The Surprising Way to Boost Your Retirement Savings
An intriguing connection between your health and your 401(k) balance
Roughly half of employed Americans (48 percent) aren’t saving any more for retirement this year than last and 13 percent are saving less, according to a new Bankrate.com survey. What could help Americans — and you, in particular — save more? A noted retirement analyst and a family physician have a surprising answer: Get healthier.
Need convincing? Here’s an example: By making a few health-behavior modifications and taking prescribed medications, a 50-year-old man diagnosed with high blood pressure or type 2 diabetes could save around $2,000 a year in out-of-pocket health care costs pre-retirement and add three to eight years to his life expectancy. All told, he’d then have roughly $44,000 extra in retirement savings by age 65.
That’s according to Ron Mastrogiovanni, CEO of HealthyCapital and HealthView Services, and Dr. Raymond Weick, vice president with Mercy, a St. Louis-area health system, who joined forces to demonstrate the importance of health as a driver of retirement savings. They’ve written a white paper on this, Health & Retirement Savings: Leveraging Health Care Costs to Drive 401(k) Contributions and Improve Health.
Significant Impact on Health Care Costs
“What we’ve learned is that patients with chronic conditions don’t necessarily follow their health protocols, and that has a significant impact on their health care costs,” said Mastrogiovanni. “That’s where the savings lie.”
Weick echoed that, based on his experience as a physician. “Every wellness visit for a patient with a chronic illness is like playing a poker game,” said Weick. In his experience, 20 percent of patients with high blood pressure don’t take their medication and 50 percent will stop taking it within six months.
A recent study in the Journal of Financial Counseling and Planning also made the connection between finances and health for middle-aged and older men and women. Yoon Lee, an associate professor at Utah State University, found that “poor financial status was significantly associated with high body mass index (BMI) for both men and women.” And, the paper said, when people are more likely to make healthier choices in their daily lives, they also tend to make better decisions about their finances.
What Motivates Patients? Money
Knowing how hard it is to get patients with chronic illnesses to do what they should, Weick began to wonder: “What motivates the individuals? What can I tap into to get them to improve their behavior to drive an effective medical outcome?” Weick noted that “what the patient does for himself is four times more important than what the doctor does.”
So he started thinking about what could motivate patients to make them get healthier. “I was reflecting on my retirement and thought: ‘Boy, if I could get data to show the financial effect and the effect on longevity, I could use that as a motivator to drive outcomes.'” Then he called Mastrogiovanni, who’s known for his number crunching regarding retirement health care costs.
What the Health Management Retirement Funding Index Does
In response, Mastrogiovanni came up with HealthyCapital’s Health Management Retirement Funding Index, which calculates the percentage of health care costs that can be offset by making healthier choices and then investing the savings. (Unfortunately, this tool isn’t available to the general public; it's offered by financial advisers and financial institutions who work with HealthyCapital.)
The earlier people start taking better care of themselves, Mastrogiovanni found, the bigger the boost to their retirement savings.
By taking the right health steps, a 45-year-old woman diagnosed with type 2 diabetes and high cholesterol could lower her annual pre-retirement out-of-pocket health care costs by more than $3,300, extend her life expectancy from 76 to 84 and — assuming she invested the savings in a 401(k) earning 6 percent annually — have an extra $108,000 at retirement, according to HealthyCapital.
Chronic Conditions and Retirement Savings
The researchers so far have focused on high blood pressure, high cholesterol, type 2 diabetes, obesity and smoking. “Over 50 percent of the population and workforce has one of those chronic conditions,” said Mastrogiovanni. Added Weick: “These are things that are modifiable.”
Where exactly do the savings come from? A combination of out-of-pocket health care costs: prescription drugs, doctor visits, hospital visits and health insurance, to name a few.
“If you’re not taking your blood pressure medication, that can lead to all sorts of health issues,” said Mastrogiovanni. But if you do, that could mean fewer hospital visits, fewer medical tests and less need for medications.
Big Worries About Health Costs and Retirement
Such savings are only becoming more important each year. Health care cost increases continue to outpace inflation and people are becoming more and more concerned about how much health expenses will sock them in retirement.
According to the Centers for Medicare and Medicaid Services, price increases for personal health expenditures are projected to increase by 2.2 percent in 2018 vs. 1.9 percent for overall inflation. And HealthView Services forecasts that retiree health care expenses will rise at an average annual rate of 5.47 percent for the foreseeable future.
In 2017, HealthView Services said, a healthy 65-year-old couple who retired last year could be expected to pay $321,994 (in today’s dollars) for lifetime health care premiums. Add in deductibles; co-pays and hearing, vision and dental cost sharing and the figure soars to $404,253.
What’s more, roughly 20 percent of the U.S. population now has high-deductible health plans through employers, which means they’re often paying thousands of dollars a year before their insurance kicks in.
Nearly three-quarters of older adults (73 percent) cite out-of-control health care costs as a top fear in retirement and 64 percent of future retirees say they’re “terrified” about the impact health costs may have on their retirement, according to a June study by the Nationwide Retirement Institute.
What You Can Do
Only 48 percent of older adults who work with financial advisers have discussed health care costs with those money pros, however. If you have a financial planner and are nearing retirement, that’s a conversation worth having.
And whether you work with a financial adviser or not, if you have a chronic condition, get proper medical care for it and take a tip from Mastrogiovanni and Weick: follow your doctor’s instructions. Doing so just might help you pay for your health care costs in retirement.
