A new study shows concern over affordable healthcare during retirement.
By Sandy McCarthy
For all workers in different stages of their careers, the challenge of retirement adequacy is one that employers and employees face head on through their benefits strategies. Now more than ever, employees share more cost and make more informed choices for their health and wealth benefits. Mercer research shows that 70 percent of employees believe they are primarily responsible for ensuring an adequate and secure income in retirement.
According to Mercer’s latest Inside Employees’ Minds™ Survey, conducted among more than 3,000 U.S. workers representing a cross-section of the national workforce, 60 percent express strong satisfaction with their retirement benefits, which rank second only to pay in importance to employees. But only 23 percent expect to have enough money to pay for healthcare in retirement. This is a decrease from the 35 percent that was reported in Mercer’s 2012 and 2013 surveys.
Concern is mounting, and HealthView Services’s new white paper, Retirement Healthcare Costs and Income Replacement Ratios, finds that retirement savings based on income replacement ratio (IRR) calculators risk falling short of meeting retirees’ goals, because IRRs underestimate future retirement healthcare costs. One reason for that is IRR calculators use the general inflation rate of 2.5 percent to 3 percent. But healthcare cost inflation is likely to rise to 6 percent a year. Plus, younger workers are less informed about retirement healthcare needs. A recent BNY Mellon survey reports that one in five Millennials say they receive no financial education information from their workplace, and nearly half of them make a “blind guess” as to what they’ll need in retirement. The new Mercer survey shows Millennials rank retirement benefits ahead of low healthcare costs.
Clearly, the multi-generational workforce of today is forcing employers to carefully assess the health, wealth, and career elements that make up their overall rewards strategy. With 63 percent of all employees saying benefits are a major factor in choosing to work where they do, employers need to rethink and reshape their value propositions in a way that reflects the evolving workforce composition.
Organizations need to help educate their employees through training programs, calculators, and modeling. Online dashboards can help bring benefits choices and retirement planning tools together in a clear way for employees, embedded education and advice to help them make the most informed choices. The goal is to help them become more accountable and better informed consumers of healthcare and wealth benefits.
Data suggests the industry is at a tipping point with only one in four employees expressing confidence about future healthcare costs. But it’s an opportunity for organizations to move the needle toward financial wellness and making the experience of benefits as one. When employees recognize that, they can make more confident choices today to ensure their well-being tomorrow.