Retirees Fear Inflation More Than Healthcare Costs, Cerulli Finds

Retirees who are still hammering out a financial plan report far more stress than those who already have one in place, a finding in Cerulli Associates’ latest research that complicates the usual case for planning early.

The Boston-based researcher found that 40% of retirees report at least a moderate level of financial stress. Among retirees who already have a plan, that figure drops to 29%. But among retirees currently working with an advisor to build one, it climbs to 69%, nearly double the group average, according to the report.

Cerulli reads the gap as evidence that stress is often what pushes retirees to the planning table in the first place, rather than resulting from the planning process itself. “Understanding client stressors will help inform financial plans and build resiliency within an investment and product portfolio,” wrote John McKenna, senior analyst at Cerulli, in the research report.

Retirees worry more about inflation than anything else, including their own medical bills, the report found. Twenty-one percent call inflation a high or very high source of stress, outpacing both healthcare costs, cited by 16%, and fears of a broader economic downturn, cited by 14%. That ordering could matter for advisors who default to leading retirement conversations with medical-cost projections.

Cerulli’s data also pointed to a shift in how retirees hold their money once they leave the workforce. Retirees keep 72% of their retirement assets in IRAs, compared with 52% for the overall population, while assets sitting in a current employer’s 401(k) or 403(b) fall to just 7%, versus 37% overall. The pattern reflects the rollovers that typically follow a client’s last day of work, and a reminder of how much of the retirement book can sit outside workplace plans entirely.

Urgency around planning builds well before retirement actually begins, nothing new for advisors but well corroborated by the report. Among workers age 50 and older, 59% strongly agree it is important to have an overall financial plan, 10 percentage points above workers under 50, the survey found. Cerulli tied that pattern to a caution of its own, reminding that plans drafted years earlier can go stale if they are not recalibrated as retirement nears.

“A detailed financial plan that is updated periodically can relieve financial stress, while helping advisors determine the best mix of investments and products to ensure clients have the retirement for which they have been planning,” McKenna wrote.

For clients within a decade of retiring, Cerulli’s advice to advisors is to revisit risk tolerance and give more serious consideration to guaranteed income sources, including annuities, before the client’s official retirement date rather than after it.