IS THERE A CURE-ALL SOLUTION? PLANNING FOR

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IS THERE A CURE-ALL SOLUTION?RetirementWellnessPLANNING FORRETIREMENT HEALTHCARE COSTS

Agenda01WHAT DOES THE HEALTH CARE LANDSCAPE LOOK LIKE?02HOW CAN EMPLOYEES SAVE / PLAN FOR HEALTH CAREEXPENSES?03WHY YOU NEED TO DISCUSS THE TOPIC OF HEALTH CARE2

Health Care Landscape

The Average Employee Is Unprepared For Retirement25%57%64%expect to run outof money1can’t afford to contributemore to their plans1say finances are thelargest source ofstress in their life324%63%of wages go to consumerdebt payments2don’t have enough savings tocover a 1,000 emergency4T. 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 abalance more than 1,000. Survey was conducted online July 24-August 14, 2018.2 U.S. Census Bureau at al. 2014.3 Sophie Bethune, “Money Stress Weights on Americans’ Health”, Monitor on Psychology, Volume 46, No. 4, Page 38, 2015, American Psychological Association. Reprinted with permission.4 Bankrate Money Pulse survey, December 2015.14

Top Five Fears About Retirement1234551%28%25%25%24%Running outof moneyHealth carecostsInability tomeet monthlyexpensesInability tomaintain standardof livingHealthissuesSource: Employee Financial Wellness Survey, PwC US, 2019.5

Health Care: One Of The Greatest Expenses In RetirementEXPENSES FOR AMERICANS AGE 75 16%2%4%36%HousingHealth ellaneous14%16%Source: U.S. Bureau of Labor Statistics, A Closer Look at Spending Patterns of Older Americans, 2016.6

How The Health Care Dollar Is Spent4%Dental Services5%33%Hospital CareNursing Home10%Prescription Drugs20%28%OtherDoctor Visitsand ServicesSource: Centers for Medicare and Medicaid Services, National Health Expenditures, 2017.7

A Closer Look At MedicarePart APart BPart CPart Dcovers room andboard in the hospitalcovers outpatientservices deemedmedically necessary,such as lab testsand doctor visitshelps reduceexpenses throughprivate healthinsurance planshelps lowerthe cost ofprescription drugs8

Medicare Alone Won’t Be EnoughMEDICARE COVERSMEDICARE DOES NOT COVERInpatient hospital costsHearing aidsSurgeriesMost vision careDoctor visitsMost dental careLab testsPersonal aid services to help you stayin your homePreventive screeningsMost nursing home and other longterm careEquipment, such as wheelchairsAssisted livingMedicare is representative of Part A and Part B coverage.Source: Medicare.gov 2018.9

Health Care Costs In Retirement Fall Into Two Categories1Fixed2Variable10

Fixed: Medicare Premiums2020 MONTHLY PREMIUM COSTSPart ASubsidized premiumPart B 144.60- 491.60 per personPart DVaries by state and plan76%of total health careexpenses go topremium costsMedigapVaries by state and plan(supplemental)Source: T. Rowe Price estimates based on projected 2020 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study, (HRS) public use dataset. Produced and distributed by theUniversity of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI. Premium percentage of total health care expenses includes the median percentage share of individualhealth insurance premiums (ages 65 and above) for Medicare Parts A, B, and D.11

Fixed: 2020 IRMAA BracketsIndividual MAGICouples MAGIPart BPart D 87k 174k 144.60Premium (varies) 87k - 109k 174k - 218k 202.40 (40%)Premium 12.20 109k - 136k 218k - 272k 289.20 (100%)Premium 31.50 136k - 163k 272k - 326k 376.00 (160%)Premium 50.70 163k - 500k 326k - 750k 462.70 (220%)Premium 70.00 500k 750k 491.60 (240%)Premium 76.40Source: Medicare Board of Trustees.12

Variable: Out Of Pocket Costs2020 ESTIMATED OUT OF POCKET EXPENSES (INDIVIDUAL) 4,700 5,000 4,500 4,000 3,500 3,000 2,400 2,500 2,000 1,500 800 1,000 500 300 025th Percentile50th PercentileOut of Pocket75th Percentile90th PercentileOut of PocketSource: T. Rowe Price estimates based on projected 2020 Medicare premiums and data from the Health and Retirement Study (HRS). Health and Retirement Study, (HRS) public use dataset. Produced and distributed by theUniversity 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 and include Medicare Parts A, B and D. Costs of longterm care are not included in the analysis.13

