SAN ANTONIO, Texas – They say the biggest threats come from within.
And it looks like that could be the case for 401(k)s as well, as health savings accounts continue their cannibalization of their older siblings and long-favored retirement vehicles.
In short, with employee paychecks not getting (much) bigger, and the expenses chipping away at them growing, employees are not only rethinking how much they save, but where they save it.
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As one panelist said here at a breakout session at the CFDD 2014 Advisor Conference, when it comes to juggling investments in both 401(k)s and HSAs, "Most employees can't do both."
The numbers show that employees are increasingly choosing HSAs over 401(k)s, and with roughly three-quarters of employers expected to offer high-deductible health plans next year — paired with HSAs — this is trend most expect to accelerate.
"For CFOs, [switching to] HDHPs isn't just an option anymore," said panelist W. Pat Jarrett, COO at Health Savings Administrators, "it's a survival mechanism."
And employers are flocking to them, to the tune of $19 billion in combined HSAs by the end of last year. Experts expect that number to more than double in just two years. Sure, it's no 401(k) gold mine with $5 trillion or so in assets, but HSAs are more than 20 years younger.
Either way, a seismic shift is about to shake up the advisor space, even if it's coming from the unlikeliest of sources.
"We've got some chaos coming," declared panelist Jeffrey Acheson, managing partner, advisory services, at Corporate and Endowment Solutions Inc. "But there's some opportunity in chaos. If you're on the right side of it."
For starters, HSAs offer the rare trifecta of retirement savings — they're tax-deductible, boast tax-deferred earnings and tax-free distributions toward medical expenses. And with an increasing amount HSA holders saving instead of spending, it's a growing market ripe for advisors.
But this transition does require a change in your client approach.
Or, as Acheson put it, "Are you a 'to retirement' advisor or a 'through retirement' advisor?"
Even highly compensated employees, who aren't necessarily worried about retirement, continue to fret over medical expenses.
Advisors would do well to get ahead of this change. It's where the money is going, in terms of participant contributions, and with still-skyrocketing health costs and increased longevity, it addresses the growing need for a retirement plan just for medical expenses. Not as a replacement, as the panelists pointed out, but as a supplement to a traditional retirement plan.
Because, in today's retirement, a single portfolio just isn't enough.
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