Benefits July 1, 2015

Insurance Can Play a Part in Retirement Income Planning

“Insurance is where you can really provide a lot more benefit to employees,” says Stephen Locko with ISN Network.
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Employees should start their retirement income planning sooner rather than later. They may have limited sources of retirement income. The timing of Social Security can make a difference, and their biggest worry is long-term care needs, according to Stephen Locko, executive vice president and chief operations officer at ISN Network, a firm that provides back office support to financial professionals.

Locko told attendees of the National Tax-Deferred Savings Association (NTSA) 403(b) Summit that employees need protection for their retirement income. Planning should include addressing market risk, taxes and inflation, but also health care expenses, long-term care and legacy plans. “You don’t want to dip into your retirement accounts to cover health and long-term care costs,” he said.

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Locko noted that most employees have hardly or not at all saved specifically for health care in retirement. “Most people think Medicare will take care of everything,” he said. “They need education.” Employees can use insurance to supplement retirement income and protect against health and long-term care costs, according to Locko. “Insurance is where you can really provide a lot more benefit to employees.”

Life insurance can protect against loss of income when one spouse in a couple dies and may also provide extra income when needed. Long-term care insurance can protect against having to dip into retirement savings for these costs. ISN research found 38% of individuals will incur long-term care costs of between $25,000 and $250,000, Locko said.

NEXT: When Social Security is unavailable or stops.

Social Security planning is becoming a big business, Locko noted. When planning for retirement income, employees need to know what Social Security pays and when.

Deferring taking Social Security benefits until age 70 essentially gives employees an 8% simple return on what they would have received at normal retirement age (now 66), Locko said. “You can’t get that return anywhere else,” he says. And, employees should not start taking Social Security benefits while still employed full-time, because their benefit will basically be cut in half, he added.

According to Locko, the most common strategy being touted for a married couple is for one spouse to file for benefits but suspend taking them and the other to take the spousal benefit based on the spouse who filed. Then when the first spouse starts taking the benefits, the second spouse will file for his or her own.

This produces much more benefit for the couple, but when one spouse dies, one check goes away, Locko noted. Individuals need to plan for replacing that second check, and this is another place where insurance can come into play.

Locko also pointed out that for governmental employees, 30% in 12 states get no Social Security benefit, and 27 states have government offsets to public employees’ Social Security benefits. This also affects spouses and beneficiaries. Pensions and defined contribution plan savings may not be enough.

Insurance helps reduce the risk of running out of money in retirement, he said. Even if already in retirement, individuals can use their required minimum distributions (RMDs) to purchase insurance products, he suggested.

Data and Research July 1, 2015

HSAs a Growing Retirement Savings Opportunity

Workers are still mainly unaware of the long-term tax-free growth health savings accounts (HSAs) can generate. 

 

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A new study from Avidia Bank predicts an impending “wave of investment growth” in health savings accounts (HSAs), despite relatively weak uptake among workplace investors and retirement savers so far.

“Over the past six months, every new group or broker that I encounter has inquired if Avidia offers investment options for HSA programs,” observes Lynda Westbrook, vice president of Avidia Bank’s Healthcare Solutions business. “They tell me that the group’s president, CEO or HR director wants it and that their employees are asking as well.”

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The study, titled “The Coming HSA Investment Wave,” finds that while the ability to invest funds inside an HSA for long-term tax-free growth has been in place for a decade or longer, many HSA owners do not even know it exists and use their accounts only for current or near-term medical care spending. This matches other research findings that HSAs can effectively complement more traditional retirement planning accounts, but only with the proper education and guidance.

Todd Berkley, president of HSA Consulting Services and the study’s author, projects HSA investments are likely to quadruple every three years until at least 2020. This implies growth from $3 billion invested today to $12 billion in 2017 and $40 billion in 2020. The study finds growing HSA balances are in large part being driven by renewed interest among investment advisers and employee benefit services providers beyond health insurance brokers.

Nearly 20 million Americans own an HSA, Avidia finds, but very few HSA owners currently invest regularly in the account and therefore miss the most powerful feature of their accounts.

NEXT: Advisers get active on HSAs 

“Health insurance brokers are not always equipped with the knowledge to offer a full and comprehensive overview of the HSA or in some cases, do not even discuss it at all,” the study observes. “Until now, most people have been introduced to the HSA concept by their employer’s health plan, HR representative or broker.”

Initially, many employers chose the default option of facilitating the opening of HSA accounts with the HSA trustee linked to the health plan offering—or they allowed their employees decide if they needed an account at all. Today, the factors are aligning for greater advocacy for HSAs among the other service provider professionals in the employee benefits space, especially retirement plan advisers.

“The factors are all in place for investments within HSAs to go from a hidden gem to a primary driver of investment growth as financial advisers start taking an active role in promotion of HSAs,” Berkley explains. He says the study “concludes that HSA investment growth is bound to accelerate due to account demographics alone and that focused education could throw gas on the fire.”

“HSAs offer investment professionals the opportunity to help clients with trusted expertise in the increasingly critical arena of healthcare planning and spending,” Westbrook concludes. “By studying the concept and creating partnerships to offer a top-notch program to your clients, you can set yourself apart in your firm and show others how to create a valuable extension to the retirement savings plans of your firm.”

The study is available at AvidiaHealth.com or AskMrHSA.com. 

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