HSAs: The S is for Savings

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Janice Cole
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1 HSAs: The S is for Savings Presented by: Tim Kohn, Dimensional Fund Advisors W. Patrick Jarrett, HealthSavings Administrators This information is provided for registered investment advisors and institutional investors, and is not intended for public use. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors collect at (512) or at us.dimensional.com/prospectus. Dimensional funds are distributed by DFA Securities LLC. HealthSavings Administrators provides health savings accounts in which Dimensional funds may be selected and is an HSA option for employees of Dimensional. Dimensional Fund Advisors LP receives compensation in the form of investment management fees from clients who invest in these funds. DFA Securities LLC is not affiliated with HealthSavings Administrators. 1

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3 What? Why? Case Study Tips 3

4 health sav ings ac count (noun) a savings account used in conjunction with a high deductible health plan (HDHP) that allows users to save money tax-free to pay for qualified healthcare expenses 4

5 Dimensional does not provide tax advice. Please consult with qualified legal or tax professionals regarding your individual circumstances. 5

6 FSA 6

7 Regulatory Updates HSAs not been scrutinized as much as retirement mostly checking accounts Not ERISA DOL Fiduciary Rule: HSA advisors must now meet same fiduciary standards as IRA advisors 1 1. Amendment to Prohibited Transaction Exemption (PTE 84-24) For Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, Investment Companies and Investment Company Principal Underwriters [02/03/2006] Dimensional does not provide tax or legal advice. Please consult with qualified legal or tax professionals regarding your individual circumstances. 7

8 Healthcare Retirement HSAs For illustrative purposes only. 8

9 National HSA Assets (in billions) $60.0 $9.7 $50.0 $7.5 $40.0 $5.7 $30.0 $20.0 $10.0 $0.0 $4.2 $3.2 $2.3 $45.0 $37.9 $1.7 $31.7 $1.1 $0.9 $26.0 $0.4 $21.0 $0.2 $17.1 $0.2 $1.6 $3.2 $5.3 $6.8 $9.0 $11.1 $13.7 $ Deposits Investments Source: Estimates derived from 2015 Year-End Devenir HSA Market Survey, press releases, previous market research and market growth rates. 9

10 A Building Block of an Income-Focused Solution What if you could target a slice of Medicare Supplemental Insurance Premiums? 1 Medicare Supplemental Insurance 2 An income slice is a stream of $1 of inflation adjusted income from retirement to expected end of life. Its current value is the present discounted value using real interest rates. $ $ $ $ $ Year One Year Two Year Three Year Four Year 25 What are the appropriate risks with respect to healthcare in retirement? Expenses not covered by Medicare; supplemental insurance Retirement Expected End of Life Long Term Care Insurance Assisted Living For illustrative purposes only, not guaranteed. 1. Refers to a Liability Driven Investment (LDI) strategy applied to saving for Medicare Supplemental Insurance. See Disclosures and Risks for more information. 2. For illustrative purposes only; Medicare Supplemental Insurance premiums vary by individual, state, and selected provider(s). 10

11 Percentage of Assets Income-Growth vs Income Risk Management 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Global Equities Global & Credit Fixed Income Inflation Protected & Ultra Short Fixed Income Global Equities and Fixed Income Increasing Allocation to Income Risk Hedging Assets Inflation Protected LDI Strategy 0% Years Before Retirement Years In Retirement Retirement Date Glide path based on expectation of the Dimensional Target Date Retirement Income Funds' asset allocation changes over time. The actual asset allocations utilized by each fund may deviate from the allocations illustrated by this glide path. See "Disclosures and Risks" for more information. 11

Healthcare Anticipated Expenses in Costs? Retirement 2 In retirement, many people find that they need funds beyond those provided through Medicare to cover medical expenses.

12 Healthcare Anticipated Expenses in Costs? Retirement 2 In retirement, many people find that they need funds beyond those provided through Medicare to cover medical expenses. A 2014 EBRI survey found that $147,000 of healthcare expenses in retirement are not covered by Medicare for the average couple 1 1. Source: EBRI Annual Survey, Source: EBRI Notes, Amount of Savings Needed for Health Expenses for People Eligible for Medicare: Good News Not So Rare Anymore, Figure 1, 12

13 Case Study 13

14 Account Holder By Type 46% 23% 31% All investment All cash Investment & cash Data provided by Health Savings Administrators on actual Dimensional employee participation in the HSA plan offered by Health Savings Administrators. 14

15 First 90 Days $8,000 $6,000 $4,000 $2,000 $0 Spenders Savers Investors Cash Investments Data provided by Health Savings Administrators on actual Dimensional employee participation in the HSA plan offered by Health Savings Administrators. 15

16 Keys to Successful Implementation Pricing: Make the HDHP an attractive option Fees: Cover fees Contributions: Show commitment by contributing Tools: Help employees be better consumers Education: Provide ongoing information 16

17 Report Card Consumers who understand HSAs 30% Account holders who contribute the annual maximum to their HSAs 15% Account holders who invest their HSAs 12% Health Savings Administrators proprietary study,

18 Employee Success Save for anticipated expenses Maximize ER contributions Invest for future medical expenses 18

19 Questions? 19

20 Disclosures and Risks Investments in target date funds are subject to the risks of their underlying funds, and asset allocations are subject to change over time in accordance with each fund's prospectus. An investment in or retirement income from a target date portfolio is not guaranteed at any time, including on or after the target date. An investment in a target date portfolio does not eliminate the need for investors to decide before investing and periodically thereafter whether the portfolio fits their financial situation. Target Date Funds are designed to target a year in which an investor may withdraw funds for retirement or other purposes. For more information, please refer to the prospectus. There is no guarantee this investment strategy will be successful, and it is possible to lose money with this investment. Investments in stocks and bonds are subject to risk of economic, political, and issuer-specific events that cause the value of these securities to fluctuate. Fixed income securities are subject to increased loss of principal during periods of rising interest rates and may be subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. Inflation-protected securities may react differently from other debt securities to changes in interest rates. A liability-driven investment strategy is designed to focus on assets that match future liabilities. LDI strategies contain certain risks that prospective investors should evaluate and understand prior to making a decision to invest. These risks may include, but are not limited to, interest rate risk, counterparty risk, liquidity risk, and leverage risk. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors collect at (512) or at us.dimensional.com. Dimensional funds are distributed by DFA Securities LLC. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and neither Dimensional Fund Advisors LP nor any of its affiliates shall have liability for decisions based on such information. 20

TARGET DATE RETIREMENT INCOME FUNDS. A Clearer View of Your Path to Retirement

TARGET DATE RETIREMENT INCOME FUNDS A Clearer View of Your Path to Retirement 2 Planning for your retirement can seem overwhelming. How should you save and invest today, and how much income will your savings