This survey examines the attitudes of U.S. retirees who receive retiree health benefits from their employer via a private exchange. This generation of retirees — the “lucky few” born mostly between 1929 and 1945 — may be the most affluent ever seen in the U.S.1 Having benefitted from post-war economic prosperity, defined benefit pensions and employer-provided retiree medical benefits, this group is significantly better off in retirement than subsequent generations are likely to be.2 Older families also emerged from the Great Recession in better financial health than young and middle-aged families.3

The last seven years have marked a period of great economic instability. The global financial crisis triggered one of the deepest and most prolonged recessions since World War II. Historically high equity markets and rebounding property values have coexisted with exceptional turbulence. Alongside these economic headwinds, increasing life expectancies have necessitated greater retirement savings and left many retirees wondering how much they can safely spend, especially in early retirement.

Weakened government programs for the poor and questions about the sustainability of Social Security and Medicare add to the uncertainty. Efforts to rein in Medicare spending could increase out-of-pocket costs for retirees. Many employers are paring back their retiree medical benefits, thereby shifting rising health care costs onto the shoulders of retirees. Meanwhile, retirees are encountering greater restrictions on access to care and the “narrowing” of hospital networks.

Against this backdrop, Towers Watson’s OneExchange provides technology and decision support that enables full-time employees, part-time employees and retirees to build and purchase a personalized benefit portfolio, and find the right health care coverage. To better understand the experiences of these retirees, we invited a randomly selected sample of OneExchange users who were 65 or older and receiving employer-provided retiree medical benefits to participate in a series of web-based surveys, and more than 4,000 of them responded. The first survey examined respondents’ attitudes to their financial situation in retirement, and the second survey focused on their attitudes to medical costs and health care insurance.

Survey highlights

  • Respondents were very satisfied with their personal finances overall. Those who retired of their own volition were more satisfied than those who felt forced into retirement.
  • These retirees were very confident of being able to maintain their standard of living throughout retirement, far more confident than employees who were asked similar questions on Towers Watson’s 2013/2014 Global Benefit Attitudes Survey.
  • Retirees with a greater share of income from an employer pension or annuity were less concerned about financial risks and more confident of their financial futures than similar retirees whose income came from more variable sources, such as defined contribution accounts.
  • Despite being financially satisfied, most of these retirees wished they had saved more or retired later. They were most concerned about the future cost and availability of medical insurance and health care.
  • A majority of these retirees reported higher than anticipated health costs and 84% were concerned about future increases. Seventeen percent had resorted to one or more of the following to save money: skipped a dose, delayed taking medicine or delayed a prescribed test. Nearly a third had paid more to continue seeing their current doctors.
  • Retirees were concerned about potential limits on access to health care, and half were worried about future restrictions on providers. 

These survey respondents are not representative of U.S. retirees at large because not all retirees enjoy employer-based retiree medical insurance. This group is also more likely to have a traditional employer pension and greater wealth than the typical U.S. retiree. Respondents’ average household income was around $80,000, compared with national averages of $53,500 for all those over 65 and $63,900 for those aged 65 to 74.4 As this was an online survey, respondents had to have an email account and Internet access. Slightly more than half of all Americans 65 and older use the Internet, compared with well over three-quarters of those under 65.5

Financial satisfaction in retirement

We first asked retirees how their household budgets were faring in the wake of the Great Recession. As shown in Figure 1, these retirees were generally very satisfied with their financial situation. Seventy-nine percent were confident that their financial resources would see them through another 15 years of retirement. Around a quarter worried about their future financial security (27%) or reported having pared back their lifestyle over the last few years by spending less and delaying major expenditures (25%). The most common money worry was related to health care costs: 37% of retirees reported concerns about their ability to pay for medical expenses in the future.

Figure 1. Financial satisfaction and retirement confidence
Figure 1. Financial satisfaction and retirement confidence

Note: Percentage of respondents who selected “agree” or “strongly agree,” or “somewhat confident” or “very confident” on a 5-point scale.
Source: 2014 Towers Watson Retiree Panel Survey

Sixty-two percent of respondents said their standard of living in retirement matches up to their preretirement expectations, and an additional 22% said their standard of living exceeds their expectations, suggesting that this is a relatively content group of retirees.

