Planning for Retirement Health Care Costs - IS THERE A CURE-ALL SOLUTION? Retirement Wellness
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IS THERE A CURE-ALL SOLUTION?
Retirement
Wellness
Planning for Retirement
Health Care Costs
Presenter Name
DateAgenda
WHAT DOES THE HEALTH CARE
01 LANDSCAPE LOOK LIKE?
HOW CAN EMPLOYEES SAVE / PLAN
02 FOR HEALTH CARE EXPENSES?
WHY YOU NEED TO DISCUSS THE
03 TOPIC OF HEALTH CARE
2Health Care Landscape
The Average Employee Is
Unprepared for Retirement
25% 57% 64%
expect to run out can’t afford to contribute say finances are the
of money1 more to their plans1 largest source of stress
in their life3
24% 63%
of wages go to consumer don’t have enough savings to
debt payments2 cover a $1,000 emergency4
1T.Rowe Price Retirement Savings and Spending Study (2018). Representative national study of 3,005 adults 21 years old or greater, never retired, currently
contributing to a 401(k) plan or eligible to contribute and have a balance more than $1,000. Survey was conducted online July 24-August 14, 2018.
2U.S. Census Bureau at al. 2014
3Sophie Bethune, “Money Stress Weights on Americans’ Health”, Monitor on Psychology, Volume 46, No. 4, Page 38, 2015, American Psychological Association.
Reprinted with permission.
4Bankrate Money Pulse survey, December 2015
4Top Five Fears About Retirement
1 2 3 4 5
40% 33% 28% 17% 17%
Running out Health issues Health care costs Inability to Inability to
of money meet monthly maintain standard
expenses of living
Source: Employee Financial Wellness Survey, PwC US, 2018.
PwC’s Employee Financial Wellness Survey tracks the financial and retirement well-being of working U.S. adults nationwide. The 2018 survey incorporates the views
of 1,600 full-time employed adults representative of the U.S. population by age and gender. The margin of error is +/- 3%. Participants are categorized by generation
using the following age groups: 21 to 36 (Millennials), 37 to 57 (Gen X) and 58 to 75 (Baby Boomers).
5Health Care: One of The Greatest
Expenses in Retirement
EXPENSES FOR AMERICANS AGE 75+
16%
2% 36%
Housing
4%
Health Care
Transportation
Food
12% Entertainment
Clothing
Miscellaneous
14% 16%
Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016
6How the Health Care Dollar Is Spent
5% 4%
Nursing Home Dental
Services
10% 33%
Prescription Hospital Care
Drugs
20% 28%
Doctor Visits Other
and Services
Source: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017
7A Closer Look at Medicare
8Medicare Alone Won’t Be Enough
MEDICARE COVERS MEDICARE DOES NOT COVER
Inpatient hospital costs Hearing aids
Surgeries Most vision care
Doctor visits Most dental care
Personal aid services to help you
Lab tests stay in your home
Most nursing home and other
Preventive screenings
long-term care
Equipment, such as
Assisted living
wheelchairs
Medicare is representative of Part A and Part B coverage.
Source: Medicare.gov 2018
9Health Care Costs in Retirement Fall Into
Two Categories
THE
1 Predictable
THE
2 Unpredictable
10The Predictable: Medicare and Medigap
2019 MONTHLY PREMIUM COSTS
Part A Subsidized premium
Part B $135.50 - $460
Varies by state and plan
81%
Part D of total health care
Median: $40
expenses go to
Medigap Varies by state and plan premium costs
(supplemental) Median: $200
Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study,
(HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA
U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage
share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap.
11The Predictable: 2019 IRMAA Brackets
INDIVIDUAL COUPLES
PART B PART D
MAGI MAGI
< $85k < $170k $135.50 Premium (varies)
$85k - $107k $170k - $214k $189.60 (40%) Premium + $12.40
$107k - $133k $214k - $267k $270.60 (100%) Premium + $31.90
$133k - $160k $267k - $320k $352.20 (160%) Premium + $51.40
$160k - $500k $320k - $750k $433.40 (220%) Premium + $70.90
>$500k >$750k $460.50 (240%) Premium + $77.40
Source: Medicare Board of Trustees
12Retirement Health Care Costs
2019 ESTIMATED ANNUAL EXPENSES (INDIVIDUAL)
$12,000
$10,200
$10,000
$8,000 $7,300
$6,100
$5,800
$6,000
$5,200
$4,500 $4,500 $4,700
$3,800
$4,000
$2,200
$2,000
$1,100
$500
$0
Premium Out of Pocket Total
25th Percentile 50th Percentile 75th Percentile 90th Percentile
Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study,
(HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA
U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage
share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap. Medigap policies bought directly from an insurance
company, an insurance exchange, or group plans provided by AARP are considered for these calculations. Costs of long-term care are not included in the analysis.
