Retirement Savings and Healthcare Costs: A Balancing Act
Retirement Planning Often Overlooks Savings in Healthcare
Last month Milliman released an annual Medical Index report. The news wasn’t good. A year ago people were rejoicing because healthcare costs increases were the lowest in a decade (though still twice the Consumer Price Index). This year there will be less celebration.
For 2015 the Milliman Medical Index, a measure of total healthcare costs for a family of four covered by an average employer-sponsored PPO plan, grew 6.3%, from $23,215 to $24,671. To be clear, the family is only directly responsible for $10,473 ($6,408 in payroll deductions, $4,065 in out of pocket costs), while the employer picks up the remaining $14,198.
Said differently, employee costs have increased 43% from 2010 to 2015 while at the same time employer costs have increased 32%. And make no mistake, increased employer health costs ultimately take away money that could be spent on other elements of total compensation, like your salary and end of year bonus.
So what does this mean for families, even individuals? Trends in health costs are expected to continue their growth over inflation, placing additional strain on a family’s budget. With the added expense of growing healthcare costs today, saving for a future retirement can feel out of reach. It would be easy to get discouraged.
However, there are a few things in your control. Below are some “to-do’s” to put you in a better position to meet both today’s health costs as well as future retirement goals:
1. Take advantage of Flexible Spending Accounts (FSA) or Health Savings Accounts (HSA) to pay for out-of-pocket healthcare expenses with pre-tax dollars. Contributions to HSA accounts serve a dual purpose of both savings for healthcare costs and retirement since funds rollover indefinitely until you need them.
2. Shop around for health products and services. Whether you are on a high deductible plan or not, you may find that shopping around for things like MRI’s, X-rays, and blood tests, among many items, can save you money.
3. Watch your medical bills and insurance statements. Billing errors are common, whether it is duplicate billings, typos, cancelled work, or incorrect drug charges, errors often result in additional costs. Check each procedure or visit and confirm what your health provider charged your insurance carrier is what you received. If you find errors, call your carrier FIRST. You could end up savings hundreds of dollars a year by an extra layer of diligence.
4. Re-invest your savings. Use savings from the above initiatives to take advantage of increasing pre-tax retirement contributions through payroll deductions. Your employer likely offers a retirement savings plan such as a 401(k) or 403(b), and many offer free matching up to a certain contribution level.
Trends in health care costs are likely to stay with us. However, there are a handful of actions you can take to minimize the dent in your family’s budget, both now and in the future. Your future could benefit from today’s effort.
Thanks for reading. Comments and suggestions for other topics welcome.
Below are a few posts on my experience with money and the financial industry in general:
· “Money Advice for Millennials: How to Save for a (Not So) Distant Future”
· “How Bank Fees are Nudging Us to the Right Answer”
· “Should I Invest in a Target Date Fund in my Health Savings Account?”
· “HSA’s, Retirement Savings and ERISA”
· “How Much Do You Know About Your Health Savings Account?”
· “The Next Marvelous Tax Trick”
· “Your 401(k) and the New Rules of Retirement Savings”
Below are reviews of popular titles in the financial space:
· John Bogle (the co-Founder of Vanguard) “The Clash of Cultures: Investment vs. Speculation” here.
· Ric Edelman, the founder of Edelman Financial, “The Truth About Money: Everything You Need to Know About Money” here.
· Lars Kroijer’s “Money Mavericks: Confessions of a Hedge Fund Manager” here.
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