Inflation’s Toll: Cuts to Retirement Savings and Health Care

Despite several interest rate hikes and another on the horizon, the Federal Reserve has yet to meaningfully curb inflation, leaving Americans struggling with record-high prices for essential items such as gasoline, groceries and health care. And as costs for necessities continue to increase, many people have been forced to make tough decisions that sacrifice their health and well-being.

A Nationwide Retirement Institute survey(1) of 1,140 adults shows that over the past 12 months, nearly one in five American households (17%) received food or goods from a food bank (22% for Millennials), and the same amount stopped buying healthier foods (organic or high-priced healthy foods). Nearly one in five Americans (18%) say they skipped meals or didn’t buy groceries due to high inflation (including 28% of Gen Z and 23% of Millennials).

A recent Federal Reserve report finds that consumers are also taking on more credit card debt just to pay for everyday expenses. Depleted savings and skyrocketing costs have many middle- and lower-income Americans living in a precarious financial situation and in need of help, which is particularly concerning as most signs point to a recession in 2023.

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While food insecurity deepens, too many Americans are also struggling to pay for critical health care expenses. Our survey also reveals many people have canceled or postponed plans in the past 12 months to see a specialist (14%), take a prescribed medication (10%) or get an annual physical (11%) due to high inflation.

Inflation Can Affect Mental Health, Too

High inflation can also take a toll on mental health as we know that a top stressor for many individuals is finances. Because people’s financial, physical and mental health are all connected, it is imperative that Americans are receiving the care they need in a time like this, instead of canceling or postponing plans to see a mental health professional, as almost one-fifth of Gen Z (17%) and Millennials (19%) have done in the past year.

Despite squeezing every penny, half of Americans (49%) say their health care expenses have gone up this year – with no relief expected anytime soon. A third (32%) worry their monthly health care premium will increase, and 40% expect their prescription drug costs will increase.

However, less than a fifth of Americans (17%) have adjusted their family’s budget to pay for health care expenses in the past 12 months, and 14% say they are considering downgrading their health insurance plan because of high inflation (23% Gen Z, 20% Millennials).

It’s important that Americans leverage all resources available. However, our survey finds while half of employed adults (49%) have access to a health savings account (HSA) through their employer, only 30% who do contribute to one. Of those who do use HSAs, just 33% maximize the triple tax benefits by using their HSA as a long-term savings vehicle for future health care expenses in retirement.

10% Divert Funds From Retirement to Health Care

Another concerning issue is that 10% of adults have already diverted funds from retirement savings to pay for health care expenses, either by cutting contributions or by taking withdrawals from their retirement plans. Another 14% of adults are considering doing so this year. This figure is higher for Gen Z and Millennials at 21% and 20%, respectively.

It’s important to start early and keep saving for retirement – especially if your employer offers a 401(k) match. Too often, people prioritize things like buying a home or paying off student or consumer debt first before they start saving for retirement. On average, people don’t start contributing to their retirement plan until the age of 31, according to data gathered from the nearly 2.5 million defined contribution plan participants Nationwide serves. This means most are missing out on nearly a decade of savings, asset accumulation and greater compounded returns.

Remember, saving for retirement is not an all or nothing proposition. Saving something now, even if it’s just a little bit, is better than waiting until later.

According to our survey, many Americans need help making decisions to feel more secure in their daily lives and financial futures. For example, 70% of adults wish they had a better understanding of Medicare (which could save them money when selecting a plan). Similarly, 70% can’t or aren’t sure how to estimate how much they may pay for health care in retirement, and only 39% of adults have a plan to save for their retirement health care costs.

The good news is you don’t have to figure this out on your own. As Americans face continued market turbulence and an increased cost of living, now is the time to consult with a financial professional to create a plan that not only prioritizes your health care needs now, but also in retirement and helps keep you on track toward short- and long-term goals.

While consulting with a financial professional costs money, your return on this investment over the long run can be well worth the expense. Financial professionals can help with financial tools — such as health care cost estimators and Social Security calculators to better prepare you for challenges you may face in retirement and help ensure you maximize your benefits.

If Nothing Else, Focus on What You Can Control

Lastly, financial professionals can help you create a balanced portfolio and a tax-efficient income plan for retirement that can increase your ability to afford the health care services you will need later.

If a financial professional doesn’t fit your current budget, focus on what you can control. Consider cutting things like eating out, expensive vacations or entertainment before you deprioritize your 401(k) contribution, HSA or other long-term savings vehicles.

Whether you’re cutting corners on your health now, failing to plan for health care costs in the future or have a friend or loved one who is facing these challenges, the first step is putting a plan in place. A trusted financial professional can help you chart a course for better physical, mental and financial health now and in retirement.

(1) The 2022 Nationwide Retirement Institute Health Care Costs in Retirement survey was conducted online in September by The Harris Poll on behalf of Nationwide, among 1,140 adults age 18+ residing in the U.S. 

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