Working with the World Economic Forum, we’ve helped to highlight the long-term savings gap that exists in the US—estimated to be $27.8 trillion at the end of 2015 and projected to reach $137 trillion by 2050. The GAO reports that, 52% of American households age 55 and older have no retirement savings in a defined contribution plan or IRA. Among 48% of households age 55 and older with some retirement savings, the median amount is approximately $109,000, which won’t even cover estimated health care costs in retirement. With statistics like those, enabling more Americans to retire with confidence won’t be easy.
As Congress considers retirement issues as part of tax reform, we believe it is critical that they focus on policies that improve access and make it easier for employers to offer plans that help employees save for retirement. Though not considered a traditional retirement plan, HSAs can play an important role in a retirement portfolio. Thus, we’d like to see Congress update HSA rules to make them more flexible and useful for long-term savings. Outdated HSA regulations prevent them from achieving their full potential.
HSAs have been gaining in popularity in recent years, and well over half – 59% -- of employers with 500 or more employees now offer an HSA-eligible plan to their employees. Still, consumers underutilize their HSAs, even though they are the most tax-efficient savings vehicle available. One reason may be that relatively low annual limits make it hard to accumulate meaningful amounts for post-retirement medical expenses, especially because individuals are not permitted to make contributions once enrolled in Medicare.
"Americans are facing many issues that challenge their ability to save for retirement: longer life spans, insufficient savings and lack of sufficient financial knowledge are issues which need to be addressed. Limited access to workplace plans also serves as a barrier to savings. We predict these factors will cause the gap to increase significantly over the coming years if not properly addressed.” Jacques Goulet, President of Mercer’s Wealth & Health businesses
However, increasing the annual HSA limits to align with high-deductible health plan out-of-pocket maximums and enacting policies to encourage the use of HSAs to save for medical expenses in retirement could be important components in closing the retirement savings gap and enabling more Americans to retire with confidence.
If you’re interested in learning more about our policy recommendations aimed at addressing and resolving America’s retirement security challenge, pour yourself a cup of coffee and check out our newly released whitepaper.