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Financial advisors: holistic wealth planning includes healthcare costs

Brian Hutchin recently took part in a webinar discussing the benefits of a health savings account‡ (HSA), how it adds to retirement planning especially during our current environment and the tools financial advisors can give their clients to aid in overall wealth planning and managing healthcare costs.

Healthcare costs are a part of holistic planning

We are currently in an unprecedented time, and helping your clients take a more holistic approach to wealth planning can help mitigate unexpected health and financial issues both now and in the future. In terms of wealth planning, this means looking at all retirement account options. Often, financial planning and an investment portfolio simply revolve around a 401(k) and other similar retirement savings vehicles. However, an HSA can play a key role as a tool for long-term wealth accumulation while also providing quick access to funds for emergency use, which can be helpful in today’s economy.

Typically, long term financial planning revolves around 401(k) and similar retirement plans. These plans offer financial security and flexibility, but in today’s environment, a stand-alone 401(k) will most likely not meet all your clients’ retirement financial planning needs. This is largely because of the rising cost of healthcare, especially as those costs tend to increase significantly in retirement years.

The recent stock market volatility due to COVID-19 has further shown that a traditional approach to investment offerings with a defined contribution plan may not be enough to secure a successful financial future for your clients.

HSAs are an effective way to round out an investment portfolio and employer benefit offerings as well as help clients better plan for their healthcare costs in retirement. As a financial advisor, offering HSAs to your clients can help them have a successful holistic approach to health and wealth in today’s ever-changing landscape.

HSAs complement retirement savings

Most people accumulate their wealth for retirement in the form of IRAs, 401(k)s and pensions. Recently, there’s been a growing concern that these accounts alone won’t be enough to cover all retirement expenses due to rising healthcare costs.

A HealthView Services report‡ found that a healthy 65-year-old couple that retires in 2020 will have to dig deeper to cover medical expenses. Healthy couples can expect to pay around $387,644 in total healthcare costs by the end of retirement. Adjusted for inflation, that’s $572,960 over their lifetime. In 2018, this number was estimated to be $300,000, which illustrates the pace at which costs are rising—and are expected to continue rising in coming years.

There’s no one-size-fits-all solution. How to best guide your clients is through education and options. Everyone has different considerations when it comes to long-term planning such as health, income, retirement plan availability, health plan options and family situations. The more people know and understand when it comes to their options, the more empowered they will feel about their savings options. Consider facilitating discussions with clients that factor in each personal situation. During these conversations, you could take the opportunity to highlight HSAs as a valuable savings tool for both anticipated and unexpected expenses, as well as how it can work as a robust savings account.

The opportunity for HSAs

A recent HealthSavings Study of financial advisors found that 60% of advisors don’t offer HSAs to clients—even with the tax advantages these accounts can provide.

Devenir Research‡ report from March showed that by the end of 2019 there were more than 28 million HSAs with nearly $66 billion in assets, and that number is set to grow to 30 million accounts with $77 billion in assets by the end of this year.

Why is this savings opportunity being largely ignored? The HealthSavings‡ study highlights some of the challenges:

  • 36% of advisors say they do not fully understand how HSAs work
  • 40% claim their clients don’t fully understand HSAs either
  • Almost 50% say HSAs are perceived only as spending accounts
  • Of the advisors that do offer the accounts, less than half of their eligible clients actually use them

HSAs are a way to set aside income for medical expenses because they offer a triple tax advantage. Accountholders pay no taxes on contributions, no taxes on earnings and no taxes on withdrawals for qualified medical expenses.

How to maximize HSA features and benefits

HSAs can bring a lot to the table as long-term savings vehicles. The first thing to communicate to clients is that they can only open an HSA if they’re enrolled in a qualifying high-deductible health plan—or HDHP. And as long as they’re enrolled in that medical plan, they—and their employer, if the plan is set up that way—can contribute pretax dollars to cover out-of-pocket health expenses today or in the future. With HDHPs, people have a higher deductible to satisfy than they would with most traditional preferred provider organization (PPO) plans. But that higher deductible is typically offset by a premium that’s much lower than that of a PPO. By contributing those premium savings into an HSA, your clients are able to lower their taxable income today while also building up savings that can be used to cover current and future health expenses.

HSA funds can accumulate year after year and there’s no time limit on using funds in an HSA to pay for qualified medical expenses. And even if accountholders use money in the HSA for something other than qualified health expenses, those funds will be taxed at the same rate as a 401(k) withdrawal. Plan designs can also be very important. Many employers choose to seed HSAs which can provide peace of mind for employees.

It’s important to educate the accountholder about the two-phased HSA retirement strategy. In the first phases, the accountholder funds the HSA up to the IRS maximum each year, saving all medical receipts. Then, when he or she retires, they can “cash them in” against their HSA account balance. As long as the expenses were for qualified medical expenses, distribution is tax-free. Communicating this feature can save your clients hundreds or thousands of dollars.

Once an accountholder opens an HSA, it is their’s forever. It is not linked to a job like a 401(k) is and once their HSA balance is large enough, the accountholder can choose to invest the funds to potentially build their wealth.

What to look for in an HSA custodian partner

When it comes to adding an HSA to your investment mix, you want a solution that’s easy to implement and integrate, and efficient to operate. But equally important is working with a capable custodian that acts in their clients’ best financial interests only.

Any HSA solution and custodian should also include features that encourage long-term savings, including:

  • Robust investment options—including no-load or load-waived mutual funds, target date funds, index funds, and bank and money market options.
  • Proactive educational approach—communicating with clients/employees on how HSAs work both to pay near-term medical costs and to bolster a long-term retirement plan.
  • Integration with other benefits—offering tools to help clients/employees plan for the future, including investment objectives, risk tolerance and mix of assets across all accounts.

Retirement planning – including HSAs – should be a top priority and financial advisors should continue to emphasize this to their clients. The best way to do this is through retirement plan designs and engagement. As a financial advisor, make sure you are educating your clients and communicating plan options to help find the best provider and make sure investment options are understood.

Learn more about UMB Healthcare Services, which ranks fifth in total accounts and deposit assets among all HSA providers (Source: 2019 ‡Devenir Year-end HSA Market Statistics & Trends Report).


Investments in securities through an HSA investment account are:
Not FDIC-Insured · May Lose Value · No Bank Guarantee

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