HR Leaders Can Empower Workers Saving for Retirement Health Care

Saving for Retirement

Employers can help employees save for health care in retirement.

The necessity of encouraging saving for retirement increases as workers grow older. In an ADP white paper addressing employee top financial concerns, 81 percent of surveyed workers over the age of 50 claimed retirement as a top saving priority compared to 60 percent of workers under the age of 50. With health care inflation expected to outpace Social Security by almost double, it's imperative that workers plan early to accommodate for health care costs in retirement. HR leaders can take proactive measures to educate and enable employees to better navigate their retirement savings planning to ensure confidence and stability moving forward.

Bracing for Health Care Inflation

Employees may be blindsided by the health care costs they will incur during the 20-30+ years in retirement. According to a Health View Services 2017 Retirement Data Report, health care cost inflation is projected to reach 5.47 percent versus 2.6 percent for Social Security cost of living adjustments (COLA), outpacing by almost double. This equates to health care expenses consuming 59 percent of Social Security benefits for a 65-year-old couple, 92 percent for a 55-year-old couple and 122 percent for a 45-year-old couple.

The Costs of Health Care During Retirement

According to the ADP white paper Challenge For Americans: Saving for Health Care Costs in Retirement, a healthy 65-year-old couple retiring this year will spend $404,000 during the course of their retirement on health care expenses including Medicare Parts B and D, supplemental insurance, co-pays, deductibles and cost sharing for dental, vision and hearing. Costs rise to over $500,000 in the next decade for a healthy 55-year-old couple retiring at age 65. Health care expenses spike to $635,000 for a 45-year-old couple expecting to retire at 65. Incidentally, 47 percent of today's workers have less than $25,000 in retirement savings, according to a respondent in the EBRI 2017 Retirement Confidence Survey. According to this report, "Concern for outliving one's retirement savings is high, and many face a declining standard of living in retirement…many individuals may be overlooking the additional savings that will be necessary for medical care." This projected health care costs does not even factor in long-term care, which is not covered by Medicare.

Employer-Sponsored Retirement Plans (ESRPs) Boost Savings

Rather than passively reminding workers of the importance of retirement planning, leading organizations have integrated a proactive approach offering employer-sponsored retirement plans (ESRP). These programs give incentives to employees with attractive fund matching formulas and frictionless automatic enrollments and contributions. By incorporating simple user dashboards with convenient mobile and online access, workers can seamlessly adjust allocations and contributions at their own convenience. Employers that support these programs convey the message that they are looking out for the financial well-being of their loyal workers during and even after their tenure. ESRPs drive increased savings and investing which inspires higher productivity and loyalty while alleviating financial stress.

Augment Retirement Savings with Health Savings Accounts (HSAs)

Employers can directly address the rising costs of health care in retirement by offering health savings plans (HSAs). Employees who select qualifying high deductible health plans (HDHP) can use HSAs for medical expenses and rollover the unused funds. The annual contribution limits for 2018 are $3,450 for individuals and $6,900 for families, whether matched by employer or self-funded. HSAs allow for pretax contributions directly from paychecks, which can be saved or invested long-term. HSAs reduce taxable income and serve as a retirement savings vehicle similar to a 401(k) plan as proceeds can be rolled over annually.

Financial Wellness Programs (FWPs)

HR leaders who want to provide the most thorough training can consider designing integrated financial wellness programs (FWPs) focused on strengthening financial skill sets covering budgeting, debt management, investment management to retirement planning and saving for health. Creating awareness of the tools, products (ESRPs, HSAs) and policies while empowering employees with financial management skill sets is the best way to build up confidence and alleviate financial stress. Financial wellness programs have proven to be effective.

FWPs Improve Workforce Productivity and Loyalty

According to the PWC 2017 Employee Financial Wellness Survey, 44 percent of respondents said FWPs help them both prepare for retirement and manage spending, while 35 percent improved saving for major goals, 33 percent improved paying off debt and 26 percent were able to better manage investments.

Organizations have also noticed various by-products like improved productivity, efficiency and loyalty as workers are compelled to reciprocate the commitment and care for the financial well-being that has been shown to them by the company.