The Center for Retirement Research issued a report in February that said that 61% of Americans were "at risk" of not being able to enjoy the same standard of living in retirement as they did when working. The report defines someone at risk if they retired at age 65 and their savings, Social Security and pension benefits combined falls at least 10% short of covering basic living expenses, including increasing health care costs. One month later in March, Fidelity Investments released its annual health care cost estimate, which predicted a 65-year-old couple retiring in 2008 will spend approximately $225,000 on medical costs during the rest of their lifetime. The dollar amount has increased 41% since 2002 when Fidelity first began reporting the estimate.
The fact that a majority of Americans are unprepared for retirement, especially when it comes to paying for rising health care costs, is a little unsettling. But it's also an opportunity for credit unions to help their members recognize the challenge and overcome it through products and services such as individual retirement accounts and health savings accounts.
Credit unions have focused on helping their members accumulate wealth for retirement since IRAs were introduced several decades ago. And as a generation of baby boomers prepares to retire, credit unions have a significant opportunity in helping these individuals roll over their 401(k)s or other employer-sponsored retirement plans into IRAs. But HSAs also present credit unions with a relatively untapped business opportunity in helping those near retirement or recent retirees to plan and pay for health care expenses.
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The statistics underscore the importance for individuals to pay close attention to health care costs in their retirement planning. And the numbers reaffirm the fact that these individuals will need a reliable investment vehicle to save for health care expenses.
The 2007 Celent report, "Moving Beyond the Growing Pains," said affluent individuals near retirement and the retired will likely present financial institutions with an attractive new market segment for HSAs. Celent said this group could help raise average HSA balances to five and six digits. And while account set-up and deposit account management fees currently make up the lion's share of HSA revenue for credit unions, that will change as account balances increase. Seizing the HSA opportunity, a 2006 DiamondCluster study, claimed that an estimated $800 million in asset management fees will be generated annually from HSAs by 2010 and that transaction fees are expected to generate even more revenue.
Some credit unions have already begun to recognize the potential HSAs have with their senior members, positioning the accounts as part of the retirement products and services they offer. The key to doing so effectively is through education. HSAs are a unique investment product and in-person meetings have traditionally been the most effective way to inform members about such products. Annual retirement planning reviews with members are a great way to do so. Of course, other educational tactics such as Webinars, print materials, statement stuffers, newspaper advertisements and signage should also be used.
An important part of an HSA service offering will also include an online technology system to open, administer and manage accounts that is user-friendly to both the credit union and its members. Through online account management, a credit union's members can gain easy access to their funds, view all of their account activities and learn more about HSAs and the investment options available to them. And such a system allows the credit union to automate HSA-related business processes, thereby opening accounts more quickly for members and reducing the number of data entry errors associated with manual enrollment.
Finally, a credit union needs to consider what other HSA-related products its members will require, such as debit cards and checks that help make paying for medical expenses easier.
It is clear that credit unions have a monumental opportunity to utilize HSAs as part of an effective retirement planning strategy with their members. Credit unions will be able to help members better prepare for continually rising health care costs. They'll also enjoy the strong organic revenue growth that accompanies high-balance HSA accounts. And they'll be able to cross sell other retirement products and services such as IRAs.
Megan Morgan is senior HSA product manager at Wolters Kluwer Financial Services and can be reached at 320-240-5271 or [email protected]
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