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COVER STORY | THE SAVINGS HIERARCHY
the 401(k) match, their next best dollar should go to the HSA, due
to the triple-tax benefits you can't get anywhere else, " he adds.
Employees need to understand the unique tax advantages of
these accounts, Hanna says. " HSAs come with three tax benefits:
You can contribute to them on a tax-deductible basis, your savings
grow tax-free over time, and your savings can be withdrawn taxfree
to pay for qualified medical expenses in retirement, " he
says. " A 401(k) really has only two of those three advantages: You
contribute on a tax-deductible basis and your savings grow tax free,
but you pay taxes upon your withdrawal of money. "
Saving in an HSA for the long term can make sense particularly
for lower-income employees, who likely will live on their
Social Security benefit and modest savings when they retire,
Kading says. For many of them, he adds, their largest bills will
be for health care. " Instead of tapping into their savings to pay
medical expenses in a fully taxable way, with the money coming
out of their 401(k) account, why not tap into their savings in a taxfree
way, with the money coming out of an HSA? " -Judy Ward
SAVINGS GOALS, BY AGE COHORT
F
or employers interested in offering
education and tools that help
employees prioritize their savings
goals, the most important thing is to
segment their employee base into different
age cohorts, says Daniel Bryant of Sheridan
Road Financial. " If you do that, you can
better target the solutions that make sense
for them, " he says. " What you are trying
to accomplish is to move someone from a
state of financial stress to a state of financial
confidence or financial freedom. "
For simplicity's sake, Bryant talks
about dividing a workforce into three age
cohorts.
Through 35 Years Old
Employees in the 35 and under group
often have little or no savings, are finding
their way from a career perspective, and
are saddled with a crushing amount of
student debt, Bryant observes. " And, literally,
no financial-literacy education has
ever been taught to them in their lives, "
he says. They need help to understand
how to put together a basic budget, make
required payments on their student debt,
build up an emergency savings account,
and take first steps to save in a 401(k) and
a health savings account (HSA).
36 to 55 Years Old
Employees in the 36 to 55 age group often
have the expenses of mortgage and family
competing with the need to save for their
children's education and help dependent,
aging parents, Bryant says. " They have a
massive financial burden placed on them.
When we meet with these folks, their stress
about conflicting priorities is palpable. "
They need to not only prioritize those
expenses, but figure out " how to save as
much for retirement as humanly possible
and how to max out on their triple-tax-free
HSA contribution, " he says.
55 Years Old or More
The 55-and-over employee demographic
needs help deciding how to prioritize their
expenses while preparing to shift from a
lifetime of accumulation to the inevitability
of savings withdrawal, Bryant says. " That
retirement window is nearing, and they
are saying, 'Holy cow, I can't believe that I
can actually see the end date of my career,' "
he says. " It's at that point when they ask,
'Will I have enough money to last for 20 or
30 or 40 years in retirement?' The ability
to convert their nest egg into a monthly
income stream for an indefinite number of
years is complicated and anxiety-ridden. "
It is important to help people think
through how they want to rank their financial
goals, rather than just telling them
how to rank them, says Joe Connell, with
Sikich LLP. " We don't think there's a right
or wrong answer on savings priorities. I tell
people, 'Your goals are your goals. It's your
financial plan, not the company's and not
your neighbor's,' " he says. " I tell them, 'It's
OK to prioritize what's important to you.'
The reality is that people don't have an
unlimited amount of income. And we want
them to think of this as their plan, so they
take ownership of it. "
First, Connell helps them identify
the goals. " They can list all their potential
goals out, for both the short term and long
term, and then we help them rank them in
importance, " he says. " Once they define,
'This is my most pressing [financial] goal,'
then they are able to visualize it better. "
Intellicents also focuses on goalsbased
planning when helping people prioritize
how to spend their money, says Nick
Madl. " Step 1 is to define the goals; then we
talk about how to reach the goals, " he says.
The advisory firm uses financial planning
software that illustrates and quantifies
the impact that specific decisions may
have on a client's full financial picture.
For example, the software can forecast the
shortfall in retirement savings someone
ultimately will have if he focuses instead
on saving for a child's college education.
People need to understand the tradeoffs
they make when prioritizing different
uses for their money, Madl says. " It's an
issue of, what will make that individual feel
the most confident in his or her finances? "
he says. " Maybe it's paying off the mortgage
on schedule, but contributing to a
retirement account at the same time. "
" It all comes back to helping participants
understand the impact of a decision, "
Madl continues. " And it's not just a
question of what the impact will be for the
next 12 months. It's, 'What are you going
to have to give up to make that decision,
over the next 10, 20 or 30 years? And is it
worth it?' " -JW
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