Emeriti has set up a lifelong retiree flexible spending account, where there is no required tie to a high deductible plan and no income limits.
As financial advisors, you are accustomed to working with clients on building sound financial plans and retirement security. In the past, the emphasis has been on accumulating adequate assets for retirement income, primarily through tax-deferred savings. These days, financial advisors are mindful that having sources of tax-free income in addition to taxable income from pension plans is extremely important. As most experts recognize today, health care is going to take an increasingly large bite out of retirement income. Some estimates put this bite at 25 - 35 % of retirement income, easily replacing what used to be the biggest expenditure of pre-retirement income, typically for a mortgage or financing a child's education.
With Medicare's current constraints and future fiscal woes, individuals have to plan for their share of retiree health care expenses in more concrete and tangible ways. What better way to save for such out-of-pocket expenses than through a tax advantaged retiree health account. Unlike an HSA, Emeriti's Voluntary Employee Beneficiary Association (VEBA) allows unlimited contributions on an after-tax basis with tax free earnings potential and tax-free withdrawals for qualified medical expenses and health insurance premiums. Emeriti has essentially set up a lifelong retiree flexible spending account. There is no required tie to a high deductible plan and no income limits. In retirement, when an individual has to pay a $1,000 health care bill, he/she can withdraw 100 cents on the dollar to pay for it instead of making a withdrawal from a taxable retirement plan, perhaps only netting 70 cents on the dollar. This is a much more tax efficient way to pay for health care expenses, and at the same time, preserve assets in a traditional retirement plan for other expenses. Reimbursement benefits from the Emeriti Health Account must be for qualified medical expenses in accordance with Section 213(d) of the Internal Revenue Code.
Moreover, Emeriti did not think it was enough to create assets to pay for health care in retirement, and also created a menu of guaranteed issue group insurance options to supplement Medicare. Emeriti will also introduce a menu of insurance options for pre-65 retires in January 2009. The value of guaranteed access to affordable and portable health insurance in retirement and a means to build targeted health care savings during and after the working years are the key reasons employees and retirees view the Emeriti program as an integral part of their overall financial planning.
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