Preparing for Questions from Retiring Employees

Most people should prepare for retirement decades before it arrives.  The truth is, people usually wait until retirement is right around the corner to get their financial house in order.  As an employee’s retirement approaches, the employee or their financial advisor may begin to flood you with questions about your company retirement plans.  Some you can prepare for, others you cannot and should not even try to answer.

Also read: The Art Of The Exit Interview: Make The Most Out Of Employees Who Leave

Below are some of the most common questions and concerns you can prepare yourself to address.

What are my investment options?

They really should have asked this years ago but of course only now are they interested.  A simple solution is to refer them to the 408 b 2 disclosure document – that will provide them information about investment options like expenses, asset class, and even past performance.  If the disclosure document doesn’t have the information they are looking for, suggest they look up the investment options on or to learn more about them.

How much can I save in my 401k?

There is an $18,500 limit (for 2018) on how much employees can contribute to a 401(k) plan.  Workers 50 and older can add $6,000 per year in catch-up contributions.

Will I be taxed on my distributions from my 401k?

If your company offers a 401k, you may want to familiarize yourself with 401k distribution and rollover rules.

This can be a complicated question to answer because “it depends.” If they roll it over to an IRA, the answer is “it’s not taxable now, but it will be when they withdraw from the IRA down the road.” If they don’t roll it over, it will all be taxable now. It’s probably also worth mentioning if your 401k offers a Roth option now and the employee has after-tax contributions, they could pull that money out tax free.

Employees who are retiring before age 59 ½ may have heard they will have to pay a 10% additional tax on distributions, but there are notable exceptions.  One exception is if the distributions are made to a participant after separation from employment if the separation occurred during or after the calendar year in which the person reached age 55. Another is if the distributions are made as part of a series of substantially equal periodic payments.

Also read: Succession Management, Leadership and Mentoring

Can I roll over my 401k funds into an IRA?

A rollover occurs when a person receives a distribution of cash or other assets from their 401k to another retirement plan or traditional IRA.  But people should be aware if they want to roll a distribution over, they need to do it within 60 days of the date they receive the funds, or else it is considered a taxable distribution and must be included in income the year they receive it.

This is particularly important because any distribution is subject to a mandatory withholding of 20% (even if the employee plans to roll the funds over later) so employees will only receive 80% of the balance.  Employees will likely want to avoid this withholding by doing a direct rollover – in which case the 401k plan transfers a distribution directly to an IRA.

Questions about Defined Benefit Plans

If your company offers a defined benefit plan, prepare to answer questions on that as well.  Employees will want to know how much they will receive if they retire at different dates.  They will have questions about the survivor benefit if there is one.  They will want to know their options as far as choosing between a stream of payments or a lump sum payout.

You must be careful just to provide them information about which options they have and be careful to avoid making any suggestions or recommendations regarding which option they should choose.

Can I stay on company health insurance?

Health insurance is often a deciding factor between retiring early and continuing to work.  In most cases it is financially beneficial for a retiring employee to stay part of the company’s health insurance plan, so you may want to be familiar with all the relevant details of the plan to prepare for any questions they may ask.

However, if the company does not offer continued insurance when an employee retires, it will be up to the retired employee to gain coverage. If he or she is retiring a year or so before age 65 (when they become eligible for Medicare) COBRA insurance could be a viable option. But if the employee plans on retiring long before age 65, he or she will have to go to the private marketplace or possibly join their spouse’s work plan for insurance in a timely fashion.

No one should have a gap time in health insurance so it is important for the employee to plan and get insurance to continue by the time she retires. I know HR representatives may not know all the ins and outs of the possible healthcare options, but spotting a need for possible health insurance planning and bringing awareness to the issue could greatly benefit the future retiree.

Do not answer questions you are not qualified to answer

As an HR manager, you want to make sure to stick to answering company-specific questions and defer anything that could be misconstrued as general financial or retirement advice to the appropriate financial professional.   These are questions like:

How much do I need to save for retirement?  How much can I withdraw from my retirement accounts each year?  Should I opt for a series of pension payments or lump sum payout?

You may think you can give just general advice but even this is a bad idea as every person’s situation is different and conventional wisdom and rules of thumb may not apply to them.  There are specific challenges facing those retiring early for example.

Even though you may not be able to answer these questions directly, you can still be very helpful to an employee regarding tough retirement questions. Knowing the types of questions that should be answered is very useful.  You can bring retirement issues that they might not have otherwise been aware of to their attention.  The three questions I mentioned earlier would be good questions for them to seek answers to as a starting point.  If they do not know the answer, you can point them in the direction of the appropriate financial professional.

Final thoughts

As HR managers, you are probably used to managing employees and answering questions about, well, their employment.  As employees approach retirement, their concerns will shift to how they will provide for themselves when they are no longer receiving a paycheck. You as an HR manager should be prepared to provide them all the information you have that is relevant to their retirement, but you should stop yourself before inadvertently making any investment and retirement planning recommendations.

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