RetirementWellness

IS THERE A CURE-ALL SOLUTION?Planning for Retirement Health Care CostsPresenter NameDate

22

Agenda

01 WHAT DOES THE HEALTH CARE LANDSCAPE LOOK LIKE?

02 HOW CAN EMPLOYEES SAVE / PLAN FOR HEALTH CARE EXPENSES?

03 WHY YOU NEED TO DISCUSS THE TOPIC OF HEALTH CARE

Health Care Landscape

44

The Average Employee Is Unprepared for Retirement

1T. Rowe Price Retirement Savings and Spending Study (2018). Representative national study of 3,005 adults 21 years old or greater, never retired, currently contributing to a 401(k) plan or eligible to contribute and have a balance more than $1,000. Survey was conducted online July 24-August 14, 2018.2U.S. Census Bureau at al. 20143Sophie Bethune, “Money Stress Weights on Americans’ Health”, Monitor on Psychology, Volume 46, No. 4, Page 38, 2015, American Psychological Association. Reprinted with permission.4Bankrate Money Pulse survey, December 2015

63%

expect to run out of money1

can’t afford to contribute more to their plans1

of wages go to consumer debt payments2

don’t have enough savings to cover a $1,000 emergency4

say finances are the largest source of stress

in their life3

24%

25% 57% 64%

55

Top Five Fears About Retirement

Source: Employee Financial Wellness Survey, PwC US, 2018.PwC’s Employee Financial Wellness Survey tracks the financial and retirement well-being of working U.S. adults nationwide. The 2018 survey incorporates the views of 1,600 full-time employed adults representative of the U.S. population by age and gender. The margin of error is +/- 3%. Participants are categorized by generation using the following age groups: 21 to 36 (Millennials), 37 to 57 (Gen X) and 58 to 75 (Baby Boomers).

40%

Running out of money

1

33%

Health issues

2

28%

Health care costs

3

17%

Inability to meet monthly

expenses

4

17%

Inability to maintain standard

of living

5

66

Health Care: One of The Greatest Expenses in Retirement

Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016

36%

16%14%

12%

4%

2%

16%

HousingHealth CareTransportationFoodEntertainmentClothingMiscellaneous

EXPENSES FOR AMERICANS AGE 75+

77

How the Health Care Dollar Is Spent

Source: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017

33%Hospital Care

28%Other

20%Doctor Visits and Services

10%Prescription

Drugs

5%Nursing Home

4%Dental Services

88

A Closer Look at Medicare

99

Medicare Alone Won’t Be Enough

Medicare is representative of Part A and Part B coverage. Source: Medicare.gov 2018

MEDICARE COVERS MEDICARE DOES NOT COVER

Inpatient hospital costs

Surgeries

Doctor visits

Lab tests

Preventive screenings

Equipment, such as wheelchairs

Hearing aids

Most vision care

Most dental care

Personal aid services to help you stay in your home

Most nursing home and other long-term care

Assisted living

1010

Health Care Costs in Retirement Fall Into Two Categories

Unpredictable

PredictableTHE

THE

1

2

1111

The Predictable: Medicare and Medigap

Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study, (HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap.

2019 MONTHLY PREMIUM COSTS

Part A Subsidized premium

Part B $135.50 - $460

Part D Varies by state and planMedian: $40

Medigap (supplemental)

Varies by state and planMedian: $200

81%of total health care expenses go to premium costs

1212

The Predictable: 2019 IRMAA Brackets

Source: Medicare Board of Trustees

INDIVIDUAL MAGI

COUPLES MAGI PART B PART D

< $85k < $170k $135.50 Premium (varies)

$85k - $107k $170k - $214k $189.60 (40%) Premium + $12.40

$107k - $133k $214k - $267k $270.60 (100%) Premium + $31.90

$133k - $160k $267k - $320k $352.20 (160%) Premium + $51.40

$160k - $500k $320k - $750k $433.40 (220%) Premium + $70.90

>$500k >$750k $460.50 (240%) Premium + $77.40

1313

Retirement Health Care Costs

Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study, (HRS) public use dataset. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI. All costs are rounded to the nearest hundred. Premium percentage of total health care expenses includes the median percentage share of individual health insurance premiums (ages 65 and above) for Medicare Parts A, B, D and Medigap. Medigap policies bought directly from an insurance company, an insurance exchange, or group plans provided by AARP are considered for these calculations. Costs of long-term care are not included in the analysis.

2019 ESTIMATED ANNUAL EXPENSES (INDIVIDUAL)

$3,800

$500

$4,700 $4,500

$1,100

$5,800 $5,200

$2,200

$7,300

$6,100

$4,500

$10,200

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Premium Out of Pocket Total

25th Percentile 50th Percentile 75th Percentile 90th Percentile

1414

Health Care Is A Huge Expense for Employers

.

