While many Americans dream of retiring early, most believe the idea is just that — a dream. Workers are concerned they won’t be able to afford healthcare in their golden years, and the good news is that employers are actually doing something about it.
A 65-year-old couple retiring this year will spend $285,000 on medical expenses throughout their retirement, according to Fidelity Investments’ annual healthcare cost estimates. For single retirees, the cost was broken down to $150,000 for women and $135,000 for men. Although the research says healthcare cost increases are slowing down — 3.6% in 2018-2019, compared to 12.2% in 2015-2017 — a TD Ameritrade study says workers aren’t convinced they’ve saved enough.
“While Americans are enjoying longer lifespans, which may mean covering healthcare expenses and long-term care costs for extended periods of time, they also face the increasing costs of healthcare,” says Matt Sadowsky, director of retirement and annuities at TD Ameritrade. “The good news is that Americans do recognize that health costs should be a top priority when planning for retirement.
The TD Ameritrade study surveyed 1,500 Americans aged 45 and over about their retirement concerns; 57% said healthcare costs are standing in the way of their retirement. Market conditions and inflation were major concerns for 37% and 35% of respondents, respectively.
Employers are increasingly turning to the HSA to help their workforce save for retirement. Fidelity Investments says that in 2017, 112 new employers began offering health savings accounts to employees and that the company saw a 50% increase in the number of new HSA account openings from 2017, growing Fidelity’s portfolio to 837,800 individual HSA holders with $3 billion in assets.
“In a competitive economic environment with low unemployment, we saw employers contribute almost $9 billion to their employees’ HSAs in 2018, a meaningful increase from the previous few years,” Jon Robb, senior vice president of research and technology at Devenir, says in a statement.
Employees also are seeing the value in HSA contributions. In 2018, the number of HSAs exceeded 25 million holding $53.8 billion in assets, according to research by Devenir, an HSA investment advisory and consulting firm. The firm expects the HSA market will reach $75 billion in assets by the end of 2020, with 30 million accounts. And with online shopping giant Amazon choosing to
Employers who already offer HSAs as part of their benefits package value its flexibility.
“If you’re trying to help employees achieve a level of financial security, these plans, regardless of where you are on your journey, are invaluable,” says Deborah Culhane, CEO of Optum Bank, a financial services unit of Minnesota-based health and wellness company Optum. “They can help you now for paying medical expenses, and they can help you save for future retirement expenses.”
The HSA is a popular, and proactive, method for retirement savings because of its tax benefits, Culhane said. Unlike other retirement programs — like the 401(k) and Roth IRA — HSAs aren’t taxed. Companies can offer employer contributions to HSA accounts, just like they would to 401(k) programs.
“Without a question — especially when you achieve employer match status — the best step to save for retirement is the HSA because you’ll never be taxed on it,” Culhane says. “Taxes for all the other programs are deferred, but the HSA is never taxed. It’s the most productive way to save for retirement.”
Some employers are addressing high medical costs by finding creative ways to circumvent the traditional healthcare system. For example,
Last year, the Colorado city of Arvada also adopted a self-insured model by using a
“We were getting double digit increases every year, but by becoming self-funded we were able to take control of our plan,” says Mark Deven, Arvada’s city manager. “We challenged ourselves to reduce our annual increases to somewhere around 4-6 %, and we definitely beat it.”
