with older workers and its productivity increased 7 percent. CVS has increased the share of older employees in its workforce, and it created a program that lets older workers transfer to different stores on a seasonal basis.

At WellStar Health System, a health care system in Marietta, Georgia., about 80 percent of the employees (it calls them team members) are women. And it is not a young workforce: A third of employees are over 50, and the average age is 43. The company provides a number of benefits programs aimed at an older workforce, but also looks for ways to benefit from those demographics, said Karen Mathews, director, work-life services.

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The company has been renovating and building numerous hospitals over the last several years, and managers "pulled together team members who are caregivers at the bedside and said what do we need to do in the design?" Mathews said. Their input ranged from creative ways to make it easier to lift patients to features that would reduce the number of steps they had to take.

"Older workers, by virtue of their years of service, sustain the culture of the organization. That organizational knowledge resides with them. They know how to network, how to access information, who to talk to, and how to guide and direct others," she said. In addition, "we have a lot of older workers in leadership positions. We want to keep them as long as we can. They are an effective and well-oiled machine."