“Grayed” Expectations?

Even the best retirement planning requires a fair number of assumptions: the age at which you hope to retire, for one thing; the amount of income that living in retirement will require; the length of time over which your retirement will last; the rate of return on your savings prior to, and following, retirement; the sources of retirement income that will be available to you, and in what amount(s).

Consider that in the 2012 Retirement Confidence Survey while worker confidence in having enough money to pay basic expenses in retirement wasn’t exactly high (only 26 percent were very confident), workers were noticeably less likely to feel very confident about their ability to pay for medical expenses after retirement (13 percent) and even less likely to feel very confident about paying for post-retirement long-term care expenses (9 percent) — levels that have remained statistically unchanged since 2010.

Indeed, the lack of employment-based retiree health insurance may result in unanticipated expenses in retirement. In the 2011 RCS, one-third of workers reported that they expected to receive this type of insurance from an employer (36 percent), though only 27 percent of retirees in that survey actually received it.

Earlier research found little impact of reductions in coverage on retirees, but the report notes that that may be because initial changes employers made to retiree health benefits affected future retirees, rather than those retired at the point of change. A recent EBRI Issue Brief highlights that, over time, more and more retirees have “aged into” those program changes, resulting in the greater impact found in more recent studies. The report also notes that most employers that continue to offer retiree health benefits have made changes in the benefit package they offer, changes that impact both the cost and availability of the benefit, including raising premiums that retirees are required to pay, eliminating employer subsidies, tightening eligibility, limiting or reducing benefits, or some combination of these.

However, as that Issue Brief also notes, very few private-sector employers currently offer retiree health benefits, and the number offering them has been declining, even in the public sector: Between 1997 and 2010, the percentage of non-working retirees over age 65 with retiree health benefits fell from 20 percent to 16 percent. Still, expectations seem to outpace reality; in 2010, 32 percent of workers expected retiree health benefits, while only 25 percent of early retirees and 16 percent of Medicare-eligible retirees actually had them.

Circumstances change, expectations matter, and retirement planning that relies on flawed or outdated expectations can, unfortunately, leave us short of where we need to be.

Nevin E. Adams, JD

See Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2010