These levels of financial satisfaction and retirement confidence were much higher than those reported by a comparable group of older employees. Figure 2 contrasts responses between a younger cohort of these retirees aged 65 to 74 with a comparable group of workers aged 50 or older who responded to the same questions in Towers Watson’s Global Benefit Attitudes Survey. We chose these age ranges to explore attitudinal differences before and after leaving the workforce and across generations. All the employees worked for large U.S. companies and participated in an employer-sponsored retirement plan like our sample of retirees. Hence, they were socioeconomically similar groups.

Figure 2. Financial satisfaction and retirement confidence — retirees versus older workers
Figure 2. Financial satisfaction and retirement confidence — retirees versus older workers

Note: Percentage of respondents who selected “agree” or “strongly agree,” or “somewhat confident” or “very confident” on a 5-point scale.
Source: 2014 Towers Watson Retiree Panel Survey (retirees) and 2013/2014 Global Benefit Attitudes Survey (employees)

Retirees were more satisfied than older employees with their financial situation (75% versus 47%) and considerably less likely to have reduced spending and delayed major expenditures (24% versus 60%). Not only were retirees happier with their current financial positions, they were also less likely to worry about their future financial state (27% versus 54%). Current employees were also less confident about funding their retirement, with fewer being confident of having sufficient resources to live comfortably 15 years in retirement (67% versus 82%), even though some retirees had already tapped into their savings.

All the retirees were covered by retiree medical plans, and 88% received income from a traditional defined benefit (DB) plan. Dividing current employees by whether they had a DB plan or only a defined contribution (DC) plan shows that retirement confidence is comparable for employees with DB plans and our affluent retirees. However, employees who had only DC plans — the majority of employees — were less confident about their financial futures. The recent trend of moving employees from DB to DC plans is shifting risk and uncertainty from employers to employees, who are already feeling the weight of those twin burdens. 

Pathways to retirement

We also asked our retirees why they retired when they did, and Figure 3 shows the most frequently reported reasons. More than half of respondents chose “Desire for leisure time” and “Could finally afford to retire.” We grouped these two responses together with a third, “Eligible for government health insurance,” because they are all voluntary factors that attracted or pulled workers into retirement.

Figure 3. Were any of the following important reasons why you retired when you did?
Figure 3. Were any of the following important reasons why you retired when you did? 

Note: Respondents were asked to select all that apply.
Source: 2014 Towers Watson Retiree Panel Survey

On the flip side, a number of reasons pushed a significant minority of respondents out of the workplace and into retirement. One-third selected work-related stress and no longer being valued by the organization, and nearly a quarter felt organizational pressures to retire. Finally, family reasons were a factor for 17% of retirees, and health affected retirement timing for 12%.

Roughly 30% of these retirees chose to retire because their circumstances made it an attractive choice, 27% were pushed out of the workforce, and 43% reported feeling both pushed out of the workplace and pulled into retirement. 

Retirees who were compelled to retire by job-related, health or family pressures were less likely to be satisfied with their finances (60% versus 84%) and more likely to worry about their financial futures (40% versus 16%) than those who were pulled into retirement by a desire for leisure time and feeling financially set (Figure 4).

Figure 4. Financial satisfaction by whether retirement was voluntary or involuntary
Figure 4. Financial satisfaction by whether retirement was voluntary or involuntary

Note:  Percentage of respondents who selected “agree” or “strongly agree,” or “somewhat confident” or “very confident” on a 5-point scale.
Source: 2014 Towers Watson Retiree Panel Survey

The role of retirement security

We asked these retirees how much of their monthly household income came from a variety of sources, and then grouped these sources into three major categories: Social Security, pensions and annuities, and all other savings and investments (including 401(k) plans and individual retirement accounts (IRAs)).

