The old and faded American Dream version of retirement calls up sun-drenched images of fun and leisure, and perhaps even ideals about reinvention and new beginnings. But the reality today is much more ominous: Looming retirement is more likely to evoke Americans’ anxiety and/or to serve as an indicator of our naivety (numerous studies show that most of us are terribly unequipped for retirement, but not necessarily aware of it).
In the last couple of weeks, WEX Health has been tracking two new reports, each of which unpack the ways in which healthcare’s rising costs in particular are imperiling retirement for so many Americans. “Health Care USA: A Cancer on the American Dream,” co-released by Willis Towers Watson and the Council for Affordable Health Coverage, and “Preparing for Tomorrow by Fixing Today—Helping Low- and Moderate-Income Americans Thrive in Retirement,” released by the Center for Financial Services Innovation (CFSI), both contained some key takeaways for WEX Health Partners:
Excessive healthcare costs are reducing employers’ contributions to retirement benefits.
According to the Health Care USA report, compensation for most workers grew between 2000 and 2010, but during that same time period health premiums and the cost of retirement benefits grew 2.25 and 3.25 times the 1990s rates, respectively.
In this report, Willis Towers Watson estimates that employer allocations to health and retirement benefits in 2001 were 41.9 percent for health and 58.1 percent for retirement. By 2015, the split was in the other direction: 63.5 percent for health benefits and 36.5 percent for retirement benefits. As a result, between 2010 and 2015, employers’ average hourly contributions to retirement plans declined by $0.22 compared to the prior decade.
The situation is worse for people with low and moderate incomes.
The United States is home to 6.4 million seniors who live below the poverty line. The new report from CFSI takes a look at the challenges faced by Americans living at, or even right above, the poverty line. According to Census Bureau data, the typical household that earns less than $67,200 a year has no retirement savings. And only 19 percent of Americans with low and moderate incomes (LMI) say they could make ends meet for at least six months, much less long enough to sustain them during retirement.
It’s not necessarily that Americans are less prepared than we once were for retirement; rather, it’s that we once didn’t have to be so prepared for it.
We used to be able to count on employer-sponsored defined benefit plans to supply most of our income during retirement, along with income streams from Social Security and our accumulated individual savings. That’s certainly not the case anymore. CFSI data shows that 27 percent of Americans report having less than $1,000 saved for retirement.
Financial services innovators are needed to educate and empower Americans to prepare for retirement.
CFSI calls on financial services providers to help LMI retirees enjoy a financially healthier retirement by developing ideas and solutions that rethink the user experience, customer service, marketing and distribution from the consumer’s point of view.
WEX Health’s guiding purpose to “simplify the business of healthcare” is far more than a tagline. As a proud member of the CFSI Financial Health Network, we are partnering with CFSI to find more ways to make it easier for individuals to better prepare for healthcare expenses and retirement. Learn more about CFSI and the CFSI Financial Health Network here.