Health Savings Accounts are Valuable for Retirement Planning
Health Savings Accounts seem to be an idea whose time has finally come. Both employers and employees are embracing Health Savings Accounts (HSAs) as a valuable benefit, especially when it comes to managing rising anticipated healthcare costs for retirement.
That’s according to a TD Ameritrade report cited in Employee Benefit News. The latest figures from Fidelity warn that a 65-year-old retired married couple in America should be prepared to foot the bill for $285,000 worth of healthcare expenses during retirement. However, the TD Ameritrade study, which surveyed 1,500 Americans age 45 and over about their retirement concerns, found that many people have concern they have not saved enough. However, according to an expert from TD Ameritrade quoted in the EBN article, Americans also recognize that healthcare costs should be a top area of focus as they plan for retirement.
In fact, 57% of Americans say healthcare costs are an obstacle to retirement, according to the TD Ameritrade study. Among their concerns, market conditions (37%) and inflation (35%) were a slightly distant second and third.
Nonetheless, more employers are offering Health Savings Accounts as a way to help employees set money aside for healthcare costs, both pre and post-retirement. According to Fidelity Investments, as also quoted in the EBN article, 112 new employers began offering HSAs as a benefit for employees. In addition, the number of HSAs being opened at Fidelity increased 50% from 2017. Fidelity’s client-base now includes 837,800 individual Health Savings Account holders with approximately $3 billion in assets. Moreover, employers contributed nearly $9 billion to their employees’ HSAs in 2018, a meaningful increase from recent years, according to an expert from Devenir, an HSA investment and advisory consultant, also quoted by EBN. Indeed, Health Savings Accounts seem to be catching on as a key employee benefit.
Devenir expects the Health Savings Account market will grow to $75 billion in assets by the end of 2020, with 30 million accounts, according to EBN. Even online shopping behemoth Amazon accepts HSA dollars, so that figure is sure to grow.
Employers who offer HSAs as a benefit value the plan’s flexibility. Not only do Health Savings Accounts help employees set aside money for current medical expenses, they also help them save for future ones in retirement. HSAs also offer a rare triple tax benefit — they’re funded with pre-tax dollars, reducing employees’ current tax bill. The earnings in HSAs typically grow tax-free, and funds can be withdrawn without having to pay Uncle Sam if they’re used for qualified medical expenses.
Many more companies are also turning to nontraditional health insurance benefits paired with an HSA as a method to cut health insurance expenses and allow employees to have more control over their healthcare-related decisions.
HSAs are an often-overlooked benefit when it comes to managing the rising cost of healthcare and helping employees save for current and future medical expenses. The Health Savings Account structure is also a strong offering in tandem with a retirement plan, because HSAs provide employees an additional opportunity to plan for retirement by setting money aside for future medical expenses.
If you aren’t currently offering an HSA in your organization, it’s a benefit that’s worth exploring. HSAs are cost-effective, competitive, and progressive, which can help your organization when it comes to recruiting and retention in today’s ultra-tight labor market. The Health Savings Account structure helps employees to be better prepared for today’s healthcare costs, as well as those they’ll likely face in their post-retirement years.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
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