“I think we can all agree that health care is the biggest cost in retirement, so why do we silo [health care] from retirement planning conversations?” asked Brea Dantin, adviser and chief operating officer of ProCourse Fiduciary Advisors, LLC, and the moderator of a panel at the 2022 PLANADVISER National Conference in Scottsdale, Arizona.
She said the question for advisers is, “We are already retirement experts, do we need to be health care experts too?” Employees aren’t thinking about health care in retirement, she said; they are thinking of their current cash flow needs. So how do advisers start the conversation about saving for retirement health care expenses?
Chris Ceder, vice president, head of Americas Retirement and Financial Wellness Programs at Goldman Sachs Asset Management, noted that health care benefit offerings have changed—namely, there are more high-deductible health plans. Current health care costs affect employees’ ability to save, and in retirement, those expenses will grow as employees get older. “Health care is connected to employee financial wellness, which is important to employers,” he said. “We need to have the health care conversation with employees.”
Kevin Takinen, adviser, 401(k) and Financial Wellbeing at Sequoia Consulting Group, said that given employees’ decumulation needs and the fact that retiree health care costs are projected to be above $300,000, saving in a health savings account is just as important as saving in a defined contribution plan. “Many employees don’t include savings for health care in their retirement planning. They are thinking of current health care costs,” he said. He agreed with Ceder that the savings for health care conversation can be tied in with financial wellness. “We need to help them see where they want to be tomorrow,” he added.
One thing advisers need to inform participants about, according to Dantin, is Medicare. “Many employees think Medicare covers health care in retirement—that it’s free,” she said.
However, Takinen said, advisers don’t need to be health care experts. “It’s important to cultivate partnerships,” he said. “Understanding that [plan sponsor] clients need to balance their benefits spend, advisers should ask to talk to their clients’ health care brokers. Advisers should talk to plan sponsors about all their benefits offerings.”
Dantin added that it’s good that third-party administrators are getting into the HSA servicing business. “Employees need help pulling everything together, and it’s important for advisers to build partnerships,” she said.
Ceder said it is important to talk to plan sponsor clients and their providers about their HSA plan design. “Do you want the HSA to only be a deductible offset? If so, that might not give employees the opportunity to save,” he explained. “Advisers can work with clients’ benefits brokers on plan design.”
Partnering with HSA providers and educating plan sponsors and participants can start relationships that are good for advisers’ prospective business, said Takinen. Advisers have an opportunity to show employees how to allocate their money. “For example, save in the DC plan to the match, then put savings in an HSA, and if there’s anything left, make Roth retirement plan deferrals,” he said. This can also help plan sponsors maximize use of their benefit.
Dantin pointed out that HSAs can also help plan sponsors that might have trouble with passing DC plan nondiscrimination testing. Highly compensated employees can put extra savings into the HSA, and they’re still saving for retirement.
HSA dollars can also be invested. Takinen said advisers can help make HSA investing uncomplicated. “It’s an additional opportunity to educate, partner and help,” he said. “Start with goodwill-building; it could lead to a revenue stream.”
Asked how advisers should advise those employees that don’t have access to an HSA, Ceder said such employees just need to boost their regular savings. They should think about their savings in buckets, Takinen added—savings for living expenses, savings for health care and savings for non-essentials, for example.
Dantin noted that there are efforts underway to decouple HSAs from high-deductible health plans, which will make these vehicles available to many more people.