Rising medical expenses can erode retirement readiness by crowding out retirement plan contributions during working years and consuming assets post-retirement. Consider these statistics.1
Percentage of workers that reported increased health care costs in the past year.
Projected savings many 65-year-old couples will need to cover health expenses in retirement.
The amount by which the rise in health care premiums has outpaced the growth in wages since 1999
To help contain these costs, many companies have moved to Consumer-Driven Health Plans (CDHPs), which carry lower premiums but higher employee deductibles. Such plans are often paired with a tax-advantaged HSA to cover out-of-pocket expenses. Although HSAs were originally introduced as a cost-saving measure, many employers are realizing that the accounts can work effectively with a DC plan to seek better retirement outcomes.
Total HSA assets (billions)
Robust education programs are needed to help employees fully understand the potential benefits of HSAs. Here are some points to stress:
As HSAs grow, plan sponsors are considering the investment options in a manner similar to those in a DC plan. Somewhat akin to saving for retirement, HSA enrollees have varying risk tolerances and financial situations when investing for future health costs. Therefore, they may have investment goals that can be met by the defined contribution plan's target date series. Plan sponsors could analyze whether strategies in the HSA lineup could address various investment goals. Ideas for HSA menu arrangements include:
The achievement of a healthy retirement requires looking beyond the traditional retirement plan to maximize other plan benefits and investment solutions. Plan sponsors have the opportunity to think about financial wellness holistically, considering the HSA as a pillar for retirement security -- not just a health care benefit.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer.
Although the target date funds are managed for investors on a projected retirement date time frame, the funds' allocation strategy does not guarantee that investors' retirement goals will be met. The target date is the year in which an investor is assumed to retire and begin taking withdrawals. American Funds investment professionals manage the target date fund's portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the fund gets closer to its target date. Investment professionals continue to manage each fund for 30 years after it reaches its target date.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.