Inflation Is Affecting Participants’ Health Care Spend And Retirement Deferrals

Many workers fear they will have higher-than-expected healthcare expenses in retirement, with current inflation heightening concerns and meaning a pullback in health-care related savings, according to a survey from the Nationwide Retirement Institute.

Among survey respondents, 63% are terrified of the effect that health care costs will have on their retirement plans. 

Despite 72% of workers reporting that one of their top fears is health care costs going out of control, 70% can’t estimate how much they expect to pay for health care throughout their retirement, 50% are unsure or can’t estimate expected annual health care costs in retirement, while 39% have created a plan for health care costs in retirement, the 2022 Health Care Cost in Retirement Survey finds.

For adults who estimate their health care costs in retirement, 15% expect annual health care costs of less than $1,000, 5% expect between $1,000 and $2,000, 7% expect $2,000 to $3,000 and 11% estimate $10,000 or more.

“Estimating health care costs in retirement can feel particularly daunting for many participants,” explained Kristi Rodriguez, senior vice president of the Nationwide Retirement Institute, in an email.   

Rodriguez added that many adults can’t estimate their health care costs in retirement because of “uncertainties around what their health will look like when they’re older.”

According to research into health care costs, participant estimates in the Nationwide survey may be incorrect. For 2022, Fidelity Investments estimates that a 65-year-old couple retiring this year can expect to spend an average of $315,000 on health care costs throughout retirement, a 5% increase from last year. The figure has near doubled since the initial $160,000 estimate in 2002.

Workers not having an accurate estimate for their health care costs in retirement adds to the many retirement challenges—that have coalesced, amidst increased inflation—says Rodriguez, in a press release.

“As the price of health care and basic necessities continue to reach record highs, Americans have been forced to make tough decisions that sacrifice their health and wellbeing,” she says. “While these decisions are understandable and challenging, making short-term tradeoffs may have long-term impacts. Neglecting your health now can lead to far bigger costs as you age and approach retirement.”

A HeatlhView Services research report earlier this year showed that increased inflation will significantly affect retirement health care costs and workers budgets.  

Increased inflation has also affected retirement plan participants ability to save for retirement, the Nationwide survey shows. Among respondents 10%—over the last 12 months—decreased their retirement plan contributions to pay for health care expenses because of inflation, Nationwide finds.

The survey also shows—because of high inflation—17% of respondents in the last 12 months adjusted their family’s budget to pay for health care expenses, 12% canceled or changed health insurance, 10% withdrew funds from their retirement account to pay for health care expenses and 8% downgraded their health insurance plan. Other respondents said they are considering changes to their health insurance.

“To find additional savings, 14% of Americans say they are considering downgrading their health insurance plan because of high inflation, which rises to 23% and 20% for Gen Z and Millennials, respectively,” the survey states.

Nationwide’s research also shows participants are experiencing high levels of stress around retirement and retirement planning because of inflation. Among survey respondents, 47% report their top stressor is inflation, 30% Social Security running out of funds and 29% an unexpected decline in their health. The remaining top stressors Nationwide identifies are paying for health care at 25%, paying higher taxes at 24% and a stock market crash at 17%.  

The Nationwide survey was conducted online by The Harris Poll for Nationwide among 1,140 adults age 18 and older residing in the U.S, including 283 Gen Z, 285 Millennials, 286 Gen X, 286 Baby Boomers and individuals older than 58. The survey was conducted August 26 to September 8.