Data and Research November 2, 2022

Inflation Is Affecting Participants’ Health Care Spend And Retirement Deferrals

Many workers are considering downgrading their health insurance during open enrollment because of high inflation, according to the Nationwide Retirement Institute.

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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. 

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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.

Products November 1, 2022

Allianz Life Adds Annuity for Defined Contribution Plans

Allianz finds growing numbers of U.S. workers want guaranteed income options in their employer-sponsored retirement plan.

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Allianz Life Insurance North America launched the Lifetime Income+ Annuity, an in-plan guaranteed lifetime income option for defined contribution plans.   

The Allianz Life fixed index annuity is now available to any plan sponsor connected to the iJoin/IPX Retirement network of recordkeepers, a spokesperson said in an email.   

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“We designed this product to be personalized, flexible, and portable for users,” said the spokesperson.

The Allianz annuity is funded by contributions through the participant’s defined contribution plan account, according to an Allianz consumer brochure. Annuity owners would use the annuity to build Lifetime Income Value—the assets amount Allianz uses to determine their lifetime income withdrawals.

Many participants have two common sources of retirement income, between their defined contribution plan and Social Security. The fixed index annuity does not invest directly in any stock or bond.

The annuity will earn interest based on changes in an index, such as the S&P 500, according to Allianz.

Participant annuity owners’ assets are allocated to one or more indexes, and Allianz uses a crediting method to track the performance of the indexes. On each contract anniversary, any index interest owed to the annuity owner is calculated.

If the result is positive, the annuity owner will receive indexed interest, based on the crediting method; if the result is negative, nothing happens. And although the owner won’t receive indexed interest, the value of the annuity won’t decline, either.

Allianz also offers a fixed interest allocation, using a rate they establish at the beginning of each contract anniversary.  

When annuity owners are ready to retire and start drawing income—participants must be age 60 or older—Lifetime Income+ will use the Lifetime Income Value built by the participant through contributions. Allianz Life research shows growing numbers of U.S. workers want guaranteed income products in their employer-sponsored plans. The data shows 80% of respondents have interest in an annuity for a supplemental source of guaranteed income after Social Security, 60% would add an annuity to their employer-sponsored plan if one was available and 74% say an option allowing them to build lifetime income protection would increase their loyalty to an employer.

Allianz also finds 59% of workers are worried their money saved for retirement, in an employer-sponsored plan, will run out during retirement.

Recordkeepers and retirement plan advisers can offer the Allianz Lifetime Income+ Annuity with the Allianz Lifetime Income Benefit as a protected accumulation and decumulation option in 401(k)s and other defined contribution plans.

“We designed this new guaranteed lifetime income product to work for real people and the reality of retirement today,” says Matt Gray, head of employer markets at Allianz Life, in a statement. “The Allianz Lifetime Income+ Annuity marks a new way to design in-plan annuities with a flexible product design, streamlined connections with plan partners and increasing income potential.”

Allianz offers guaranteed lifetime income through the firm’s Lifetime Income Benefit.

Allianz aimed the annuity to help participants stretch their income and make savings last through retirement. 

The launched annuity is “tailored for defined contribution plans,” to offer plan sponsors and participants “innovative design features including growth potential and protection from market loss,”  the press release says.

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