Mounting Debt Causes Health Care Workers to Save Less for Retirement

While 91% of full-time employees in hospitals and health care systems are saving for retirement, many are faced with large amounts of debt, causing them to contribute less to their retirement savings and feel less confident about their readiness to retire, according to new research from the TIAA Institute. 

TIAA found in its research that 86% of retirement savers in the health care sector carry debt, and 45% reported debt payments were interfering with their ability to save for retirement. 

Two-thirds of respondents to the survey reported saving through an employment-based plan, such as a 457, 403(b), 401(a) or 401(k) plan, and an additional 24% reported saving on their own. 

Surya Kolluri, head of the TIAA Institute, says the reason TIAA did a study focused on retirement readiness in the health care industry is because it’s a high-growth industry, as it’s projected by the Bureau of Labor Statistics that the health care sector will create more than two million jobs over the next 10 years.  

Jobs for home health and personal care aids are also projected to experience the largest increase in new jobs of any occupation over the 2022 to 2032 projection period. Projected to gain 804,600 jobs, this occupation is projected to account for approximately one of every six jobs, and by 2032, would represent the largest occupation in the economy, according to the Bureau of Labor Statistics. “Nearly half, like 45%, of new jobs created are going to be in health care,” Kolluri says. “So, if you think about the retirement industry, that’s going to be a big focus because all of these people are going to be planning for their retirement.” 

When it comes to the issue of debt, Kolluri says workers’ levels of debt are high enough that they are crowding out their ability to save for retirement, and their debt is lasting well into their working years. For health care workers, in particular, student loan debt is a common form of debt. 

Overall, TIAA found that about 24% of savers had student loan debt, and more than half of those with student debt are concerned about their ability to pay it off. 

Debt was the least common among physicians and surgeons, with 75% reporting debt and 15% having outstanding student loans. By comparison, 89% of registered nurses reported carrying debt, and 26% said they have outstanding student loans.  

In addition, TIAA found that retirement savers with more debt are more likely to tap into their savings prior to retirement. For example, 28% of those with debt reported taking out a loan or hardship withdrawal from a workplace retirement plan. By comparison, only 6% of those with no debt have taken a loan or withdrawal. This dynamic is amplified among those with student loan debt, as 45% have taken a loan or withdrawal from their employer’s plan. 

High levels of debt also translate into lower retirement savings confidence and lower retirement income confidence, and the impact is greater with student loan debt. For those with debt, 16% are very confident they are saving an adequate amount and only 17% are very confident they will have enough money to live comfortably in retirement. For those with student loan debt, those numbers were lower, 9% and 14% respectively. 

Kolluri adds that financial confidence also varied across different types of health care workers. 

“What we found is that the confidence in retirement was the lowest for registered nurses,” Kolluri says. “This whole notion of financial wellness and financial stress… seemed to be most severe for registered nurses.” 

In terms of how health care employers and plan sponsors can address these issues, Kolluri says offering benefits like student loan repayment or matching contributions for qualified student loan payments could help. He says it is effective for employers to offer a matching contribution so long as an employee stays with the company for a certain number of years.  

Kolluri says offering counseling on budgeting and understanding interest rates on different loans can also be very helpful for employees.   

Given that health care workers are very familiar with medical expenses, many also expressed concern about having money to pay out-of-pocket medical expenses during retirement, as well as paying for long-term care. In fact, 36% said they are not confident about being able to pay costs like premiums, co-payments and deductibles during retirement. 

As many workers also deal with caregiving costs, whether that be for children or for elderly family members, Kolluri says a valuable benefit that employers can offer is discounted rates for part-time care for elderly relatives. He says this can also help reduce workers’ debt burden because the employer is offering a subsidized benefit.