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
Retirement Wellness
IS THERE A CURE-ALL SOLUTION?
Planning for Retirement Health Care Costs
Presenter Name Date
2
Agenda
WHAT DOES THE HEALTH CARE LANDSCAPE LOOK LIKE?
HOW CAN EMPLOYEES SAVE / PLAN FOR HEALTH CARE EXPENSES?
WHY YOU NEED TO DISCUSS THE TOPIC OF HEALTH CARE
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The Average Employee Is Unprepared for Retirement
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 2015expect to run out
can’t afford to contribute more to their plans1
debt payments2 don’t have enough savings to cover a $1,000 emergency4 say finances are the largest source of stress in their life3
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Top Five Fears About Retirement
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
using the following age groups: 21 to 36 (Millennials), 37 to 57 (Gen X) and 58 to 75 (Baby Boomers).
40%
Running out
1
33%
Health issues
2
28%
Health care costs
3
17%
Inability to meet monthly expenses
4
17%
Inability to maintain standard
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Health Care: One of The Greatest Expenses in Retirement
Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016
36% 16% 14% 12% 4% 2% 16% Housing Health Care Transportation Food Entertainment Clothing Miscellaneous
EXPENSES FOR AMERICANS AGE 75+
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How the Health Care Dollar Is Spent
Source: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017
Hospital Care
Other
Doctor Visits and Services
Prescription Drugs
Nursing Home
Dental Services
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A Closer Look at Medicare
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Medicare Alone Won’t Be Enough
Medicare is representative of Part A and Part B coverage. Source: Medicare.gov 2018
MEDICARE COVERS MEDICARE DOES NOT COVER
Inpatient hospital costs Surgeries Doctor visits Lab tests Preventive screenings Equipment, such as wheelchairs Hearing aids Most vision care Most dental care Personal aid services to help you stay in your home Most nursing home and other long-term care Assisted living
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Health Care Costs in Retirement Fall Into Tw o Categories
THE THE
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The Predictable: Medicare and Medigap
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.
2019 MONTHLY PREMIUM COSTS
Part A Subsidized premium Part B $135.50 - $460 Part D Varies by state and plan Median: $40 Medigap (supplemental) Varies by state and plan Median: $200
expenses go to premium costs
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The Predictable: 2019 IRMAA Brackets
Source: Medicare Board of Trustees
INDIVIDUAL MAGI COUPLES MAGI PART B PART D
< $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
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Retirement Health Care Costs
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.
2019 ESTIMATED ANNUAL EXPENSES (INDIVIDUAL)
$3,800 $500 $4,700 $4,500 $1,100 $5,800 $5,200 $2,200 $7,300 $6,100 $4,500 $10,200
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Premium Out of Pocket Total 25th Percentile 50th Percentile 75th Percentile 90th Percentile
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Health Care Is A Huge Expense for Employers
. Source: Mercer National Survey of Employer-Sponsored Health Plans, 2018; PSCA Health Savings Accounts and Retirement Plans, 2017. CDHP is Consumer directed health plan.
$12,486 $11,580 $10,357 $10,826 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 PPO HMO HSA-eligible CDHP PPO with deductible greater than $1,000
AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS)
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Planning for Health Care Expenses
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No One Option is Perfect
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
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”.
ACCOUNT TYPES
PRETAX ROTH HSA
Contributions Excluded from taxable income1 Not excluded1 Excluded from taxable income1 2019 Maximum Annual Contributions2 $19,000 retirement plan $6,000 IRA2 $19,000 retirement plan $6,000 IRA2 $3,500 individual $7,000 family Early Distribution Penalty3 10% 10% 20% Early Distributions Limited access4 Limited access4 Qualified medical expenses (QME): No tax or penalty Taxes on Distributions Ordinary rate Tax-free if qualified5 Tax-free if used to pay QME Required Minimum Distributions (RMDs) Begin at the later of age 70½
Begin at age 70½ for retirement plans6 None Tax Treatment for Non-spouse Heirs Ongoing tax deferral (subject to RMD requirement) Ongoing tax-free (subject to RMD requirement) Value immediately subject to
Advantages
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Employers’ Adoption of High Deductible Health Plans
*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.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015 2016 Expect to offer in 2019 Small employers (10-499 employees) All large employers (500+ employees) Jumbo employers (20,000+ employees)
PERCENT OF EMPLOYERS OFFERING/LIKELY TO OFFER CDHP* (BY EMPLOYER SIZE)
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$3 $5 $7 $9 $11 $14 $17 $21 $26 $32 $37 $44 $50 $58 $3 $4 $6 $8 $10 $14 $17 $0 $10 $20 $30 $40 $50 $60 $70 $80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (est) 2020 (est) Deposits Investments
HSA Asset Grow th
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary
TOTAL HSA ASSETS (BILLIONS)
$1.7 $3 $5 $7 $10 $64 $54 $45 $38 $30 $24 $19 $16 $12 $75
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HSA Overview
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 limit (age 55) $1,000 $1,000 Minimum deductible for HDHP $1,350 $2,700 Maximum out-of-pocket expense for HDHP $6,750 $13,500
Source: IRS documents
TAX-PREFERRED SAVINGS FOR INDIVIDUALS COVERED BY HIGH-DEDUCTIBLE HEALTH PLANS (HDHP)
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HSA Contributions
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.