Health Care Is A Huge Expense For EmployersAVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS) 14,000 12,486 12,000 11,580 10,357 10,826 10,000 8,000 6,000 4,000 2,000 0PPOHMOHSA-eligibleCDHPPPO with deductiblegreater than 1,00075% of employers view HSAs as part of a retirement benefits strategySource: Mercer National Survey of Employer-Sponsored Health Plans, 2018; PSCA Health Savings Accounts and Retirement Plans, 2017. CDHP is Consumer directed health plan.14

How To Save / Plan ForHealth Care Expenses

Planning For Health Care Expenses§ Pre-tax Accounts§ Roth Accounts§ Health Savings Accounts (HSAs)§ Variable Annuities16

Saving For Retirement Health Care ExpensesAdvantagesContributions2020 Maximum AnnualContributions2Early Distribution Penalty3Early DistributionsTaxes on DistributionsRequired MinimumDistributions (RMDs)Tax Treatment forNon-spouse HeirsPRETAXROTHHSAExcluded fromtaxable income1 19,500 retirement plan 6,000 IRA2Not excluded fromtaxable income1 19,500 retirement plan 6,000 IRA2Excluded fromtaxable income1 3,550 individual 7,100 family10%10%20%Limited access4Limited access4Qualified medical expenses(QME): No tax or penaltyOrdinary rateTax-free if qualified5Tax-free if used to pay QMEBegin at the later ofage 72 or retirement6Ongoing tax deferral(subject to RMD requirement)Begin at the later ofage 72 or retirement6,7Ongoing tax-free(subject to RMD requirement)NoneValue immediately subject toordinary income taxThe chart 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 onlyoptions when it comes to saving for health care 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 ofa defined contribution plan or an IRA. Individuals should evaluate their health coverage needs and other factors before seeking tax benefits of an HSA. HSAs are only available if you are covered by a high-deductible healthcare plan. Source: IRS documents.1 Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 2 Subject to income limitations on participation (Roth IRA) or deductibility (Traditional IRA). Amounts do notinclude 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 fromretirement 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 ofboth Roth contributions and any accumulated earnings. 6By April 1 following the year you reach age 72 (70½ if you were born before July 1, 1949) you must begin to withdraw a certain amount of money annually from yourretirement account(s). If you are still working with the company that sponsors your plan, you may be allowed to delay your first RMD until the April 1 following the year in which you retire. For each year following the year youreach your RMD age (or retire, if later—as applicable) the deadline is December 31. 7Roth IRAs have no RMDs for original owner.For additional information please reference T. Rowe Price’s “Using Health Savings Accounts Wisely”. Chart is for illustrative purposes only.17

Employers’ Adoption Of High Deductible Health PlansPERCENT OF EMPLOYERS OFFERING CDHP* (BY EMPLOYER SIZE)Small employers (10-499 employees)All large employers (500 employees)Jumbo employers (20,000 22013201420152016Estimated 2019*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.18

HSA Asset GrowthTOTAL HSA ASSETS (BILLIONS)Deposits 100Investments 90 90 78 80 66 70 60 54 50 45 40 30 20 10 0 22006 3 32007 5 7 16 19 24 3 10 12 11 14 17 212011201220132014 5 7 9200820092010 30 4 262015 38 6 322016 24 20 16 10 8 372017 442018 502019 582020(est) 662021(est)Source: Devenir Research, 2019 Year-End HSA Research Report Executive Summary.19

HSA OverviewTAX-PREFERRED SAVINGS FOR INDIVIDUALS COVERED BY HIGH-DEDUCTIBLEHEALTH 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”KEY FACTS (2020)IndividualFamilyEligibility: Under 65, Enrolled in HDHPHSA Annual Contribution Limit 3,550 7,100HSA per-person catch-up contribution limit (age 55) 1,000 1,000Minimum deductible for HDHP 1,400 2,800Maximum out-of-pocket expense for HDHP 6,900 13,800Source: IRS documents.20

HSA ContributionsAVERAGE ANNUAL HSA CONTRIBUTION 2,034§ 27%of all HSA contributionscame from an employer 880§ 60% of all HSA contributionscame from an employeeEmployerEmployeeSource: Devenir Research, 2019 Year-End HSA Research Report Executive Summary.21

Profile Of HSA InvestmentsAVERAGE ALLOCATION (PARTICIPANTS AGE 60 )6% 1% ernationalMoney MarketBonds/Fixed Income8%Mid-CapTarget Date9%Real Estate9%12%OtherSource: 2018 Year-End Devenir HSA Research Report.22

