Data and Research October 11, 2022

New Survey Shows Inflation and Inequality Are Negatively Affecting Seniors’ Retirement

The survey demonstrated the degree to which black and Hispanic retirees tend to have less saved for retirement than white retirees, as well as those who are unmarried or have low financial knowledge.

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A survey published by the Employee Benefit Research Institute shows inflation and inequality are hurting seniors’ retirement.

“The 2022 Spending in Retirement Survey reveals that certain measures of retiree wellbeing have stagnated or declined since the pandemic…More retirees say that spending has increased and is higher than they can afford,” explained Bridget Bearden, research and development strategist at EBRI in a statement.

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Overall, more than half of those surveyed reported retiring earlier than expected. The most common reasons for retirement were the ability to retire from an affordability standpoint (29%) and having a health problem or disability not related to COVID-19 (21 %).

The survey found that 27% of retirees surveyed are spending more than they can afford in 2022, up from 17% of those surveyed in 2020. Those surveyed reported that 55% of their income goes to housing (30%) and food (25%).

The share of retirees surveyed reporting that they have reduced discretionary spending since the pandemic was down to 43% in 2022, compared to 54% in 2022. The share reporting they have reduced essential spending remained unchanged in 2022 from the 18% reported in 2020.

Among those who decreased either their essential or discretionary spending since the pandemic, the most common reason cited by roughly 90% of retirees was concern about inflation.

“Inflation appears to be a major driver of the misalignment between expectations and reality, a double-edged sword that undoubtedly increases actual spending but also reduces spending, likely out of a desire to protect future purchasing power,” said Bearden.

It is not clear if the respondents answering that inflation caused them to spend less might actually mean “consume” less as a result of higher prices, since increasing commodity prices would not normally lead to decreased net spending. Bearden explained that they did not ask the “parallel question” to those who increased their spending, and would expect their explanation for increased spending to be inflation also.

Nearly one third, (32%) of the 2022 sample reported working to some degree after retirement. The leading reasons for continuing to work past retirement were to have extra resources for an unexpected expense, greater discretionary spending, opportunities to socialize, and a sense that work is “rewarding”.

Among other findings, EBRI reported that on a scale of one to 10, on average, retirees rate their satisfaction in retirement as 7.0 in 2022, down from 7.4 in 2020.

The researchers surveyed 1,998 retirees between the ages of 62 and 75, with an average age of 66. To qualify as “retired” for the purposes of the survey, the respondent had to be either retired and no longer working, retired and employed part-time, or fully employed but considers themselves retired from a primary career.

This sample was weighted by gender, race, and income. The average net assets of those sampled was $532,000, and the median was $146,000. 50% of the sample reported having a college degree, making it notably more educated than the general public.

56% reported being married or living with a partner, and the other 44% reported being widowed, divorced, or separated.

Previous research from EBRI shows that there is a significant retirement confidence gap between married and unmarried women. In the current study, the author noted that unmarried people are less likely to have access to a financial advisor and are more likely to consider themselves unprepared for the “possibility of needing monthly income through age 90”.

The study also highlights deep racial inequality in retirement preparation. 46% of black respondents and 43% of Hispanic respondents reported less than $25,000, compared to 22% of the total sample. Black and Hispanic respondents were also less likely than average to have three months of retirement savings. Black retirees were also more likely to report that they retired later than they anticipated.

Despite increased inflation, the 2022 sample does not report greater debt anxiety than the 2020 sample. Both samples reported a combined 11% who said their debt was either “crushing” or “unmanageable”. However, 27% of the 2022 sample said they are spending either “much higher” or “a little higher” than they can afford, compared to 17% in 2020.

Fewer respondents reported spending less since the pandemic in 2022 than 2020. 54% in 2020 said their spending decreased “somewhat” or “significantly” compared to 43% in 2022 since the pandemic. Those who decreased spending in 2022 cited “concern about inflation” as the leading reason, with 55% describing it as a “major reason”.

Data and Research October 11, 2022

Rising Employer Health Care Costs May Boost Self-Insured Plans

A new WTW survey shows that half of employers are concerned about the increasing costs of providing group health plan coverage for retirees 

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Increasing health care costs are driving U.S. employers to search for alternative methods to provide health care benefits to retirees, new research shows. The WTW Retirement Medical survey found 50% of employers are concerned about rising costs and are targeting private insurance marketplaces to substitute for group plans.  

WTW survey data shows 22% of employers have either stopped offering workers a traditional group medical plan to early retirees or are considering a replacement. Among employers that have terminated a group plan, 75% are replacing it with access to and financial support for individual insurance through a private marketplace plan, according to the report.

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“Employers are rightfully concerned about this growing burden and are studying all options, including private marketplaces,” says Lindsay Hunter, senior director for Health & Benefits at WTW, in a press release. “For now, they remain committed to offering retiree healthcare benefits and a positive retiree experience. But they’re looking for ways to provide them more cost effectively.”

WTW finds that some employers offering traditional group plans to pre-Medicare-eligible retirees will explore whether individual insurance could effectively replace group plans.

The survey shows 12% considering replacing the group plan, 7% have stopped offering the group plan and 3% have decided to end the group plan and implement insurance through a private marketplace in the future. Nearly three quarters (74%) of employer respondents have no action planned at this point, while 5% are considering retaining the group plan and offering access to individual insurance through a private marketplace.

The survey also finds many employers have altered their organization’s health care strategy after ceasing to offer a group plan to pre-Medicare-eligible retirees.

Data shows that 13% of employers plan to terminate all access and financial support, 75% to replace the group plan with access to and financial support toward individual insurance through a private marketplace and 4% to replace the group plan with access to individual insurance with no financial support.

WTW data also shows that 43% of employers agree if their health care costs escalate, it might impact the business’ ability to improve other benefits. Among respondents, 32% say it will put pressure on the balance sheet, 29% pressure on the firm’s profit and loss statement, 22% change their ability to manage cash flow, and 2% said it would restrict the business’s ability to hire.

Additionally, 13% of employers plan to change their retiree medical benefits within three years, as 49% will make a change because benefits are too expensive for the company to maintain, the report finds.

With individual self-insured plans—purchased through a private marketplace— employers accept the financial risk of providing health care benefits to retirees and supplement the cost. Employers with a fully insured group health plan buy health insurance for their retirees on the commercial market.  

Since the passage of the Affordable Care Act, however, self-insured plans have not spiked.

Trevis Parson, chief actuary for the individual marketplace at WTW, explains that self-insured plans are likely to grow in popularity because of legislation that was passed by Congress and signed by President Biden.  

“The recent passage of the Inflation Reduction Act is making private insurance marketplaces for individual coverage an even more attractive option for retiree benefits,” he says. “[T]he extension of premium tax credits and the improvements to [Medicare] Part D plans position private marketplaces to better offset rising health care costs for both organizations and their retirees.”

The survey was conducted by WTW in July and August, with 122 U.S. employers participating. Respondents employ 1.9 million workers.

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