How many of your employees will be short of money in retirement if they ignore the prospect of requiring long-term care? Answer: All of them.
Many employees, already under the gun to save enough to pay for nonmedical expenses in retirement, are in even worse shape when anticipated future medical costs are factored in.
For example, nearly half (48%) of consumers believe that the total amount theyll need to spend on healthcare in retirement wont exceed $50,000. Moreover, only 15% of pre-retirees have even estimated the level of health care costs they will face in retirement. The average 65-year-old couple retiring today, meanwhile, can expect to need $220,000 to cover medical expenses, not including long-term care.
The findings come from research of 500 employers and 1,005 consumers conducted by Alegeus Technologies, the consumer health care funding platform, and a third-party research firm.
The survey also revealed that consumers have a lot of misconceptions about health savings accounts. For example, 65% seem to confuse HSAs with health reimbursement accounts, believing that they would forfeit any un-spent HSA funds at the end of the year, as is the case with HRAs. That might not be surprising, because 71% of those polled are not enrolled in any tax-advantaged benefit accounts, according to Alegeus.
HSAs can only be offered in conjunction with a high deductible health plan. But the definition of high today isnt very high a deductible exceeding $1,300 for single coverage, and $2,600 for family coverage.
HSAs, Alegeus suggests, can serve as a very effective long-term saving and investment vehicle to help employees prepare for health costs in retirement. The key is for employees not to tap too deeply into their HSAs to pay for health costs prior to retirement.
HSAs are funded with pre-tax dollars, and arent taxed when used to pay medical expenses. That makes them superior to 401(k)s and IRAs, which are taxed at the back end.
As with IRAs and 401(k)s, funds withdrawn too soon from HSAs (assuming its for a non-medical purpose) face a penalty tax 20%, plus regular income tax. That penalty disappears after age 65. Unlike retirement accounts, HSAs have no minimum annual distribution requirements.
Also see: HSA growth linked to excise tax concerns
Todays annual HSA contribution limits are $3,350 for employees with single coverage, and $6,650 for family coverage, suggesting that employees who save aggressively in HSAs can put a big dent in their future health cost needs.
That is rarely done, however. According to Employee Benefit Research Institute data, only 15% of HSA owners make the maximum annual contribution. Employees would be wise not to, however, if they had not already contributed up to the maximum amount in their 401(k) that is eligible for an employer match.
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