‘Investment Options and HSAs: Findings from the EBRI HSA Database,’ and ‘How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?’
Aug 26, 2015, 00:00 AM
HSA Investment Options: Investment options in health savings accounts (HSAs) are a fairly new and not widely used option, but they tend to draw larger contributions and have higher balances where they do exist, according to a new analysis by EBRI.
Longevity Annuity Contracts: A recently authorized feature for 401(k) plans would allow workers to transform all or part of their retirement savings into a guaranteed stream of lifetime income, similar to what traditional pensions can provide. New modeling from EBRI finds this feature would be a significant help as a way to reduce their “longevity risk”—the risk of outliving their retirement savings—but only to those workers who can expect to have a long retirement.
‘Investment Options and HSAs: Findings from the EBRI HSA Database,’ and ‘How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?’
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Vol. 36, No. 8
Investment Options and HSAs: Findings from the EBRI HSA Database
- In 2014, 6.4 percent of health savings account (HSA) owners in the EBRI HSA Database had used the investment option portion of the account.
- Forty-seven percent of the HSAs with investments were opened between 2005 and 2008, compared with 8 percent among HSAs without investments. Among HSA owners with investments, the average age was 48.5 in 2014, compared with 43 among HSA owners without investments.
- Individuals contributed $2,636 annually on average when they had investments and $1,224 when they did not have investments. Annual distributions for health care claims averaged $1,777 from HSAs with investments, and $1,293 from HSAs without investments.
- End-of-year account balances averaged $10,261 among HSAs with investments, and $1,709 in HSAs without them.
How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?
- In recent years, the prospect of increasing individual interest in annuitizing retirement savings has been enhanced through an insurance product designed to provide monthly benefits only after a significant deferral period in retirement.
- In 2014, one of the major constraints of using this type of product was eliminated when the U.S. Treasury Department and the Internal Revenue Service (IRS) issued final rules for creating a qualifying longevity annuity contract (QLAC).
- This Notes article provides analysis of the ability of QLACs to provide an effective longevity hedge for Boomers and Gen Xers who are simulated to participate in an in-plan offering either through a 10-year series of laddered purchases or as a one-time purchase based on the accumulated value of employer contributions from the current employer.
- The analysis finds that even at today’s historically low interest rates, the purchase of these products may provide a significant increase in retirement readiness for the longest-lived quartile, compared with only a small reduction for the general population. Sensitivity analysis on the QLAC premiums resulting from likely increases in future interest rates provides even more favorable results.
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‘Investment Options and HSAs: Findings from the EBRI HSA Database,’ and ‘How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?’
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EBRI Notes
‘Investment Options and HSAs: Findings from the EBRI HSA Database,’ and ‘How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?’
Summary
Investment Options and HSAs: Findings from the EBRI HSA Database
- In 2014, 6.4 percent of health savings account (HSA) owners in the EBRI HSA Database had used the investment option portion of the account.
- Forty-seven percent of the HSAs with investments were opened between 2005 and 2008, compared with 8 percent among HSAs without investments. Among HSA owners with investments, the average age was 48.5 in 2014, compared with 43 among HSA owners without investments.
- Individuals contributed $2,636 annually on average when they had investments and $1,224 when they did not have investments. Annual distributions for health care claims averaged $1,777 from HSAs with investments, and $1,293 from HSAs without investments.
- End-of-year account balances averaged $10,261 among HSAs with investments, and $1,709 in HSAs without them.
How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?
- In recent years, the prospect of increasing individual interest in annuitizing retirement savings has been enhanced through an insurance product designed to provide monthly benefits only after a significant deferral period in retirement.
- In 2014, one of the major constraints of using this type of product was eliminated when the U.S. Treasury Department and the Internal Revenue Service (IRS) issued final rules for creating a qualifying longevity annuity contract (QLAC).
- This Notes article provides analysis of the ability of QLACs to provide an effective longevity hedge for Boomers and Gen Xers who are simulated to participate in an in-plan offering either through a 10-year series of laddered purchases or as a one-time purchase based on the accumulated value of employer contributions from the current employer.
- The analysis finds that even at today’s historically low interest rates, the purchase of these products may provide a significant increase in retirement readiness for the longest-lived quartile, compared with only a small reduction for the general population. Sensitivity analysis on the QLAC premiums resulting from likely increases in future interest rates provides even more favorable results.