Figures 5 and 6 show a link between retirement attitudes and dependency on these three categories of income. Retirees who depended most heavily on Social Security were also more likely to have reduced spending and delayed major expenditures, whereas those more reliant on pensions and annuities were less likely to have done so (Figure 5)

Figure 5. Over the last few years, I have spent less and delayed major expenditures
Click Image to Enlarge
Towers Watson Media

Note: Percentage of respondents who selected “agree” or “strongly agree” on a 5-point scale.
Source: 2014 Towers Watson Retiree Panel Survey

The lowest levels of financial anxiety were among retirees who depended least on Social Security and most on investments. Of course, retirees who receive more monthly income from investments are also likely to be wealthier and withdrawing relatively more from savings and investments than those who receive most of their income from Social Security.

Figure 6 compares the same source-of-income groups by the extent to which they worried about their future finances, and the resulting pattern is generally similar to Figure 5. Retirees with a higher share of income from Social Security were more worried about their financial futures (38%) than those who derived less than a quarter of their income from Social Security (19%). Roughly 37% of retirees with no pension or annuity income were worried about their financial futures, compared with 24% of those who received at least half their income from a pension or annuity. Previous research has found that retirees with a greater share of pension or annuity income were more satisfied with their lives,6 and we found they also worried less about their financial futures.

Contrary to Figure 5, those who derived 50% or more of their income from other sources, such as savings and investments, were as likely to worry about the future as those receiving less than 25% of their income from other sources. 

Figure 6. I often worry about my future financial state
Click Image to Enlarge Figure 6. I often worry about my future financial state

Note: Percentage of respondents who selected “agree” or “strongly agree” on a 5-point scale.
Source: 2014 Towers Watson Retiree Panel Survey

Because retirees’ states of mind are also likely to be influenced by factors other than income sources, such as age, income and health status, we conducted a statistical analysis that controlled for those factors.7 But the relationship between income source and retirement confidence persisted, with retirees who depended heavily on Social Security 8% more likely to worry about their future finances than those who derived less than a quarter of their income from Social Security, even after controlling for other factors. Retirees with no pension or annuity income were around 7% more likely to worry about their future financial stability than those receiving 25% or more of their income from pensions or annuities.

Retirement risks

We also asked retirees to identify their biggest financial concerns (Figure 7). Retirees were most likely to be concerned about cuts to Medicare (47%), followed closely by cuts to retiree health benefits (45%) and Social Security (40%). The next most pressing financial concerns, on the minds of just over a third of retirees, were long-term care costs (38%), rising prices and the cost of living (36%), medical expenses (36%) and poor investment returns (35%). Fewer than one in five of these retirees worried about declining real estate values or running out of money.

Figure 7. Are you concerned about the following financial risks negatively impacting your retirement?
Figure 7. Are you concerned about the following financial risks negatively impacting your retirement?

Source: 2014 Towers Watson Retiree Panel Survey

As previously discussed, these retirees were wealthier and more likely to have a traditional company pension than the typical U.S. retiree. They were also financially satisfied and had relatively fewer money worries than most retirees, as shown in Figure 1. Despite their affluence, however, this group still had significant concerns about potential cuts to their health benefits and rising medical expenses. The next section focuses on these retirees’ experiences with and expectations of health care costs.

Retiree health costs

We first looked at how closely retirees’ experiences aligned with their expectations of health care costs in retirement (Figure 8). For slightly more than one-third of respondents, real-life health care costs were lower or equal to their expectations. Health care costs were slightly higher than expected for 28% of these retirees and much higher than expected for 31% of them. 

Figure 8: How do your health care costs compare to what you expected before you retired?
Figure 8: How do your health care costs compare to what you expected before you retired? 

Source: 2014 Towers Watson Retiree Panel Survey

While a large majority of retirees told us their overall standard of living matched or exceeded their preretirement expectations, almost 60% said their health care costs were higher than they anticipated. As they looked to the future, 84% were concerned their health care costs (including premiums and out-of-pocket expenses) would rise over the next two years.

As inflation for medical expenses has outpaced general inflation for many years, it is not surprising that retirees worry more about rising health costs (both present and future) than other costs of living.

