Retirement Healthcare Ain’t Cheap: How to Help Your Employees Prepare


Retirement Healthcare Ain’t Cheap: How to Help Your Employees Prepare. When planning for retirement, workers often forget or at least downplay, one enormous expense — healthcare. With people living longer and spending more years in retirement, preparing for unpredictable situations like illness and medical emergencies is more important than ever. Plan sponsors can help bring awareness to the real cost of medical expenses in retirement, as well as offer solutions designed to help employees build additional savings now for planned and unplanned healthcare expenses in the future.

According to Fidelity, the expected cost of healthcare for a 65-year-old couple retiring this year is a whopping $275,000. That’s not pocket change. That figure only includes premiums, cost-sharing provisions and out-of-pocket costs associated with Medicare Parts A, B, and D. It doesn’t include other healthcare-related costs, such as over-the-counter medications, dental and long-term care. Needless to say, for the majority of retirees, staying healthy is going to cost a pretty penny. Moreover, one severe and/or long-term illness can wipe out a lifetime of savings.

These are just some of the reasons why it’s critical to make sure retirement plan participants are fully aware that there is a hefty cost for taking care of themselves (and potentially a spouse, if they’re married) when their working years are through. If your organization offers a financial wellness program, estimating employees’ healthcare costs in retirement and determining how they can prepare for those expenses while they’re working should absolutely be a part of the curriculum. Healthcare costs are a key part of a holistic financial plan. While many employees may be working toward more near-term goals, such as paying down debt or funding a child’s education, their longer-term plan should include taking care of their health and the costs involved.

If health savings accounts (HSAs) are part of your benefits package, they are a great way that employees can set aside pre-tax money for future healthcare expenses. What’s more, that money can be withdrawn tax-free to pay for healthcare costs. And employees can invest their savings in mutual funds to help their money grow over time. HSAs also work quite well in tandem with your retirement plan, offering employees the opportunity to save even more in a tax-advantaged way.

HSAs are a vastly under-utilized benefit, and they have myriad advantages. However, employees are largely unaware of how to use an HSA, let alone maximize its benefits. Here’s where a strong education program — one that clearly explains how to use HSAs and how they can help employees offset healthcare costs in retirement — can be especially impactful.

Long-term care insurance is another often overlooked option. Many people are turned off by the costly premiums for insurance they think they might never use. However, in 2017, the median annual cost of a semi-private room in a nursing home is $85,776, according to Genworth Financial. And 70% of retirees may need long-term care insurance in their lifetime, according to The Motley Fool.

So doing the math, the odds are pretty good long-term care insurance is going to come in handy for many of your employees. The good news is, people who shop for long-term care insurance in their 50s have the opportunity to score lower rates than those who wait to buy it in their 60s, 70s or beyond. This is another chance to educate your employees — especially those who are in the later stages of their career and on the runway to retirement — about the pros and cons of long-term care insurance, and remind them that purchasing a policy when they’re younger could save them money in the long run.

Finally, don’t underestimate the impact of a strong employee wellness program. Perks like gym membership subsidies, worksite exercise classes, weight loss support groups and more can go a long way toward encouraging your employees to stay healthy and adopt habits that set them up for a lifetime of good health. And today’s healthy behaviors can, in theory, save employees money in retirement if they continue to take care of themselves. That’s a priceless benefit, indeed.

So yes, healthcare expenses in retirement are astronomical, and unless there’s a dramatic overhaul of our healthcare system in the future, those costs are only likely to rise. That said, there are ways to prepare and mitigate those costs by saving early and taking advantage of benefits like HSAs and employee wellness programs, and pre-planning for uncertainty with products like long-term care insurance. Sponsors and retirement plan advisors (if your plan has one) can help create awareness of key benefits and solutions like the ones discussed here, and help employees prepare for a physically — and fiscally — healthier future.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek

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