AVERAGE ANNUAL HSA CONTRIBUTION
Employer Contributions
beginning of the year
$839 $1,872 Employer Employee
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Profile of HSA Investments
Source: 2018 Year-End Devenir HSA Research Report
39% 12% 9% 9% 8% 7% 7% 6% 1% 1% Large-Cap Lifestyle/Allocation Small-Cap International Money Market Bonds/Fixed Income Mid-Cap Target Date Real Estate Other
AVERAGE ALLOCATION (PARTICIPANTS AGE 60+)
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VERY BAD
Employee HSA Scenarios
HSA’S CAN HAVE A RANGE OF OUTCOMES SUBOPTIMAL
Leaving large balance to non-spouse beneficiary
FAIR
Using for nonqualified expenses after age 65
Early nonqualified distributions
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Employee HSA Scenarios
GOOD
Contribute the amount
for current year (only spending account)
BETTER
Contribute more than expected medical expenses for year and build cushion by
large or unusual medical expenses
BEST
Contribute at or near the maximum and invest for long term
HSA’S CAN HAVE A RANGE OF OUTCOMES
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HSA Appropriateness
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.
FOR PEOPLE WITH A CHOICE OF TRADITIONAL AND HIGH- DEDUCTIBLE HEALTH PLANS
Couple with young kids, high medical expenses and limited saving capacity
KEY DECISION FACTORS:
traditional plan?
HSA or use it for annual expenses? LIKELY CONCLUSION:
beneficial
Healthy empty nesters in high tax bracket
KEY DECISION FACTORS:
horizon, does value of HSA tax treatment outweigh risk of high
LIKELY CONCLUSION:
maximum allowed in HSA
Healthy, successful young person with saving capacity
KEY DECISION FACTORS:
possibility of accumulating too much in an HSA?
priorities to consider? LIKELY CONCLUSION:
at maximum level
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HSA Carry Forw ard
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary. Carry forward equals HSA industry contributions minus withdrawals.
$2.6 $3.0 $3.9 $6.2 $5.9 $5.7 $5.0 $8.0 $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 2011 2012 2013 2014 2015 2016
MARKET-WIDE HSA CONTRIBUTIONS CARRIED FORWARD TO THE FOLLOWING YEAR (BILLIONS)
2017 2018
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Grow th of HSA Investment Accounts
Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary
HSA INVESTMENT ASSETS (BILLIONS)
%HSA Assets in Investments 7% 19% 13% 14% 15% 18% 7% 8% 11% 12% 5% 4% 5% $0.1 $0.2 $0.2 $0.4 $0.9 $1.1 $1.7 $2.3 $3.2 $4.2 $5.5 $8.3 $10.2 $13.6 $16.7 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (est) 2020 (est) 21% 22%
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Health Care Planning: A Compelling Addition to Your Practice
Standing Out From Competitors Retention and Referrals Holistic Retirement Planning
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Establish a process to help employers vet providers and set up a HSA Provide ongoing investment education and advice
Opportunities for Advisors
Offer fair and balanced reviews of health care savings options and strategies
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Fiduciary Considerations
Source: T. Rowe Price Retirement Savings and Spending study (2018)
Are you assuming fiduciary liability if you provide HSA advice to employers and/or employees?
that they would benefit from advice1
saving to fund health care expenses in retirement useful
advisor have received advice from them on health care expense planning
Only
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Summary
Health care expenses are very top of mind
Several savings options exist
Health Savings Accounts (HSAs)
Opportunities for advisors
THANK YOU
C17J2JO30 201903-759870