Source: Mercer National Survey of Employer-Sponsored Health Plans, 2018; PSCA Health Savings Accounts and Retirement Plans, 2017. CDHP is Consumer directed health plan.

75% of employers view HSAs as part of a retirement benefits strategy

$12,486$11,580

$10,357 $10,826

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

PPO HMO HSA-eligibleCDHP

PPO with deductiblegreater than $1,000

AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS)

How to Save / Plan for Health Care Expenses

1616

Planning for Health Care Expenses

Pre-tax Accounts

Roth Accounts

Health Savings Accounts (HSAs)

Variable Annuities

1717

No One Option is Perfect

Reflects Roth and pretax employer-sponsored plans (as opposed to IRAs) unless noted. Advantages of account type (relative to the others) shown in blue. All three types grow tax-deferred. These are not the only options when it comes to saving for healthcare and/or medical related expenses in retirement. Note that while HSAs are structured for the individual to save or invest for health costs, this is not the intended primary purpose of a defined contribution plan or IRA. Individuals should evaluate their health coverage needs and other factors before seeking tax benefits of an HSA. Source: IRS documents. 1Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 2Subject to income limitations on participation (Roth IRA) or deductibility (Traditional IRA). Amounts do not include catch-up contributions. 3Penalties end at age 65 for HSA and generally at age 59 ½ for Roth and Pretax. Distributions of contributed assets from Roth accounts are tax- and penalty-free. 4Early distributions from retirement plans or IRAs may be subject to taxes and penalties unless an exemption applies. 5Once you reach age 59 ½ with an account that has been opened for at least five years, you may qualify for tax-free withdrawals of both Roth IRA contributions and any accumulated earnings. 6Roth IRAs have no RMDs for original owner. For additional information please reference T. Rowe Price “Using Health Savings Accounts Wisely”.

ACCOUNT TYPES PRETAX ROTH HSA

Contributions Excluded from taxable income1 Not excluded1 Excluded from

taxable income1

2019 Maximum AnnualContributions2

$19,000 retirement plan$6,000 IRA2

$19,000 retirement plan$6,000 IRA2

$3,500 individual$7,000 family

Early Distribution Penalty3 10% 10% 20%

Early Distributions Limited access4 Limited access4 Qualified medical expenses(QME): No tax or penalty

Taxes on Distributions Ordinary rate Tax-free if qualified5 Tax-free if used to pay QME

Required MinimumDistributions (RMDs)

Begin at the later of age 70½ or retirement

Begin at age 70½ forretirement plans6 None

Tax Treatment forNon-spouse Heirs

Ongoing tax deferral(subject to RMD requirement)

Ongoing tax-free(subject to RMD requirement)

Value immediately subject to ordinary income tax

Advantages

1818

Employers’ Adoption of High Deductible Health Plans

*Consumer-directed health plan (CDHP). HSAs require the use of a high deductible health plan (HDHP), which is a specific type of CDHP. Source: Mercer National Survey of Employer-Sponsored Health Plans.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 Expect to offerin 2019

Small employers (10-499 employees)All large employers (500+ employees)Jumbo employers (20,000+ employees)

PERCENT OF EMPLOYERS OFFERING/LIKELY TO OFFER CDHP* (BY EMPLOYER SIZE)

1919

$3 $5 $7 $9 $11 $14 $17 $21$26

$32$37

$44$50

$58

$3$4

$6

$8

$10

$14

$17

$0

$10

$20

$30

$40

$50

$60

$70

$80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (est)

2020 (est)

Deposits Investments

HSA Asset Growth

Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary

TOTAL HSA ASSETS (BILLIONS)

$1.7 $3$5 $7

$10

$64

$54

$45

$38

$30

$24$19

$16$12

$75

2020

HSA Overview

KEY FACTS (2019) Individual Family

Eligibility: Under 65, Enrolled in HDHP

HSA Annual Contribution Limit $3,500 $7,000

HSA per-person catch-up contribution limit (age 55) $1,000 $1,000

Minimum deductible for HDHP $1,350 $2,700

Maximum out-of-pocket expense for HDHP $6,750 $13,500

Source: IRS documents

TAX-PREFERRED SAVINGS FOR INDIVIDUALS COVERED BY HIGH-DEDUCTIBLE HEALTH PLANS (HDHP)

Triple tax advantage

Contributions excluded from income

Assets grow tax-deferred

Withdrawals for qualified medical expenses are tax-free

Portable and not “use it or lose it”

2121

HSA Contributions

Source: PSCA Health Savings Accounts and Retirement Plans, 2017; includes employers who have HSAs. Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary.

