The impact of unexpected medical expenses on retirement planning

Retirement is a milestone that many employees eagerly anticipate, envisioning a time of relaxation, fulfillment, and financial security. However, the reality is that unexpected medical expenses can pose a significant threat to retirement plans. As healthcare costs continue to rise, employees are increasingly at risk of delaying their retirement due to the financial burden of unforeseen medical events. In this article, we will explore the impact of unexpected medical expenses on retirement planning and highlight the challenges employees face in achieving their retirement goals.

The rising cost of care

Healthcare costs have been steadily increasing, outpacing inflation rates and putting a strain on individuals and families. According to a report by the Kaiser Family Foundation, the average annual premium for employer-sponsored family health coverage reached $23,968 in 2023, a 7% increase from the previous year.¹

Depleting retirement savings

To maintain financial security during retirement, many employees diligently contribute to retirement savings accounts over the course of their careers. However, unexpected medical expenses can often drain these hard-earned savings. According to a survey conducted by EBRI, nearly one-third of workers have withdrawn money from their retirement accounts for medical costs.² This alarming statistic highlights the vulnerability of retirement savings to unforeseen healthcare expenses. When employees are forced to dip into their retirement funds to cover medical bills, it not only depletes their savings but also disrupts the compounding growth that is crucial for long-term financial security.

Added financial stress

The financial burden of unexpected medical expenses can lead to increased stress and anxiety for employees. This stress can have a ripple effect on retirement planning, as employees may feel compelled to continue working to rebuild their depleted savings or cover ongoing medical costs. According to a study by the Transamerica Center for Retirement Studies, 45% of workers plan to delay retirement due to financial reasons, including unexpected medical costs.³ This delay not only affects individuals but also has implications for the overall workforce and economy. It can limit opportunities for younger workers to advance and strain pension plans and other retirement benefits, potentially impacting the financial health of organizations.

What can employers do?

By offering comprehensive benefit coverage, educating on the importance of building emergency funds, and providing financial resources, employers can help employees navigate unexpected medical events now to avoid delaying their retirement dreams. Adding a full suite of supplemental health coverage such as accident, critical illness, and hospital indemnity products to your benefits plan may greatly assist employees obtain greater financial protection to help safeguard their retirement savings and be better prepared in times of need.

¹Kaiser Family Foundation. (2023). Employer Health Benefits Survey 2023 Annual Survey - Summary of Findings

²Employee Benefit Research Institute and Greenwald Research. (2023 Retirement Confidence Survey, EBRI Chartbook (Employee Benefit Research Institute, April 27, 2023)

³Transamerica Center for Retirement Studies and Greenwald Research. (2023). Life in Retirement: Pre-Retiree Expectations and Retiree Realities.

Accident Insurance, Critical Illness Insurance, and Hospital Indemnity Insurance are limited benefit policies. Accident insurance pays benefits for accidents only. These products are not health care insurance and do not satisfy the requirement of minimum essential coverage under the Affordable Care Act. New York Life Group Benefit Solutions’ Accident Insurance, Critical Illness Insurance, and Hospital Indemnity Insurance are underwritten by New York Life Insurance and Annuity Corporation, a subsidiary of New York Life Insurance Company. Product availability may vary by state and is subject to change. Voluntary benefit products are not available in New York. Policy forms: Accident: GBS-AI-1000.00; Critical Illness: GBS-CI-1000.00; Hospital Indemnity: GBS-HI-1000.00.