The Black Hole of Financial Planning: Health Care Costs

From InvestmentNews Retirement 2.0 Blog:

Mary Beth Franklin cites the annual health care survey from Nationwide Retirement Institute released Monday writing that “affluent older adults are worried about what health care costs, including long-term care expenses, could do to their carefully laid retirement plans. Yet only about half of those who work with a financial adviser have discussed their fears because they consider health care a personal matter, according to a new survey.”

Franklin notes that the survey found that most future retirees are taking steps to save for health care costs in retirement, including building up their savings accounts (59%), investing (56%), increasing their 401(k) contributions (46%) and paying off credit card debt and loans (36%).

“But while nearly half of employed affluent adults have access to a health savings account (HSA) through their employer, only 30% contribute to the HSAs, and few fully leverage HSAs’ triple tax break. Of those who do contribute to an HSA, only 10% maximize the accounts by using them as long-term savings vehicles. Unused HSA funds can be rolled over from year to year and can be used tax-free to pay for future health care costs in retirement, which in turn can reduce future income taxes and possibly reduce future Medicare premiums.”

Franklin concludes that “advisers can help clients by creating personalized health care costs estimates, projecting savings needs for those costs and recommending funding sources such as HSAs, insurance, Social Security, and Medicare. Advisers should also suggest that clients discuss potential health care needs and costs with family members to create a truly holistic retirement plan.”

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