Many financial experts would like to see baby boomers use health reimbursement arrangements and health savings accounts to save for retirement health care needs, but many boomers appear to have different ideas.
When researchers at Towers Perrin Inc., Stamford, Conn., surveyed holders of health accounts, they found only 16% said they strongly or somewhat agree that they use the accounts to save for health care expenses in retirement.
More than 52% of the health account holders said they use the accounts primarily to pay for current health care expenses, and 51% of the account holders said they somewhat or strongly disagree with the idea that accumulating assets in the accounts represents a significant financial opportunity.
For the most part, “employees do not appreciate the long-term potential these savings accounts hold and remain mired in the old ‘use it or lose it’ mentality of flexible spending accounts,” says Dave Guilmette, managing director of Towers Perrin’s health and welfare practice.
Many brokers report seeing that same mentality in their own markets.
Until now, consumers have been reluctant to put forth additional funding of their health savings accounts with the thought of preserving and protecting their retirement savings, says Thomas Harte, president of Landmark Benefits Inc., Hampstead, N.H.
The lingering effects of use-it-or-lose-it FSA attitudes could weaken the effects of health accounts as a financial incentive, Guilmette says.
Health account program advocates say a short-term outlook also could weaken the accounts’ ability to help boomers and others prepare for retirement.
Millions of U.S. residents already have health accounts, and ownership could grow rapidly by the end of the decade because many employers are just starting to add the programs.
When the consulting arm of Aon Corp., Chicago, surveyed a combination of large and midsize employers, it found that 23% reported offering a health account program, either as an option or as their only plan. Another 13% said they hoped to add health account plan programs by the end of 2008.
Boomers in the 55-64 age group are somewhat less interested in health accounts than younger U.S. adults, but boomers in the 45-54 age group are about as interested as members of Generation X and Generation Y, according to Mintel International Group Ltd., Chicago.
Meanwhile, many of the employers that still offer retiree health benefits programs are reducing or eliminating the benefits offered to boomer workers, and the trustees of Medicare, the federal insurance program for old U.S. residents and disabled U.S. residents, say the program could become insolvent just as the boomers start to reach normal retirement age.
Executives in the benefits operation at Fidelity Investments, Boston, have been especially visible in efforts to get the federal government to encourage boomers and other workers to save for their own post-retirement health care expenses through personal health accounts and other tax-advantaged savings vehicles.
A 65-year-old couple retiring this year will need about $215,000 just to cover medical costs in retirement, Fidelity researchers predict.