A white paper from HealthView Services, “Addressing the Retirement Health Care Cost Crisis: Cost
Management Strategies,” finds that retirement health care costs are going to be
a significant burden for future retirees and one that most of them have not
planned for. The paper notes that for employees who do not plan for these
costs, retirement will be an even greater financial challenge for them.
However, those participating in defined contribution
retirement plans, such as 401(k)s, are at somewhat of an advantage for dealing
with these challenges, says Ron Mastrogiovanni, founder and CEO of HealthView
Services. Mastrogiovanni, who is based in Danvers, Massachusetts,
tells PLANSPONSOR, this is because once participants are aware of what replacement
ratio for income they will need during retirement, they can adjust
their employee contributions accordingly.
However, cautions Mastrogiovanni, the replacement ratio
calculations that many companies use often do not factor in health care costs
and this needs to change. “Health care costs can significantly alter the
replacement ratio and unlike an expense such as travel, health care is not
something that a participant can downsize,” he says.
The paper mentions how the increased longevity of
participants has also become a factor in both retirement planning and health care
costs during retirement. Plan sponsors need to make participants aware that
they will be spending more years in retirement and will need to put away for
health care costs, says Mastrogiovanni, adding, “People are living longer and
with more serious conditions, like diabetes and cardiovascular disease. It’s an
issue that both plan sponsors and participants have to address. They can’t just
Communicating with participants and offering
them access to resources for retirement planning are ways plan sponsors
can help. “What plan sponsors need to do is make simple retirement tools
available online for participants, tools that focus on factors that are
specific to a person’s age and the point they are at in their career. Having
these tools available is likely to prompt not only increased participation in a
plan, but also encourage participants to up their contributions once they see
how necessary it is,” says Mastrogiovanni.