Despite their concerns about rising health costs, most of these retirees were confident they could manage any short-term medical costs. Nearly three-quarters of respondents were confident of being able to afford higher premiums for additional coverage and out-of-pocket health care costs, and two-thirds were confident of their ability to afford prescription drug coverage (Figure 9). They were less confident about longer-term medical costs. 

Figure 9. How confident are you in being able to afford the following health care costs over the next five years (should they arise)?
Figure 9. How confident are you in being able to afford the following health care costs over the next five years (should they arise)? 

Note: Percentage of respondents who selected “somewhat confident” or “very confident” on a 5-point scale.
Source: 2014 Towers Watson Retiree Panel Survey

Less than half (40%) of these retirees were confident they could afford long-term care over the next five years. Long-term care insurance makes a big difference — 68% of those with such policies were confident they could pay for long-term care versus 29% of those without long-term care insurance. 

A significant minority of these retirees (over a quarter) were not confident they could afford health care costs in the near future. Figure 10 shows various strategies retirees employed over the last two years to mitigate the impact of rising health costs: 17% had postponed or avoided treatment (including skipping a dose or taking less medication than prescribed, delaying taking medication, or delaying or avoiding medical tests). Some 14% delayed seeing a doctor and 18% purchased medicine online, while a large majority (80%) have purchased generic drugs instead of prescribed brand-name equivalents.

Figure 10. Thinking back over the last two years, have you done any of the following to avoid or reduce medical bills?
Click Image to Enlarge
Figure 10. Thinking back over the last two years, have you done any of the following to avoid or reduce medical bills?

Source: 2014 Towers Watson Retiree Panel Survey

Fourteen percent reported having dipped into general savings or retirement savings, or taken a loan in the last two years to pay for significant out-of-pocket medical expenses.

Hence, while the majority of these retirees were relatively confident in the face of rising health costs, a significant minority have experienced a substantial negative financial (relying on savings or taking out a loan) or medical (postponing or avoiding treatment) consequence because of cost. 

Provider networks and plan restrictions

Retirees are increasingly restricted in their choices of doctors and hospitals. Those with a Medicare or Medigap plan8 can go to any doctor or hospital that accepts Medicare, but more doctors are opting out of the Medicare system because of frustrations with bureaucracy and legislative restrictions on payments. While still small, the number of doctors who have opted out of Medicare entirely tripled from 2009 to 2012, according to the Centers for Medicare & Medicaid Services.

Medicare Advantage plans strongly encourage participants to choose providers from a network of approved hospitals and doctors by imposing significantly higher costs on those who go outside this network. Such restrictions help insurers to better manage costs, but the trade-off is often fewer choices and higher costs for the insured.

Retirees in our surveys most definitely felt the impact of these industry changes: 20% paid a larger copayment to continue seeing their primary care physician and 22% paid more to continue seeing their own specialist (Figure 11). Taken together, some 30% have paid extra to continue seeing their existing specialist or primary care physician, and an additional 6% decided to bear all the costs of seeing their current doctor or specialist, despite network restrictions. Some who paid extra did so because they changed plans, but nearly a quarter (23%) took on higher costs under the same plan.

Figure 11. Thinking over the last two years, have any of the following happened to you?
Figure 11. Thinking over the last two years, have any of the following happened to you?

Source: 2014 Towers Watson Retiree Panel Survey

Twenty percent of survey respondents also had to find a new specialist or primary care physician who would accept their health insurance. While this occurred more frequently among those who changed health plans (23%), it was relatively common among those with the same plan (15%).

These retirees believed their health care options were shrinking, primarily through restrictions on access to doctors and networks rather than restrictions in covered Medicare services or benefits. Forty-nine percent were concerned that their choice of hospitals would become even more restricted, and 29% were concerned that they would need to change their primary care physician in the future. However, a small minority would accept changing doctors/physicians (13%) or a more restricted choice of hospitals (11%) in exchange for lower annual premiums or out-of-pocket costs.

