Helping employees build financial security in times of uncertainty
Today’s tumultuous environment has reinforced the need for financial approaches that can help weather an unexpected storm. As a business leader, times like this make it even more important for you to help your employees set themselves up for success both in the current challenging situation and in the future when conditions are more stabilized.
Helping your employees take a proactive, holistic approach toward financial wellness by examining healthcare savings, savings accounts and retirement funding can provide them a roadmap to make their hard-earned funds work for them in times of crisis and have a more meaningful long-term financial outcome. Here are three best practices to share with your employees that can help them achieve financial wellness and feel more financially secure in both good and challenging scenarios:
1. Pay off/manage debt
If an individual has high-interest consumer debt, it’s best to pay off that debt first. While making additional payments on traditional loan debts, such as student loans or mortgages, will save money in the long run, it won’t lower monthly payments. By chipping away at high-interest debt, individuals can save money by cutting down on their interest payments. In times of financial stress, such as the current COVID-19 pandemic, credit card companies may be willing to offer lower interest rates or delayed payments – so encourage your employees to pick up the phone and call their creditors to determine whether this is an option.
2. Build an emergency fund – especially for medical emergencies
Building an emergency fund for unexpected costs is important to an overall financial wellness plan. In case of an unexpected events, it’s recommended that individuals have at least six months of income that can be lived on comfortably. This amount needs to account for everyday needs and expenses, such as monthly bills, including rent or mortgage payments.
Unfortunately, 44% of Americans don’t have enough cash to cover a $400 medical emergency according to a Federal Reserve Report‡. The report also states that the median out-of-pocket cost for an unexpected medical expense is $1,000. This means half of our country is one unexpected medical bill away from a charge they can’t pay. Offering your employees an HSA-eligible health plan can help them better manage these expenditures. HSAs not only cover planned out-of-pocket costs but allow users to be better prepared financially when an unexpected injury or illness comes along. In 2020, an individual can contribute a maximum of $3,350 to their HSA and a family can contribute a maximum of $7,100 with an additional $1,000 catch up contribution allowed for people 55 or older.
The triple tax advantage1 of an HSA
HSAs can make dollars go farther with the advantage of triple tax savings. HSAs offer tax benefits at deposit, during the account’s life and upon withdrawal for qualified medical expenses.1 In addition, money contributed to an HSA can be rolled over from year-to-year—there is no “use it or lose it” clause.
HSA funds can be used for a variety of medical expenses — according to a recent study by UMB, nearly 45% of HSA dollars were spent at medical providers such as doctors and hospitals, nearly 18 percent was spent at dentists and more than 11 percent was spent for vision-related expenses. Additionally, more than 16% of HSA dollars were used at drug stores, pharmacies and grocery stores.
If and when you do offer an HSA-eligible health plan to your employees, make sure they understand the benefits. It could help be the difference between members of your team being able to cover an unexpected medial expense or being financially derailed by one.
3. Plan for the long term
Invest in an HSA
HSAs can also be used like traditional retirement accounts, allowing your employees to invest money in mutual funds,2 similar to a 401(k) or traditional IRA. Earnings in invested HSA funds grow tax-free, making your dollars stretch even further.
HSAs can serve as a powerful tool for long-term savings and as a key part of an overall financial wellness strategy to build wealth for both medical and other general expenses. A 2019 Employee Benefits Research Institute (EBRI) study‡ estimates some couples could need as much as $363,000 to cover out-of-pocket medical expenses during retirement.
Increase 401(k) contributions
401(k) plans are a popular tool used to set aside money for retirement. They are traditionally tax-free and have high annual contribution limits (an $19,500 maximum in 2020), allowing employees to set aside money that will earn interest and compound over the years until they can withdraw. Contributing each paycheck can have a huge impact over many years—particularly if there is an employer match involved.
We’re all facing challenges during these uncertain and unprecedented days – but by educating your employees on ways to not only financially manage these current circumstances but also prepare for upcoming ones, you can make a positive difference.
For an in-depth conversation on helping employees become financially stable, especially during difficult economic times, view the Overcoming Financial Fragility webcast recording‡.
Learn more about UMB Healthcare Services, which ranks fifth in total accounts and total deposit assets among all HSA providers (Source: 2019 ‡Devenir Year-end HSA Market Statistics & Trends Report‡).
1All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with each state’s tax laws to determine the tax treatment of HSA contributions, or consult your tax adviser. Neither UMB Bank n.a., nor its parent, subsidiaries, or affiliates are engaged in rendering tax or legal advice. Withdrawals for non-qualified expenses are subject to income taxes and a possible additional 20% penalty, if you’re under age 65.
2Investments in securities through an HSA investment account are: Not FDIC-Insured · May Lose Value · No Bank Guarantee
When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.