Sponsored by T. Rowe Price
As one of the most critical issues facing the nation today¹, health care costs are at the top of employer priority lists. Those costs are also going to be the biggest expense that individuals face in retirement.
Determining how to prepare for unpredictable costs is not a pleasant exercise. Most people don’t want to envision a day when their physical or mental health is in a state of gradual—or rapid—decline.
And as financial services professionals, we tend to solve every emotionally distressing situation (e.g. the transition to retirement) like a math equation. Instead, it helps to think of health care savings not as a disparate and unique financial challenge, but as part of a holistic retirement savings strategy.
The issue for most folks is that they can’t cover the cost of a new set of tires, or any other short-term financial emergency, without borrowing money or dipping into their retirement savings. So a discussion on preparing for health care expenses starts, like many other retirement savings discussions, with an examination of how financially well someone is.
An easy way I explain the benefits of being financially well is like this: Improving your financial wellness is like taking out the trash. When I clear my house of all its trash and clutter, it frees me up to focus on more important priorities. When someone eliminates the financial baggage of student loan repayments and credit card debt, saves $1000 for an emergency, and sticks to a budget, then he or she can focus on loftier financial goals. And they can focus on saving for retirement—and by extension—on saving for health care expenses in retirement.
Some believe health savings accounts (HSAs) are a one-stop solution for health care savings. And while HSAs can be a good solution for some companies and employees, the right approach may be a combination of savings options (for example, an HSA and pretax or Roth contributions to a 401k).
My colleagues and I at T. Rowe Price have found some compelling reasons why advisors may want to learn more about health care savings, and how they can thoughtfully address the topic with their clients. After all, as baby boomers continue to retire and saving for retirement becomes more holistic in nature, advisors will inevitably find themselves in more and more health care conversations.
And if they haven’t already (much like aging itself), it’s only a matter of time before they do.
¹ EBRI/Greenwald & Associates Health and Workplace Benefits Survey, 2017.
T. Rowe Price Investment Services, Inc.