Planning for Retirement Retirement Wellness Health Care Costs - PowerPoint PPT Presentation

IS THERE A CURE-ALL SOLUTION? Planning for Retirement Retirement Wellness Health Care Costs Presenter Name Date

Agenda 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 2

Health 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 money 1 more to their plans 1 largest source of stress in their life 3 24% 63% of wages go to consumer don’t have enough savings to debt payments 2 cover a $1,000 emergency 4 1 T. 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. 2 U.S. Census Bureau at al. 2014 3 Sophie Bethune, “Money Stress Weights on Americans’ Health”, Monitor on Psychology, Volume 46, No. 4, Page 38, 2015, American Psychological Association. Reprinted with permission. 4 Bankrate Money Pulse survey, December 2015 4

Top Five Fears About Retirement 1 2 3 4 5 17% 33% 17% 40% 28% 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). 5

Health Care: One of The Greatest Expenses in Retirement EXPENSES FOR AMERICANS AGE 75+ 16% 2% 36% Housing 4% Health Care Transportation Food Entertainment 12% Clothing Miscellaneous 14% 16% Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016 6

How the Health Care Dollar Is Spent 5% 4% Nursing Home Dental Services 10% 33% Prescription Hospital Care Drugs 28% 20% Other Doctor Visits and Services Source: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017 7

A Closer Look at Medicare 8

Medicare 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 9

Health Care Costs in Retirement Fall Into Tw o Categories THE Predictable 1 THE Unpredictable 2 10 10

The Predictable: Medicare and Medigap 2019 MONTHLY PREMIUM COSTS Part A Subsidized premium Part B $135.50 - $460 81% Varies by state and plan 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. 11 11

The 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 12 12

Retirement 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 $4,700 $4,500 $4,500 $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. 13 13

Health Care Is A Huge Expense for Employers AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS) $14,000 $12,486 $11,580 $12,000 $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. . 14 14

How to Save / Plan for Health Care Expenses

Planning for Health Care Expenses  Pre-tax Accounts  Roth Accounts  Health Savings Accounts (HSAs)  Variable Annuities 16 16

No One Option is Perfect Advantages PRETAX ROTH HSA ACCOUNT TYPES Excluded from Excluded from Not excluded 1 Contributions taxable income 1 taxable income 1 2019 Maximum Annual $19,000 retirement plan $19,000 retirement plan $3,500 individual Contributions 2 $6,000 IRA 2 $6,000 IRA 2 $7,000 family Early Distribution 10% 10% 20% Penalty 3 Qualified medical expenses Limited access 4 Limited access 4 Early Distributions (QME): No tax or penalty Taxes on Distributions Ordinary rate Tax-free if qualified 5 Tax-free if used to pay QME Required Minimum Begin at the later of age 70½ Begin at age 70½ for None retirement plans 6 Distributions (RMDs) or retirement 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. 1 Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 2 Subject to income limitations on participation (Roth IRA) or deductibility (Traditional IRA). Amounts do not include catch-up contributions. 3 Penalties 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. 4 Early distributions from retirement plans or IRAs may be subject to taxes and penalties unless an exemption applies. 5 Once 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. 6 Roth IRAs have no RMDs for original owner. For additional information please reference T. Rowe Price “Using Health Savings Accounts Wisely”. 17 17

Employers’ 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. 18 18

HSA Asset Grow th TOTAL HSA ASSETS (BILLIONS) $80 $75 $70 $64 $17 Deposits Investments $60 $14 $54 $50 $10 $45 $8 $38 $40 $6 $30 $30 $58 $4 $24 $50 $19 $3 $44 $20 $16 $37 $12 $32 $10 $26 $7 $21 $10 $5 $17 $3 $14 $1.7 $11 $9 $7 $5 $3 $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 19 19