13Health Care Is A Huge Expense for Employers
AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS)
$14,000
$12,486
$12,000 $11,580
$10,826
$10,357
$10,000
$8,000
$6,000
$4,000
$2,000
$0
PPO HMO HSA-eligible PPO with deductible
CDHP greater than $1,000
75% of employers view HSAs as part of a retirement benefits strategy
Source: Mercer National Survey of Employer-Sponsored Health Plans, 2018; PSCA Health Savings Accounts and Retirement Plans, 2017. CDHP is Consumer
directed health plan.
.
14How to Save / Plan for Health Care Expenses
Planning for Health Care Expenses
Pre-tax Accounts
Roth Accounts
Health Savings Accounts (HSAs)
Variable Annuities
16No One Option is Perfect
Advantages
ACCOUNT TYPES PRETAX ROTH HSA
Excluded from Excluded from
Contributions Not excluded1
taxable income1 taxable income1
2019 Maximum Annual $19,000 retirement plan $19,000 retirement plan $3,500 individual
Contributions2 $6,000 IRA2 $6,000 IRA2 $7,000 family
Early Distribution
10% 10% 20%
Penalty3
Qualified medical expenses
Early Distributions Limited access4 Limited access4
(QME): No tax or penalty
Taxes on Distributions Ordinary rate Tax-free if qualified5 Tax-free if used to pay QME
Required Minimum Begin at the later of age 70½ Begin at age 70½ for
None
Distributions (RMDs) or retirement retirement plans6
Tax Treatment for Ongoing tax deferral Ongoing tax-free Value immediately subject to
Non-spouse Heirs (subject to RMD requirement) (subject to RMD requirement) ordinary income tax
Reflects Roth and pretax employer-sponsored plans (as opposed to IRAs) unless noted. Advantages of account type (relative to the others) shown in blue. All three
types grow tax-deferred. These are not the only options when it comes to saving for healthcare and/or medical related expenses in retirement. Note that while HSAs
are structured for the individual to save or invest for health costs, this is not the intended primary purpose of a defined contribution plan or IRA. Individuals should
evaluate their health coverage needs and other factors before seeking tax benefits of an HSA. Source: IRS documents.
1Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 2Subject to income limitations on participation
(Roth IRA) or deductibility (Traditional IRA). Amounts do not include catch-up contributions. 3Penalties end at age 65 for HSA and generally at age 59 ½ for Roth and
Pretax. Distributions of contributed assets from Roth accounts are tax- and penalty-free. 4Early distributions from retirement plans or IRAs may be subject to taxes
and penalties unless an exemption applies. 5Once you reach age 59 ½ with an account that has been opened for at least five years, you may qualify for tax-free
withdrawals of both Roth IRA contributions and any accumulated earnings. 6Roth IRAs have no RMDs for original owner.
For additional information please reference T. Rowe Price “Using Health Savings Accounts Wisely”.
17Employers’ Adoption of
High Deductible Health Plans
PERCENT OF EMPLOYERS OFFERING/LIKELY TO OFFER CDHP*
(BY EMPLOYER SIZE)
100%
Small employers (10-499 employees)
90%
All large employers (500+ employees)
80% Jumbo employers (20,000+ employees)
70%
60%
50%
40%
30%
20%
10%
0%
2011 2012 2013 2014 2015 2016 Expect to offer
in 2019
*Consumer-directed health plan (CDHP). HSAs require the use of a high deductible health plan (HDHP), which is a specific type of CDHP.
Source: Mercer National Survey of Employer-Sponsored Health Plans.
18HSA Asset Growth
TOTAL HSA ASSETS (BILLIONS)
$80
$75
$70
Deposits Investments $64 $17
$60
$54 $14
$50 $10
$45
$40 $38 $8
$30 $6
$30 $58
$24 $4
$50
$19 $3 $44
$20 $16 $37
$12 $32
$10 $26
$10 $5 $7 $21
$3 $17
$1.7 $11 $14
$7 $9
$3 $5
$0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(est) (est)
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary
19HSA Overview
TAX-PREFERRED SAVINGS FOR INDIVIDUALS COVERED BY
HIGH-DEDUCTIBLE HEALTH PLANS (HDHP)
Triple tax advantage
Contributions excluded from income
Assets grow tax-deferred
Withdrawals for qualified medical expenses are tax-free
Portable and not “use it or lose it”
KEY FACTS (2019) Individual Family
Eligibility: Under 65, Enrolled in HDHP
HSA Annual Contribution Limit $3,500 $7,000
HSA per-person catch-up contribution
$1,000 $1,000
limit (age 55)
Minimum deductible for HDHP $1,350 $2,700
Maximum out-of-pocket expense for
$6,750 $13,500
HDHP
Source: IRS documents
20HSA Contributions
AVERAGE ANNUAL
HSA CONTRIBUTION
Employer Contributions
$1,872
81% contribute to HSAs
39% front-load contributions at the
beginning of the year
$839
30% contribute with each pay check
Employer Employee
Source: PSCA Health Savings Accounts and Retirement Plans, 2017; includes employers who have HSAs. Devenir Research, 2018 Year-End HSA Market Statistics
& Trends Executive Summary.
