The Big Chill

As baby boomers approach retirement age, their actions will have profound and costly implications for American business. Financial executives must act now to develop strategies that can minimize the potential hit to the bottom line.

Every day more than 11,000 Americans officially pass the half-century mark. If you're a baby boomer, you are probably thinking a lot about the personal ramifications of aging and are pleased that there are no many other people being fitted for reading glasses. But even if you're not part of the baby boom generation, you should be aware of the impact aging boomers will have on your company. Boomers currently make up 52 percent of the working population, and as they age and begin to think about retirement, their actions will affect all American businesses. Escalating compensation and benefit costs, the shrinking labor force and the potential loss of talent and experience are month the major challenges businesses will have. By taking steps now to calculate — and combat — the costs of an aging workforce, financial executives can help their companies meet this demographic shift head-on. (See Riding the Age Wave)

The wake-up call for business has already arrived in the form of a crippling labor shortage. Thanks to a combination of demographic and economic forces, there are now almost more jobs than there are people to fill them. To understand why, let’s look at the demographics. Between 1946 and 1964, 76 million people were born in the United States. Thanks to their sheer numbers, baby boomers have profoundly affected American life at every step along the age continuum. When they hit school age in the 1950s, classrooms couldn’t be built fast enough, and many schools went into double sessions. When they went off to college, the number of college students nearly tripled to 9 million, and 743 new colleges opened. As corporate employees, baby boomers helped companies to grow and create the jobs they needed to survive.

Now, with the first boomers set to hit early retirement age within the next two years, employers are beginning to wonder how they will continue to meet their labor force needs. This is because the 76 million-strong baby boom was followed by just 59 million baby busters. There just aren’t enough bodies to fill all the job slots created and now occupied by members of the baby boom generation. Add to this the fact that the U.S. workforce has grown 1.5 percent to 2 percent per year over the last 20 years — or 15 percent to 20 percent each decade — and you come up with a whopping 30 percent shortfall of young workers, according to Watson Wyatt Worldwide.

"You can’t overestimate the impact of a growing economy, tight labor markets and the aging baby boom generation," explains Jerry McAdams, national practice leader, reward and recognition systems, Watson Wyatt Worldwide in St. Louis. Together, these trends have profound implications for how companies manage people. "We’re not just talking about retention of older workers," McAdams says, "but how to make the entire workforce more productive." As companies begin to grapple with issues related to the aging workforce, the initial tendency might be to design benefit and reward strategies around the needs of aging baby boomers. But this approach would be extremely shortsighted. The key to managing the aging workforce lies in designing strategies that make all workers more productive and eager to work for your company.

By partnering with human resources (HR) to redesign management strategies, finance executives can have a tremendous impact on a company’s ability to compete in this new era of aging workers. The way to begin is by understanding the specific needs and characteristics of your company.