We also asked retirees to rate the importance of different factors in choosing supplemental Medicare coverage, such as coverage, quality, convenience, cost and doctor rankings (Figure 12). The most important factor was, perhaps unsurprisingly, the plan’s covered treatments and services. But the second and third most important features were the quality and availability of doctors and hospitals. Coverage type and availability were more important than the insurer’s quality or reputation, or the retiree’s prior experiences with the insurer.

Figure 12. When choosing a Medicare supplement insurance policy, how important is each of the following?
Figure 12. When choosing a Medicare supplement insurance policy, how important is each of the following?

Source: 2014 Towers Watson Retiree Panel Survey

Even for this relatively affluent sample, restrictions in health care availability are playing an important role in shaping retiree perceptions of their health plan choices.

Conclusion

The generation born between 1929 and 1945 has been termed “the lucky few.”9 Too young to fight in World War II, this generation entered the labor force during a period of rapid post-war economic growth. During the 1950s and 1960s, incomes rose and many workers acquired real estate and other financial assets. The government made Social Security benefits more generous and introduced Medicare in 1965, which it then significantly expanded. The benefits this generation will receive from these social programs are likely to far exceed their contributions.10 Moreover, many employees in this generation are enjoying generous employer-based retirement benefits, along with greater wealth from sustained upswings in housing and financial markets during the 1980s and 1990s.

This sample of retirees constitutes a relatively affluent group for whom the system has worked. Most were satisfied with their finances, and their quality of living in retirement met or surpassed their expectations. Those few who were worried about their financial futures were more likely to have retired involuntarily and have smaller amounts of secure retirement income, such as pensions or other annuities.

Future generations of retirees will not be so lucky. Weakening government finances are threatening the sustainability of Social Security and Medicare, at least in their current forms, and most employers have turned away from DB pensions in favor of typically less generous DC plans. It makes sense that the younger retirees in this sample were more financially comfortable and confident about their financial security than a comparable sample of 50- to 64-year-olds who were still working.

The surveyed retirees were most worried about the future of government and employer-based health programs. Given today’s general upward drift in health costs, it’s not surprising that some 80% of retirees were concerned about health cost increases over the next two years, and more than a third were concerned about being able to pay their future medical expenses.

For a minority of responding retirees, these financial pressures have forced them to dig deeper into their pockets, skimp on treatment or otherwise reduce costs. Fourteen percent have had to withdraw savings or get a loan to meet out-of-pocket costs, while 17% have postponed or avoided needed treatment. In addition, more retirees were using generic medicines (80%) and purchasing medicines online (18%) to better manage their costs. Restrictions on covered services were also affecting current retirees: 30% paid a larger copayment or even the entire cost of seeing their own specialist or primary care physician, and half were worried about future restrictions.

These survey results suggest that even relatively affluent and financially confident retirees with employer-funded retiree medical plans have concerns about the future of Social Security, Medicare, and their health plans and health costs.


Endnotes

2. See “Retirement Security Across Generations: Are Americans Prepared for Their Golden Years?” Washington, D.C., Pew Charitable Trusts (2013).

3. See Emmons, William R. and Bryan J. Noeth, “The Economic and Financial Status of Older Americans: Trends and Prospects” (2013).

4. U.S. Census Bureau, Current Population Survey, 2014 Annual Social and Economic Supplement. CPS income measures have been criticized as underestimating retirement income as they fail to capture “as-needed withdrawals from 401(k)s or IRAs” and hence may understate the resources available to retirees (see “Employer Plans, IRAs and Retirement Income Provision: Making a Molehill Out of a Mountain,”Towers Watson Insider, October 2013).

5. See Wyatt, Edward, “Most of the U.S. Is Wired, but Millions Aren’t Plugged InThe New York Times (August 18, 2013).

6. See “Annuities and Retirement Happiness,” Towers Watson Insider, September 2012.

7. We employed an ordered probit regression model and held constant the influences of income, age, gender, region, employment status and health status. Results are available upon request.

8. Medicare Select is an exception.

10. See Gokhale, Jagadeesh, “Fiscal and Generational Imbalances and Generational Accounts: A 2012 Update,” Cato Institute working paper, November 2012