Data & Research July 6, 2015

Few Investors Grasp Long-Term Potential of HSAs

Given the tremendous health care costs people will face in retirement, HSAs can be a significant tool.
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Most employees who have access to health savings accounts (HSAs) mistakenly think these work like flexible spending accounts (FSAs)—if they don’t use their balance in a given year, they will lose it. Thus, the majority of HSA holders use them only for current health care expenses. This is according to a new report from UMB Healthcare Services, “HSAs Build Long-Term Wealth with Tax-Favored Savings.”

That misconception is not surprising, given the fact that HSAs are still fairly new and are rarely included in benefits education and communications, writes Dennis Triplett, chairman of UMB Healthcare Services, in the report.

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UMB analyzed the balances of 440,000 HSA investors in 2014 and found that they had an average balance of $1,874—far lower than the annual maximum contribution the Internal Revenue Service (IRS) allows. For 2015, the limit is $3,350 for individuals, $6,650 for family coverage, plus a $1,000 catch-up for people over 55 years old.

Given the fact that the Employee Benefit Research Institute (EBRI) calculates that a couple retiring at age 65 today will need nearly $300,000 to cover their health care costs in retirement, retirement plan advisers should emphasize the benefits of long-term investing and maximizing HSAs, UMB Healthcare Services suggests.

For instance, UMB projects that a 40-year-old employee earning $80,000 who starts to maximize his HSA contributions and earns a 5% return will have more than $306,000 by age 65. UMB also notes that whereas 401(k) investments and withdrawals are tax deferred, they are not taxed in an HSA.

UMB suggests that advisers can help their sponsor clients to look for HSAs that offer robust investment options and proactive education.

In conjunction with the white paper, next month, UMB will launch a tool for HSA investors called UMB HSA Saver—a dashboard that will show account holders their current investments and enable them to research other investment options.

The UMB report comes on the heels of a report from AvidaBank that predicts a wave of investing in HSAs that will boost assets from $3 billion invested today, to $12 billion in 2017 and $40 billion in 2020.

Data & Research July 6, 2015

Help From Family Part of Financial Planning

The majority of Americans think adult children should aid their aging parents financially, a survey finds.
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Most Americans believe taking care of seniors is up to the senior or his or her family—not the government, according to a new study from Pew Research Center.

In contrast, almost twice as many adults in Germany and Italy think bureaucracy should bear most of the weight in supporting the elderly, says “Family Support in Graying Societies: How Americans, Germans and Italians Are Coping with an Aging Population.” The study compares intergenerational relationships and attitudes in these three countries, “the grayest of the West’s advanced economies,” Pew says.

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Notable in the findings, many working Americans foresee themselves being the main source of their retirement well-being. Of the 1,692 Americans 18 or older who answered the survey, only 20% expect to receive a Social Security benefit equal to today’s; 31% expect a reduced benefit and 41% no benefit at all.

As that entitlement may be a secondary income stream at best, 56% of Americans have a private retirement savings account; even among those ages 18 through 29, 41% have begun to save.

Unsurprisingly, whether and how much people put toward retirement is “highly correlated with financial security,” the report says. Those who earn less are less likely to be saving for the future—even though they know they should—and those with the means to save for retirement, do.

Perhaps with an eye to their own future, the majority of Americans think adult children should aid their aging parents financially, if necessary—that is, a full 86% of 18- through 29-year-olds and 64% of those 18 and older in general.

Still, when it comes to putting words into practice, over the past year, about three in 10 (28%) respondents said they had helped an aging parent financially, and about six in 10 (58%) helped in other ways, running errands, doing housework or performing home repairs. More than eight in 10 (88%) called such acts of kindness rewarding.

Giving financial aid to adult children and whether, and how, this affects the sandwich generation were among other topics in the study. In the U.S., for example, 61% of respondents had helped an adult child financially in the previous year.

Pew conducted the survey between October 27 and December 18, 2014. Also included were 1,700 adults ages 18 and over in Germany and 1,516 in Italy.

The complete report can be found here.

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