In the good old days, it was easy to send off an employee who was preparing for retirement: you threw a party and gave gifts. At most, you bought a gold watch. Today, retiring employees have much more to think about than what to wear to their farewell party.
An individual retiring at age 65 in 2016 can expect to live, on average, to 85, according to the Social Security Administration. That’s 20 years of expenses to worry about. The fastest growing category of retirement expenses is health care costs. There are many things your employees will need to know about health care expenditures prior to retirement. You, as the employer, can help them prepare for the transition.
Discuss Long-Term Health Care Costs With Staff
According to Fidelity Investments, a couple retiring at age 65 will need to have saved $260,000 to cover lifetime health care costs. Seniors should expect to pay out-of-pocket for their deductibles and co-payments, prescription drugs and other expenses that Medicare doesn’t cover.
However, this amount doesn’t include costs for long-term care, should this become necessary. For long-term care, a 65-year-old couple would need an additional $130,000 to insure against these expenses. This also assumes the couple is in a good health.
Unfortunately, too many employees retire without ever discussing long-term planning for health care needs (with their employers or with their families), often leading to crushing financial burdens on the retirees and their families.
Prepare Your Employees for Retirement
There are several ways you can help determine future health care needs for employees who are preparing for retirement. Many financial advisors recommend beginning the planning process 10 years prior to retirement, according to CNBC. For those employees planning this far ahead, recommend that they consult a financial planner who specializes in retirement planning and elder care.
Many employees retire prior to age 65, when they would become eligible for Medicare. It’s important for these employees to know that they may experience a gap in health care coverage. For them, enrollment in an Affordable Care Act (“Obamacare”) plan can bridge the gap by offering subsidized plans for middle- and low-income retirees, the Centers for Medicare & Medicaid Services notes.
What if your employees are still working at age 65? They should apply for Medicare Part A, which covers hospitalization. Whether they apply for Part B (doctor visits and tests) depends on the number of employees in your organization. If you employ more than 20 individuals, your worker turning 65 does not need to sign up for Part B right away, since the group health plan will be the primary insurer. Once someone retires, they have an eight-month period to sign up for Part B without penalty. However, if your business employs fewer than 20 people, employees should apply to Part B at age 65.
For those who expect to enjoy higher incomes in retirement, it’s important to remind them that Medicare attaches surcharges for wealthier retirees, as HealthView Services lays out. This is a type of means-test that must be considered when calculating future health care costs.
Offer Health Savings Accounts
The single most valuable tool you can provide your employees facing retirement is the health savings account (HSA) coupled with a high-deductible health care plan. The HSA is becoming increasingly popular with businesses. According to Fidelity, the number of HSA accounts in the U.S. rose to 16.7 million in 2015 — an increase of 22 percent from 2014.
HSAs provide a mechanism to save money for future health care costs tax-free. Contributions to HSAs aren’t taxed when the funds are used for health care purposes, according to CNN. If you offer HSAs to your workforce, you can also contribute funds (it’s usually done on an annual basis). As many people save more in their HSA than they spend, a growing number of individuals are choosing to invest their HSA money to increase retirement funds.
Above all, the best way to show gratitude to loyal employees nearing retirement is to begin the conversation as early as possible. Advise those employees who have assets to protect that they should seek the advice of a financial planner. Finally, strongly consider offering HSAs paired with high-deductible health plans.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
David E. Williams is president of Health Business Group, a strategy consulting firm serving clients in technology-enabled health care services, pharmaceuticals, biotech, medical devices and software. He is frequently quoted in the media on the business of health care and is the author of the Health Business Blog. David sits on the board of both private health care companies and nonprofits.