They know health care costs will dominate in retirement, but few are doing much about it.
“As employees think about the affordability of health care now and in the future, 82 percent see medical costs as their biggest challenge,” Willis Towers Watson notes is a new report.
Yet only 25 percent rank contributing to a health savings account as a top current financial priority, the company finds, falling below saving for retirement in a 401k, paying for essential day-to-day expenses and paying off debt.
Based on the survey, the majority of employees who didn’t enroll in an HSA say they chose not to because they didn’t see the benefit, understand HSAs or take the time to understand them.
Employees use HSAs as spending—not savings—accounts
While HSAs can be a high-value option to help employees prepare for health care costs in retirement, most employees use them primarily as spending accounts for immediate health expenses, Willis adds.
“Two-thirds of respondents (65 percent) use their HSA money for current health care needs, large and small, while 8 percent focus on saving their funds for the future.”
And because employees regularly use HSAs to pay for current health costs, less than half (45 percent) have more than $5,000 saved.
“From the data, it appears most employees are missing out on many HSA benefits, including the triple tax advantage, which can be invested to grow throughout their careers,” David Speier, managing director, Benefits Accounts, Willis Towers Watson, said in a statement. “In reality, many employees view HSAs as a tool for paying their immediate health expenses rather than a retirement savings vehicle.”
Many employers offer a wide range of account options such as HSA, pre-tax 401(k), Roth 401(k), limited purpose flexible spending account (FSA), basic FSA and so on, and employees are tasked with navigating this complex set of choices when it comes to deciding where to allocate their savings.
Roughly a quarter of those who didn’t enroll in an HSA say they don’t have enough money to contribute to one at this time, while nearly two-thirds of employees who did enroll (63 percent) say they put aside what they can afford each month.
Even financially adept employees have trouble deciding where to save and how to spend. Only 22 percent of these employees first maximize their 401k contributions up to their company’s match before contributing to their HSA—a common strategy recommended by financial experts.
Further, only one in four employees contribute to their HSA before their 401k plan when they don’t have a matching employer contribution, also a recommended strategy.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
