Factoring Health Care Costs into Retirement Planning

June 13, 2014 ( – Health care costs cannot be ignored as a factor in retirement planning and saving.

By Kevin McGuinness | June 13, 2014
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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 ignore it.”

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.