Human Resources: Employees Without Access to Health Coverage Outside Work Are Far Less Likely to Retire

WASHINGTON, D.C., May 7, 2008 — 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.”

Read more information about the factors affecting workers’ retirement
behavior at www.watsonwyatt.com/retirementtiming.

About Watson Wyatt

Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the
world’s leading organizations on people and financial issues. The firm’s
global services include: managing the cost and effectiveness of employee
benefit programs; developing attraction, retention and reward strategies;
advising pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology,
outsourcing and data services. Watson Wyatt has 7,000 associates in 32
countries and is located on the Web at www.watsonwyatt.com.