As we kick off the new year, now is the time to take stock of your retirement savings, planning needs, and how you’ll manage the costs most of us will face throughout retirement. The majority of Americans (70%) will need Long-Term Care Services and Supports (LTCSS) in their lifetime. Budgeting for these costs is a valuable and necessary way to make sure you will receive care aligned with your wishes, and you won’t face the burden of debt later in life as you scramble to finance this care. Each year Congress typically makes updates to allowable retirement saving contributions and this year’s changes come in addition to the suspension of long-term care insurance sales for federal employees. Here, we will review some of these regulatory changes, so you can be best prepared to start your 2023 on the right foot.
401k, HSA and IRA Limits
To account for 8.2% inflation in 2022, the IRS has raised contribution limits on 401ks and IRAs alike. For 401ks the annual contribution limit is up $2,000, from $20,500 in 2022 to $22,500 in 2023. Catch-up contributions, an option for those over the age of 50, are also increasing in 2023, from $6,500 last year to $7,500 in 2023; those over 50 can contribute up to $30,000 to 401ks this year.
Annual contributions for IRAs outside of an employer have increased by $500 in 2023, from $6,000 to $6,500.
We will also see a spike in contribution limits for HSAs. Individuals can contribute $200 more than in 2022, and those with family coverage have the option to contribute an additional $450. This is a 5.5% increase from the 2022 allowances, up significantly from the 1.4% increase we saw in 2022 from 2021.
Retirement saving accounts can be a good way to budget for your future care needs in retirement. Try to maximize your contributions so you know you’ll have those savings when you need them most. If you are not already at the contribution limit, try to increase your personal contributions by 1% each year to put yourself on track for affording the life and care you want in retirement. These increases come in response to high inflation over the past year. Contributing as much as possible to your retirement finances is crucial, especially as many traditional options for long-term care insurance become increasingly expensive and unattainbable.
Insurance Options
Beginning on December 19th, 2022, the Federal Long Term Care Insurance Program (FLTCIP) stopped accepting new applications. This program, a partnership with John Hancock Insurance Company, offered employees of the federal government traditional Long-Term Care Insurance. The suspension is the result of steadily increasing premiums which are now unsustainable; to the point, some employees have seen their rates double. This move by the federal government to pause FLTCIP is unsurprising as the Long-Term Care Insurance industry as a whole is struggling to balance accessibility and cost. While the government program was accessible to most, with limited underwriting for employees, this lack of underwriting drives costs sky high as insurers accept a more risk-prone population for coverage. On the other hand, with stringent underwriting, accessing LTC insurance becomes incredibly difficult or impossible for those managing illness or chronic conditions. More than half of American adults have been diagnosed with at least one chronic condition, which typically makes LTC insurance out of reach.
This conundrum points to the need for new and innovative insurance products. Products which will not bar more than half of U.S. adults from accessing coverage and will not steadily increase premiums to the point of unaffordability. HCG Secure is one example of an organization working on such product innovation. The firm’s newest product, GTL Life Select, is a whole life insurance policy offering living benefits for those with chronic conditions or terminal illness. These policies have premiums guaranteed for the life of the policy and utilize simplified medical underwriting to maintain reasonable pricing while keeping coverage accessible. As products like GTL Life Select continue to emerge, we look forward to furthering innovation throughout 2023 to improve the aging experience and allow Americans the financial stability to age on their own terms.