How does rising healthcare costs affect retirement savings? Can technology help?
Advisors should consider the components of a unified financial life network to include banking choices, insurance/healthcare, retirement and personal budget planning—especially when contemplating the following health care statistics1:
- Health care costs are rising at a rate of 9 percent-plus per year.
- At the end of 2014 total health care costs were $2.7 Trillion-plus (approximately 18 percent of the GDP)
- 54 percent of the population are still either not covered or cannot afford Healthcare insurance.
The primary reasons for the dramatic increases in costs include soaring prices for medical services, new costly prescription drugs/technologies, unhealthy lifestyles and an outdated fee-for-service system that pays for volume rather than value.
With the already overburdened debt ratio of the population between the ages of 22 and 45, the impact of increasing healthcare costs does not provide much room for considering retirement savings. Since the advent of Generation X, many have dubbed this generation and later as the affluent poor. Rising healthcare costs are another addition to the already growing list of expense and debt this generation is facing that affect their ability to save for the future. Creative thinking, and research into various products and tools are the best way to gather the options available to provide the data needed to plan.
Healthcare should be a place advisors focus their attention in the interest of assisting this generation with realizing their full savings potential and managing their day to day expenses. Of particular importance are options like Health Savings Accounts (HSA): a health insurance option that provides the ability to stash away investible cash for future needs regarding health coverage.
Advisors can recommend options that are available to a single or family group. With the ability of the financial advisor to interact with their client regarding options that may be provided to them by their employer or public sector, the door is opened for greater understanding of the client’s potential for a successful retirement through this more holistic set of data.
Similar to a retirement income calculator, a series of questions and answers could be fed into a medical coverage calculator that would return a range of costs based upon the responses. For financial advisors, this would satisfy a missing link to completing a comprehensive retirement plan strategy.
While a unified financial life network will not solve the issues of rising healthcare costs, it is meant to provide a set of tools to manage costs. Having the ability to capture the majority of an individual’s fixed costs in a single place provides the additional information needed for an advisor to assist a client with developing a budget, providing all of the needed goals and objectives that build toward a successful retirement. Most experts would agree that the single most important piece of a successful budget is to have it written down. Utilizing the capabilities within the unified financial life network will help solve for this.
Lynda Shaw is with Ithaca, New York-based 401(k) technology solutions provider Envisage Information Systems.
1Healthcare Incentives Improvement Institute, US Health Care Metrics, April 6, 2016, http://www.hci3.org/tools-resources/metrics-tracking-transformation-us-health-care.