21Profile of HSA Investments
AVERAGE ALLOCATION (PARTICIPANTS AGE 60+)
6% 1%1%
7% Large-Cap
Lifestyle/Allocation
7% Small-Cap
39%
International
Money Market
8% Bonds/Fixed Income
Mid-Cap
Target Date
9% Real Estate
Other
9% 12%
Source: 2018 Year-End Devenir HSA Research Report
22Employee HSA Scenarios
HSA’S CAN HAVE A RANGE OF OUTCOMES
VERY BAD SUBOPTIMAL FAIR
Early nonqualified Leaving large balance to Using for nonqualified
distributions non-spouse beneficiary expenses after age 65
20% penalty Ordinary tax for heirs Pay ordinary tax
23Employee HSA Scenarios
HSA’S CAN HAVE A RANGE OF OUTCOMES
GOOD BETTER BEST
Contribute more than
expected medical Contribute at or near the
Contribute the amount
expenses for year maximum and invest
of medical expenses
and build cushion by for long term
for current year
only using assets for
(only spending account) Full triple-tax benefit
large or unusual
medical expenses
24HSA Appropriateness
FOR PEOPLE WITH A CHOICE OF TRADITIONAL AND HIGH-
DEDUCTIBLE HEALTH PLANS
Couple with young kids,
Healthy empty nesters Healthy, successful young
high medical expenses and
in high tax bracket person with saving capacity
limited saving capacity
KEY DECISION FACTORS: KEY DECISION FACTORS: KEY DECISION FACTORS:
Will HDHP cost more than a Factoring tax rate and time Given young age, is there a
traditional plan? horizon, does value of HSA tax possibility of accumulating too
treatment outweigh risk of high much in an HSA?
Would they really invest in
out-of-pocket costs?
HSA or use it for annual Are there other financial
expenses? priorities to consider?
LIKELY CONCLUSION: LIKELY CONCLUSION: LIKELY CONCLUSION:
HDHP/HSA not Choose HDHP and invest the Invest in HSA, but possibly not
beneficial maximum allowed in HSA at maximum level
Source: T. Rowe Price “Using Health Savings Accounts Wisely. “High-Deductible vs. Low-Deductible Plans”; “HSA Contributions Based on Potential Qualified
Medical Expenses”; “Contribution Strategy Example”. Examples are for illustrative purposes only and are generic in nature.
25Why You Need to Discuss Health Care
HSA Carry Forward
MARKET-WIDE HSA CONTRIBUTIONS CARRIED FORWARD TO THE
FOLLOWING YEAR (BILLIONS)
$9
$8.0
$8
$7
$6.2
$5.9 $5.7
$6
$5.0
$5
$4 $3.9
$3.0
$3 $2.6
$2
$1
$0
2011 2012 2013 2014 2015 2016 2017 2018
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary. Carry forward equals HSA industry contributions minus withdrawals.
27Growth of HSA Investment Accounts
HSA INVESTMENT ASSETS (BILLIONS)
$18
$16.7
$16
$14 $13.6
$12
$10.2
$10
$8.3
$8
$6 $5.5
$4.2
$4 $3.2
$2.3
$1.7
$2 $1.1
$0.9
$0.1 $0.2 $0.2 $0.4
$0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(est) (est)
%HSA
Assets in 7% 5% 4% 5% 7% 8% 11% 12% 13% 14% 15% 18% 19% 21% 22%
Investments
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary
28Health Care Planning: A Compelling
Addition to Your Practice
Standing Out
Retention and
From
Referrals
Competitors
Holistic
Retirement
Planning
29Opportunities for Advisors
Offer fair and
Establish a
balanced Provide ongoing
process to help
reviews of investment
employers vet
health care education and
providers and set
savings options advice
up a HSA
and strategies
30Fiduciary Considerations
Are you assuming fiduciary liability if you provide HSA
advice to employers and/or employees?
Only
ofofrespondents
74%
those contributing
would find
to HSA
advice
saidon
16%
of people who have used an
saving
that theyto would
fund health
benefit
care
from advice1
expenses advisor have received
in retirement useful advice from them on health
care expense planning
Source: T. Rowe Price Retirement Savings and Spending study (2018)
31Summary
Health care expenses are very top of mind
Huge concern for employees; with waning confidence
Biggest (and growing) benefits expense for employers
Consist of predictable (Medicare) and unpredictable (long-term care)
Several savings options exist
Pretax and Roth contributions
Health Savings Accounts (HSAs)
Increased savings levels & significant equity exposure (regardless of account type)
Health Savings Accounts (HSAs)
Increasing employer and employee adoption
Offer triple tax advantage
Appropriate for many—but not all—who have access to them
Many health care and financial factors to consider
Opportunities for advisors
Proactively discuss to show added value
Stand out from the competition
Provide investment advice for HSA plans
32THANK YOU T. Rowe Price Investment Services, Inc., Distributor. C17J2JO30 3/19 201903-759870
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