Employees Without Health Coverage Outside Work Less Likely To Retire

Older workers without other health care insurance options are more likely to defer retirement to stay covered under their employer's plan, according to an analysis by Watson Wyatt Worldwide, a leading global consulting firm. Other factors, such as whether an employee has a pension, also contribute to decisions on when to retire.

The Watson Wyatt analysis found that employees who rely on their employers for health care coverage and do not expect to receive employer-provided health benefits in retirement are 16.5 percentage points less likely to retire in any given year than workers with access to health care coverage through another source. These sources can include a spouse's health insurance plan, public health insurance, COBRA coverage or employer-sponsored retiree health insurance. Watson Wyatt analyzed data collected from 1992 to 2004 as part of the University of Michigan's Health and Retirement Study, a biannual survey of 22,000 older U.S. workers.

"The link between health care and retirement security is just one of the factors affecting older workers' decisions about retirement," said Mark Warshawsky, director of retirement research at Watson Wyatt. "Most factors point to an aging workforce, driven by delayed retirements. A holistic view of these factors will help employers develop a better understanding of how their workforce might change in coming years and what that might mean for their business."

The analysis of workers over age 50 found that a number of factors, in addition to health care, influence retirement decisions:

-- Retirement plan types. Having only a defined benefit (DB) plan, such as a traditional pension, increases the likelihood of retirement by 4.1 percentage points. Compared with defined contribution (DC) plans, DB plans encourage a more timely retirement in part because they provide guaranteed retirement income. In DC plans, such as 401(k)s, participants bear the dual risks of fluctuation in their retirement accounts and outliving their retirement funds.

-- Public policies. The gradual increase of the age at which workers can retire and receive full Social Security benefits is having a considerable effect on retirement decisions. With the age incrementally increasing from 65 to 67, workers born in the 1940s are less likely to retire early than those born in the 1930s.

-- Household wealth. While workers' household financial wealth obviously has an effect on their retirement decisions, the analysis found that the source of the wealth makes some difference. For instance, a $100,000 increase in expected income from a pension plan or Social Security is more likely to prompt earlier retirement than an increase in housing equity or other household financial assets.

"Retirement is the result of a complex decision-making process that is influenced not only by employees' benefit packages but also by environmental factors," added Kevin Wagner, senior retirement consultant at Watson Wyatt. "When the market booms, DC plan participants might retire just when companies need to add workers, and when there are market busts, DC plan participants might stay at work just when companies want to reduce the size of their workforce. To effectively predict and manage workers' exit from the workforce, employers need to take a comprehensive view of their benefit programs and tailor their retirement programs to meet both employee and employer needs."