Eight out of 10 Americans are highly concerned about healthcare costs in retirement, according to Merrill Lynch. At the same time, Fidelity research shows healthcare is the largest threat to retirement savings and the most important part of a retirement income plan. With this in mind, some in the industry are pushing to more closely link health savings accounts and 401(k)s, or health and wealth.
Retirement savings efforts today are not working, as they do not tell people what to save for in the first place, says Ryan Tiernan of Access Point HSA. “We say, ‘Save as much as you can,’ [yet] aren’t specific on how you save,” says Tiernan, senior HSA consultant at the Providence, R.I. company. “That is good advice, but we need to move the conversation to ‘save more and save more efficiently.’ … [Folks] need to be smart in how they save.”
Despite worrying about their healthcare spending in retirement, just 10% of Americans have discussed healthcare with a financial adviser, according to a 2015 Nationwide Financial survey. “Do you see the disconnect?,” Tiernan asked at an event sponsored by AFS 401(K) Retirement Services in Washington, D.C., recently. “It's our biggest concern, but only 10% have that conversation.”
To that end, he suggests linking HSA savings into 401(k) planning. It is an idea, Alex Assaley, managing principal of Bethesda, Md.-based AFS 401(k), says in a follow-up interview, that is picking up steam.
“It is a big idea and there is some continued focus on it moving forward,” Assaley explains. “Although there is not a lot of traction around it, it is something we are really interested in exploring. … Linking the entire benefit offering.”
Traditionally, HSAs and 401(k)s were thought of in silos and a benefit consultant would help deliver health and welfare benefits, such as employer-sponsored medical and voluntary; while the independent retirement consultant, such as Assaley, would help organizations with creating their 401(k)s and 403(b)s to save for retirement, he says.
But, as financial wellness is demanded — and accepted more — by employers and employees alike, “you are starting to see an aligning and a gathering together of benefits, if you will,” Assaley adds. “Where it makes a lot of sense where an employer or family or couple thinks about benefits, not just, retirement in this bucket, health in another bucket, but they think of one entire financial picture.”
Assaley explains this is a natural alignment because healthcare is a major competent of life in retirement, with some estimates of it costing upward of $400,000, or close to 25% of expected spending in retirement.
It is an emerging conversation with plan sponsors, with many plan sponsors unaware of the potential benefits of linking these two items, says Bob Lawton, founder and president of Lawton Retirement Plan Consultants.
The link is not happening right now, and Lawton has trouble getting traction with plan sponsors in discussing it, partially because the amounts involved are pretty small, he says. Annual HSA contributions are limited by the government to $3,350 for an individual.
Still, Assaley predicts the conversation will continue to evolve and HSAs and 401(k)s will continue to link up over time. “As more of our peers in the marketplace have this conversation with organizations and their committees and benefits managers, there is a 3-5 year period where [we will] see it become integrated and delivered as an aligned strategy for somebody’s benefits offering,” he says. It will lead to “partnerships with firms between ours and healthcare consultants so we can work together more and sync up and deliver benefits in the way people need.”
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