How Are Luxottica Employees Impacted by Inflation & Rising Interest Rates?

Healthcare Provider Update: Healthcare Provider for Luxottica Luxottica utilizes EssilorLuxottica, its parent company, as its primary healthcare provider. EssilorLuxottica has made significant strides in integrating wellness and health services for its employees to ensure they receive comprehensive healthcare tailored to their needs. Upcoming Healthcare Cost Increases for 2026 As we approach 2026, healthcare costs are expected to rise significantly, with estimates indicating potential increases of up to 75% in out-of-pocket premiums for many consumers. This surge is largely attributed to the anticipated expiration of enhanced ACA premium subsidies and simultaneous rate hikes from major insurers, with states like New York reporting increases as high as 66%. Coupled with ongoing inflation in medical costs and a spike in demand for healthcare services, companies like Luxottica may see substantial financial pressure, necessitating strategic planning to mitigate the impact on both employees and operational budgets. Click here to learn more

Have you looked at the news recently? Every news site that you visit, the headlines are plastered with “HISTORICAL INFLATION RATES” or “HIGHEST INFLATION RATES IN THE LAST 39 YEARS”. As an employee of Luxottica, what does this actually mean for you as you approach retirement?

First off, let us define what inflation is. Inflation is known as the increase in general price levels of goods and services. Inflation is measured through the CPI, the Consumer Price Index, which is produced by the Bureau of Labor Statistics. The U.S. Bureau of Labor Statistics found that a gallon of whole milk cost $3.66 in October 2021, which is 8% more from October 2020 at $3.38 per gallon. Combined with the other goods and services, we would find an average increase in prices and calculate how much prices have increased within a given time period. Normally, the Federal Reserve targets an inflation rate of 2% and since 2016, it has been pretty consistent, only off by about a half percentage point. However, in 2021, the annual inflation rate was 7%, drastically different from the 1.4% increase in 2020 and the 2.3% increase in 2019. To put this in perspective, from 2018 to the end of 2020, CPI grew at a cumulative 5.7%. So within a single year, inflation grew faster than the three years prior.

Inflation is an expected occurrence and many people who retire tend to expect a consistent rate over their life span and calculate their retirement expenses with this in mind. However, these calculations quickly change when there are abrupt increases in inflation. Unexpected inflation can have devastating effects on a Luxottica employee’s savings as it whittles away at your spending power faster than you expect it to. Today, you might be able to buy groceries within a certain budget, but during an inflation spike, groceries will outpace your budget and soon enough, you’ll find yourself spending considerably more for your normal grocery bundle.

In order to control the rapid rise of inflation, the Federal Reserve uses interest rates to dissipate inflationary pressures. As interest rates increase, inflation generally decreases. This relationship is caused by how interest rates affect the rate of borrowing money. When interest rates are low, people will borrow money as they pay less in interest. This fuels the economy and increases inflation. As interest rates rise, people will borrow less and the markets will move slower as there is less fuel to add to the fire. These factors go hand in hand in an economic balancing act.

You may be wondering: “How does this affect my Luxottica pension? Should I be choosing lump-sum or annuity?” As pension lump sum amounts are calculated using the current interest rates, choosing lump-sum versus annuity can be a difficult decision. Since lump-sum pensions are inversely affected by interest rates, the higher interest rates rise, the less you will receive from your Luxottica lump-sum pension. As interest rates rise however, annuity pensions become a lot more attractive as they use current interest rates to calculate your lifetime monthly payments.

In regards to healthcare, it is lagging behind the country’s 7% inflation rate and has only risen 2.5% over this past year. However, we are seeing a labor shortage in the healthcare sector, which can lead to a rise in wages to attract workers and would ultimately increase prices and insurance premiums for patients. Many Luxottica retirees typically rely on Medicare to support them in their healthcare costs, however, Medicare rarely covers all costs and patients are required to pay a premium on top of out-of-pocket expenses. These premiums will increase as inflation continues to increase, leading to an overall increase in expenses for healthcare. For the upcoming 2022 year, Medicare Part B premiums increased by 14.5%, pushing the standard monthly premium to $170.10. Even though, as a whole, healthcare costs have not risen in line with inflation, we have seen very high inflation for those nearing or at retirement age.

With increasing prices in drug expenses and Medicare premiums, the Employee Benefit Research Institute (ERBI) found in their 2022 report that couples with average drug expenses would need $296,000 in savings to cover those expenses in retirement - a 10% increase from the year prior. Couples with higher drug expenses would need $361,000 to cover those healthcare costs - an 11% increase from the year prior.

Overall, the landscape of the economy is rapidly changing and these recent developments have been shifting people’s expectations and forecasts for retirement. Understanding how inflation and interest rates will affect your retirement is a vital step in crafting a successful retirement plan.

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