AVERAGE ANNUAL HSA CONTRIBUTIONEmployer Contributions

81% contribute to HSAs

39% front-load contributions at the beginning of the year

30% contribute with each pay check$839

$1,872

Employer Employee

2222

Profile of HSA Investments

Source: 2018 Year-End Devenir HSA Research Report

39%

12%9%

9%

8%

7%

7%

6% 1%1%

Large-CapLifestyle/AllocationSmall-CapInternationalMoney MarketBonds/Fixed IncomeMid-CapTarget DateReal EstateOther

AVERAGE ALLOCATION (PARTICIPANTS AGE 60+)

2323

VERY BAD

Employee HSA Scenarios

HSA’S CAN HAVE A RANGE OF OUTCOMES

SUBOPTIMAL

Leaving large balance to non-spouse beneficiary

Ordinary tax for heirs

FAIR

Using for nonqualified expenses after age 65

Pay ordinary tax

Early nonqualified distributions

20% penalty

2424

Employee HSA Scenarios

GOOD

Contribute the amount of medical expenses

for current year (only spending account)

BETTER

Contribute more than expected medical expenses for year

and build cushion by only using assets for

large or unusual medical expenses

BEST

Contribute at or near the maximum and invest

for long term

Full triple-tax benefit

HSA’S CAN HAVE A RANGE OF OUTCOMES

2525

HSA Appropriateness

Source: T. Rowe Price “Using Health Savings Accounts Wisely. “High-Deductible vs. Low-Deductible Plans”; “HSA Contributions Based on Potential Qualified Medical Expenses”; “Contribution Strategy Example”. Examples are for illustrative purposes only and are generic in nature.

FOR PEOPLE WITH A CHOICE OF TRADITIONAL AND HIGH-DEDUCTIBLE HEALTH PLANS

Couple with young kids, high medical expenses and

limited saving capacity

KEY DECISION FACTORS: Will HDHP cost more than a

traditional plan? Would they really invest in

HSA or use it for annual expenses?

LIKELY CONCLUSION: HDHP/HSA not

beneficial

Healthy empty nesters in high tax bracket

KEY DECISION FACTORS: Factoring tax rate and time

horizon, does value of HSA tax treatment outweigh risk of high out-of-pocket costs?

LIKELY CONCLUSION: Choose HDHP and invest the

maximum allowed in HSA

Healthy, successful young person with saving capacity

KEY DECISION FACTORS: Given young age, is there a

possibility of accumulating too much in an HSA?

Are there other financial priorities to consider?

LIKELY CONCLUSION: Invest in HSA, but possibly not

at maximum level

Why You Need to Discuss Health Care

2727

HSA Carry Forward

Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary. Carry forward equals HSA industry contributions minus withdrawals.

$2.6$3.0

$3.9

$6.2 $5.9 $5.7

$5.0

$8.0

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

2011 2012 2013 2014 2015 2016

MARKET-WIDE HSA CONTRIBUTIONS CARRIED FORWARD TO THE FOLLOWING YEAR (BILLIONS)

2017 2018

2828

Growth of HSA Investment Accounts

Source: Devenir Research, 2018 Year-End HSA Market Statistics & Trends Executive Summary

HSA INVESTMENT ASSETS (BILLIONS)

%HSA Assets in

Investments7% 19%13% 14% 15% 18%7% 8% 11% 12%5% 4% 5%

$0.1 $0.2 $0.2 $0.4$0.9 $1.1

$1.7$2.3

$3.2$4.2

$5.5

$8.3

$10.2

$13.6

$16.7

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(est)

2020(est)

21% 22%

2929

Health Care Planning: A Compelling Addition to Your Practice

Standing Out From

CompetitorsRetention and

ReferralsHolistic

Retirement Planning

3030

Establish a process to help employers vet

providers and set up a HSA

Provide ongoing investment

education and advice

Opportunities for Advisors

Offer fair and balanced

reviews of health care

savings options and strategies

3131

Fiduciary Considerations

Source: T. Rowe Price Retirement Savings and Spending study (2018)

Are you assuming fiduciary liability if you provide HSA advice to employers and/or employees?

of those contributing to HSA said that they would benefit from advice1

74%of respondents would find advice on saving to fund health care expenses

in retirement useful

74%of people who have used an

advisor have received advice from them on health

care expense planning

16%Only

3232

Summary

Health care expenses are very top of mind Huge concern for employees; with waning confidence Biggest (and growing) benefits expense for employers Consist of predictable (Medicare) and unpredictable (long-term care)

Several savings options exist Pretax and Roth contributions Health Savings Accounts (HSAs) Increased savings levels & significant equity exposure (regardless of account type)

Health Savings Accounts (HSAs) Increasing employer and employee adoption Offer triple tax advantage Appropriate for many—but not all—who have access to them Many health care and financial factors to consider

Opportunities for advisors Proactively discuss to show added value Stand out from the competition Provide investment advice for HSA plans

THANK YOU

C17J2JO30201903-759870

T. Rowe Price Investment Services, Inc., Distributor.

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