How are your retirement health care savings stacking up?
Are you properly investing in your health saving account? Take a look at the this article from Benefits Pro about the importance of saving money for your healthcare by Reese Feuerman
For all ages, it's imperative to balance near-term and long-term savings goals, but the makeup of those savings goals has changed dramatically over the past 10 years.
With the continued rise in health care costs, and increased cost sharing between employers and employees, more employees and employers have been migrating to consumer-driven health care (CDH) to provide lower-cost alternatives.
With the increased adoption in these plans for employee cost savings purposes, employers have likewise realized similar cost savings to their bottom line. But what role does CDH play in the long term?
The Greatest Generation was able to rely on their pensions, Social Security, Medicaid, and the like as a means to support them in retirement for both medical and living expenses. However, as the Baby Boomers continue their journey towards retirement, reliance upon future proof retirement funds are fading into the sunset for coming generations. According to a 2015 study from the Government Accountability Office (GAO), 29% of American’s 55 and older do not have money set aside in a pension plan or alternative retirement plan.
To make matters worse, some experts are forecasting Social Security funding will be depleted by 2034, leaving even more retirees potentially without a plan. As such, Generation X and beyond must look for more creatives measures for savings to make up the difference.
In 1978, 401(k) plans were introduced to provide the workforce with a secondary means for retirement savings while also providing significant tax benefits. However, even when actively funded, with rising health care costs and a depleted Social Security system—the solution this workforce has paid into for their entire career—will not be enough.
According to Healthview Services, the average retiree couple will spend $288,000 for just health care expenses during retirement. This sum could easily consume one-third of total retiree savings. This is a contributing factor to the rise and rapid adoption of tax-advantage health accounts to supplement retirement savings. Introduced to the market in 2003, Health Savings Accounts (HSA) have provided employees with an option to set aside pre-tax funds to either cover current year health care expenses, like the familiar Flexible Spending Account (FSA), or carry over the funds year-over-year to pay for medical expenses later or during retirement. The pretax money employees are able to set aside in these accounts to cover health care expenses, will over time, be on par with retirement savings contributions, such as a 401(k) and 403(b), because of increasing costs and triple-tax savings.
It is important for consumers to understand these retirement options and how they could be leveraged for greater financial wealth. As a result, the Health Care Stack, an analysis authored by ConnectYourCare, acts as a life savings model and illustrates the amount of pretax money consumers can contribute for both their lifestyle and health expenses in retirement.
For illustrative purposes, according to current IRS guidelines, the average American under the age of 50 could set aside up to $24,750 each year pre-tax for retirement to cover their health care and living expenses. In this example, if a worker in his or her 30s starts to set aside the maximum contributions (based on IRS guidelines) for HSA contributions, assuming a rate of return of 3%, they would have $330,000 saved in their HSA to cover health care expenses once they reach the retirement age of 65. This number could be even greater if President Trump’s administration passes any number of proposed bills to increase the HSA contribution limits to match the maximum out-of-pocket expenses included in high deductible health plans. This allocation would not only cover average medical expenses, but also provide a triple-tax advantage for consumers from now through retirement.
In addition to the long-term retirement goals, the yearly pre-tax savings may be even greater if notional accounts are factored in, with approved IRS limits of a $2,600 per year maximum for Flexible Spending Accounts, $5,000 per year maximum for Dependent Care FSA, and $6,120 per year maximum for commuter plans. This equals $38,470 (or $44,820 if HSA contributions increase) of pre-tax contributions that consumers could save by offsetting the tax burden and could invest towards retirement.
For those consumers over the age of 50, the savings potential is even greater as they can contribute to a post retirement catch-up for their 401K plans equaling a total of $24,000, plus they may take advantage of the $6,750 HSA savings, as well as the additional $1,000 catch up. If certain proposed bills are passed, the increase could be $38,100 a year that they could set aside, in pre-tax assets, for retirement.
Not only will an individual’s expenses be covered, but there are other benefits brought forth by proper planning, including the potential to reach ones retirement savings goals early. Let’s say that after meeting with a licensed financial investor it was determined that an individual needed $1.8 million in order to retire, and according to national averages, close to $288,000 to cover health care costs.
Given the proper investment strategy around contributions to both retirement and HSA plans, an individual could - theoretically -save enough to meet their retirement investment needs by the age of 60 for both lifestyle and health care expense coverage, if they started making careful investments in their 20s (assuming the worker is making $50,000 per year with a 3% annual increase).
In comparison, under current proposals, which include the increased HSA limits, retirement savings could be achieved even earlier with the coverage threshold being at 57 for the average worker. This is a tremendous opportunity to transform retirement investment programs for all American workers who would otherwise be left on their own. Talk about the American dream!
While there is not a one-size fits all strategy, it is important for everyone to understand their options and see how these pretax accounts outlined in the Health Care Stack play an important consideration in ones future retirement planning.