Employee HSA ScenariosHSA’S CAN HAVE A RANGE OF OUTCOMESVERY BADSUBOPTIMALFAIREarly nonqualifieddistributionsLeaving large balance tonon-spouse beneficiaryUsing for nonqualifiedexpenses after age 65§ 20% penalty§ Ordinary tax for heirs§ Pay ordinary tax23

Employee HSA ScenariosHSA’S CAN HAVE A RANGE OF OUTCOMESGOODBETTERContribute the amountof medical expensesfor current year(only spending account)Contribute more thanexpected medicalexpenses for year andbuild cushion by onlyusing assets for large orunusual medical expensesBESTContribute at or near themaximum and investfor long term§ Full triple-tax benefit24

HSA AppropriatenessFOR PEOPLE WITH A CHOICE OF TRADITIONAL AND HIGH-DEDUCTIBLE HEALTH PLANSCouple with young kids,high medical expenses andlimited saving capacityKEY DECISION FACTORS:§ Will HDHP cost more than atraditional plan?§ Would they really invest in HSA oruse it for annual expenses?LIKELY CONCLUSION:§ HDHP/HSA not beneficialHealthy empty nestersin high tax bracketHealthy, successful youngperson with saving capacityKEY DECISION FACTORS:§ Factoring tax rate and time horizon,does value of HSA tax treatmentoutweigh risk of high out-of-pocketcosts?KEY DECISION FACTORS:§ Given young age, is there apossibility of accumulating too muchin an HSA?LIKELY CONCLUSION:§ Choose HDHP and invest themaximum allowed in HSALIKELY CONCLUSION:§ Invest in HSA, but possibly not atmaximum level§ Are there other financial priorities toconsider?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 arefor illustrative purposes only and are generic in nature.25

Why You Need ToDiscuss Health Care

HSA Carry ForwardMARKET-WIDE HSA CONTRIBUTIONS CARRIED FORWARD TO THE FOLLOWING YEAR(BILLIONS) 10 9.5 9 8.0 8 7 6.2 6 5.9 5.7 5.0 5 3.9 4 3 2.6 3.0 2 1 02011201220132014120152016201720182019Source: Devenir Research, 2019 Year-End HSA Research Report Executive Summary. Carry forward equals HSA industry contributions minus withdrawals.27

Growth Of HSA Investment AccountsHSA INVESTMENT ASSETS (BILLIONS) 26 24.2 24 22 19.6 20 18 15.7 16 14 12 10.2 10 8.3 8 6 4 2 0% HSA Assetsin Investments 1.7 2.3 1.1 0.9 0.1 0.2 0.2 0.4 3.2 4.2 % 15% 18%19%24% 25% 27%Source: Devenir Research, 2019 Year-End HSA Research Report Executive Summary.28

Health Care Planning: A Compelling Addition To YourPracticeStanding ionandReferrals29

Opportunities For Financial ProfessionalsOffer fair andbalanced reviewsof health caresavings optionsand strategiesProvide ongoinginvestmenteducationEstablish a processto help employersvet providers andset up an HSA30

HSA Education/AdviceAre you advising employers and/or employees on HSA considerationsand opportunities?Only74%of respondents would find adviceon saving to fund health careexpenses in retirement useful16%of people who have used afinancial professional havereceived advice from themon health care expenseplanningSource: T. Rowe Price Retirement Savings and Spending study (2018).31

SummaryHealth care expenses are very top of mindHealth Savings Accounts (HSAs)Huge concern for employees; with waningconfidence§Increasing employer and employee adoption§Offer triple tax advantage§Biggest (and growing) benefits expensefor employers§Appropriate for many – but not all – who haveaccess to them§Consist of fixed (premiums) and variable(out-of-pocket) expenses§Many health care and financial factors toconsider§Several savings options existOpportunities for financial professionals§Pretax and Roth contributions§Proactively discuss to show added value§Health Savings Accounts (HSAs)§Stand out from the competition§Provide investment education for HSAs32

We want to hear from you.THANK YOU800.371.4613DCIO Sales Desk@troweprice.comThis material is provided for general and educational purposes only, and not intended to provide legal, tax, or investment advice. This material doesnot provide recommendations concerning investments, investment strategies or account types; and not intended to suggest any particularinvestment action is appropriate for you. Please consider your own circumstances before making an investment decision.T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group,Inc. 2020 T. Rowe Price. All rights reserved.T. Rowe Price Investment Services, Inc.CCON0052049202003-10705606/20

AVERAGE MEDICAL PLAN COST PER EMPLOYEE (LARGE EMPLOYERS) 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 8,00

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