Inflation, healthcare costs drive retiree financial stress, Cerulli research shows

Inflation and rising healthcare costs are eclipsing every other worry for American retirees, according to new research from Cerulli Associates, adding fresh urgency to a planning gap advisors are still working to close.

The latest Cerulli research found that 40% of retirees report experiencing at least a moderate level of financial stress. That figure falls to 29% among retirees who have a financial plan in place, but climbs to 69% among those still working on one – a gap Cerulli says points directly to the value of ongoing planning conversations.

Inflation topped the list of stressors, cited as a high or very high concern by 21% of retirees, followed by healthcare and long-term care expenses at 16% and worries about an economic downturn at 14%. Unlike younger investors with decades to recover from a downturn, retirees face an outsized risk from market shocks just as inflation quietly erodes the income streams they built their retirement around.

“Retirement has long been the key financial goal for clients, and investment tailoring has been focused on ensuring the longevity of those investments,” said John McKenna, senior analyst at Cerulli.

“A detailed financial plan that is updated periodically can relieve financial stress, while helping advisors determine the best mix of investments and products to support clients’ retirement goals,” he added.

The Cerulli findings echo a broader industry pattern documented by LIMRA’s Retirement Income Readiness Report, publlished earlier this month. LIMRA found that while 88% of pre-retirees have thought about how they will generate retirement income, half lack a meaningful or recently updated written plan, and just 40% currently work with a financial advisor. Consumers who do work with an advisor are far more likely to feel prepared – 77%, compared with 47% of those without one – yet only 8% of the least-prepared pre-retirees have made that connection.

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Cerulli's research echoes that trend, as it found 40% of retirees without a financial plan reporting at least a moderate level of financial stress. Among those who have one, that figure falls to 29%.

Together, the two reports suggest the industry's clearest opportunity lies less in acquiring new assets than in converting awareness into action. Advisors reviewing how clients approach building a comprehensive retirement income strategy may find inflation-indexed and guaranteed income products a natural entry point for that conversation, particularly for clients within a decade of retirement.

Cerulli also points to health-related costs as an area advisors can address even outside their traditional remit, by stress-testing portfolios against unexpected medical expenses and by opening conversations about insurance and long-term care needs before they become urgent. Because healthcare costs tend to climb with age regardless of existing coverage, Cerulli notes this creates room for more proactive, ongoing communication between clients and advisors.

Read more: Draining the pool of confusion surrounding long-term care insurance

Among the laundry list of financial advisor services retirees ranked as important, portfolio management was cited by 91% as at least "moderately" valuable. A smaller 72% majority said the same about retirement planning, while 60% placed the same importance on income tax planning.

“While neither client nor advisor can predict the future, structuring investments and saving strategies while a client is still working, and when retirement is less than a decade away, will increase the chances of a stable and secure retirement,” McKenna said.