Taking the time now to fully understand tax-favored benefit accounts will provide him or her with the appropriate coverage to enjoy life well into their golden years. Retirement is just around the corner, are you ready?
See the original article Here.
Source:
Feuerman (2017 March 02). How are your retirement health care savings stacking up?[Web blog post]. Retrieved from address https://www.benefitspro.com/2017/03/02/how-are-your-retirement-health-care-savings-stacki?ref=hp-in-depth
HSAs could play bigger role in retirement planning
Did you know that ACA repeal could have and effect on health savings plans (HRA)? Read this interesting article from Benefits Pro about how the repeal of the ACA might affect your HRAs by Marlene Y. Satter
With the repeal of the Affordable Care Act looming, one surprising factor in paying for health care could see its star rise higher on the horizon—the retirement planning horizon, that is. That’s the Health Savings Account—and it’s likely to become more prominent depending on what replaces the ACA.
HSAs occupy a larger role in some of the proposed replacements to the ACA put forth by Republican legislators, and with that greater exposure comes a greater likelihood that more people will rely on them more heavily to get them through other changes.
For one thing, they’ll need to boost their savings in HSAs just to pay the higher deductibles and uncovered expenses that are likely to accompany the ACA repeal.
But for another—and here’s where it gets interesting—they’ll probably become a larger part of retirement planning, since they provide a number of benefits already that could help boost retirement savings.
Contributions are already deductible from gross income, but under at least one of the proposals to replace the ACA, contributions could come with refundable tax credits—a nice perk.
Another proposal would allow HSA funds to pay for premiums on proposed new state health exchanges without a tax penalty for doing so—also beneficial. And a third would expand eligibility to have HSAs, which would be helpful.
But whether these and other possible enhancements to HSAs come to pass, there are already plenty of reasons to consider bolstering HSA savings for retirement. As workers try to navigate their way through the uncertainty that lies ahead, they’ll probably rely even more on the features these plans already offer—such as the ability to leave funds in the account (if not needed for higher medical expenses) to roll over from year to year and to grow for the future, and the fact that interest on HSA money is tax free.
But possibly the biggest benefit to an HSA for retirement is the fact that funds invested in one grow tax free as well. If you can leave the money there long enough, you can grow a sizeable nest egg against potential future health expenses or even the purchase of a long-term care policy. And, at age 65, you’re no longer penalized if you withdraw funds for nonapproved medical expenses.
And if you don’t use the money for medical expenses in retirement, but are past 65, you can use it for living expenses to supplement your 401(k). In that case, you’ll have to pay taxes on it, but there’s no penalty—it just works much like a tax-deferred situation from a regular retirement account.
See the original article Here.
Source:
Satter M. (2017 January 16). HSAs could play bigger role in retirement planning [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/01/16/hsas-could-play-bigger-role-in-retirement-planning?ref=hp-news
Workers Overwhelmed by Health Care Decisions
Employees are feeling the stress of healthcare costs. In the article below by Jack Craver, he provides insight as to the pressures workers are currently dealing with in todays healthcare marketplace.
Original Post from BenefitsPro.com on July 29, 2016
In case you haven’t noticed, Americans are in a tough spot on health care.
For one, their health care costs far more than that in any other country. Even worse, perhaps, they increasingly have many more decisions to make about how to pay for that care.
A new report demonstrates the frustration and hopelessness that grips so many in the face of health care decisions.
The study by Alegeus, the benefit account platform, surveyed 4,000 adults about their health care choices. It showed that there are seldom health or insurance-related choices that Americans make with relative ease or comfort.
There are no health care finance decisions, for instance, that a majority of Americans don’t find challenging. At the top of the list was “planning for out-of-pocket costs,” which two-thirds of respondents say they found either challenging or very challenging. Fifty-five percent say the same about choosing health care benefits.
Fifty-two percent said they found “maintaining health and wellness” challenging. If respondents are being completely honest with themselves (and the pollster), that figure would probably be much higher, considering that three-quarters of Americans are overweight or obese, and a certain percentage of those who aren’t still engage in unhealthy habits, such as problem drinking, substance abuse, or smoking.
One of the reasons health care is so expensive, many argue, is that for so long, Americans have been shielded from the true cost of care by generous employer-based insurance policies. As employers increasingly shift to high-deductible plans or consumer-driven health plans, millions of Americans are for the first time confronting decisions that in the past were left to higher-ups.
Alegeus CEO Steve Auerbach explained the shifting dynamics of health care shopping to BenefitsPRO.
“In the past, with health plans paying for the majority of health care costs, consumers have been conditioned to be disengaged,” he says. “This shift to consumer directed health care represents a complete paradigm shift in how consumers will need to manage their healthcare going forward — and there is a sizeable percentage of consumers who are resistant to this change. It is definitely going to take time for consumers to acclimate, build confidence, and rise to the occasion.”
He noted, however, that a similar “paradigm shift” took place with retirement benefits two decades ago, as many companies moved from defined-benefit pensions to 401(k)s.
“The infrastructure for education and support had to be built, and consumers had to adapt,” he says. “But now 401(k)s have become ubiquitous.”
See the original article here.
Source:
Craver, J. (2016, July 29). Workers overwhelmed by health care decisions [Web log post]. Retreived from https://www.benefitspro.com/2016/07/29/workers-overwhelmed-by-health-care-decisions?kw=Workers%20overwhelmed%20by%20health%20care%20decisions&cn=20160801&pt=Daily&src=EMC-Email&et=editorial&bu=BenefitsPRO&slreturn=1470060827
Wellness Study Touts CFPs
Original post benefitspro.com
Only 22 percent of employees tracked in Financial Finesse’s 2015 year in review report being on track for retirement.
The provider of workplace financial wellness programs says that is a slight improvement from 2014. Of those that are not prepared, 81 percent have never used a financial calculator to estimate their retirement preparedness.
While the number of retirement-ready workers remains bleak, those participants who have repeated engagements with planning tools, and financial planners, are showing marked improvement in retirement readiness.
Enhancements in retirement workplace plan design, like auto-enrollment and auto-escalation, and technology that addresses asset allocation are vital tools for addressing workers’ retirement preparedness.
But the Financial Finesse’s data suggests those tools alone are not enough.
A good portion of the review is committed to comparing retirement readiness of those savers who engage in live interactions with financial planners.
About half of participants that had five or more interactions with a certified financial planner report being on track for retirement.
Levels of confidence drop in lock step with the number of interactions with financial planners: 32 percent of those with three to four interactions say they are on track to retire with adequate savings; 31 percent with one to two interactions believe as much; and only 21 participants who only interact with online planning tools say they are on track to retire with enough savings.
Interacting with CFPs also translates to higher confidence with investments and how they are allocated, as 64 percent of participants with five or more interactions say they are invested appropriately, compared to only 42 percent who use an online planning tool but don’t seek live financial advice.
Overall, retirement readiness is lacking across generations. Last year, only 30 percent of baby boomers say they are on track to reach their retirement goal, which was unchanged from the previous year.
Only 22 percent of Gen Xers and 16 percent of millennials said they are on track to retire well.
Debt is a major obstacle for boomers’ retirement readiness, the report says, as 42 percent of financially distressed boomers have no plan in place to pay off their debt, and increase from the previous year.
Participation rates in workplace retirement plans was high across all age groups, as even 73 percent of workers under age 30 report being enrolled in a plan; 91 percent of pre-retirees participate in their workplace plan.
Despite high rates of enrollment, financial planners and participants sited insufficient retirement savings as the top financial vulnerability for all age groups.
Do You Know The Way To HSA?
Originally posted by Patty Kujawa on January 28, 2015 on www.workforce.com.
With the rapid growth in high-deductible health plans, health savings accounts provide an option to pay medical bills and save for the future.
Corey Barnett is an avid saver, but doesn't like the idea of stashing his retirement reserves in one place.
That's why when he left his steady job to create a digital marketing company in February 2014, the 25-year-old rolled his 401(k) into an individual retirement account and specifically looked for a high-deductible health plan so he could continue using his health savings account as a way to pay for current medical bills as well as save and invest money for retiree health costs.
Barnett likes the HSA because he finds it tax-savvy and flexible; money goes in, grows and goes out tax-free for medical bills: He can use the money today if he gets sick or he can save it for tomorrow's retiree health bills.
Read full article here.
HSA enrollment jumped in 2013: Fidelity
Originally posted May 7, 2014 by Jerry Geisel on www.businessinsurance.com
Enrollment in health savings accounts continues to surge as more employers are moving to consumer-driven health care plans, Fidelity Investments said Wednesday.
Fidelity said in a statement that the number of HSAs it administered in 2013 jumped to 269,000; up nearly 48% compared with 182,000 in 2012 and a 126% increase over 2011, when Fidelity administered 119,000 HSAs.
“Fidelity continues to drive adoption of its health savings account business as companies and their employees realize their potential advantages both today and over the long haul,” Will Applegate, a Fidelity vice president in Boston, said in the statement.
Numerous surveys have found that the cost of high-deductible consumer-driven health care plans linked to HSAs are less costly compared with other health care plans.
For example, a survey last year by Mercer L.L.C. found that the cost of coverage in CDHPs with HSAs is about 20% lower, on average, than the cost of preferred provider organization coverage — $8,482 per employee compared with $10,196 per employee for preferred provider organization coverage.
That cost difference will become even more important starting in 2018, when a health care reform law provision that imposes a 40% excise tax on health care plan costs exceeding $10,200 for single coverage and $27,500 for family coverage kicks in.