Are Health and Wealth Connected?

Kyle Larson, CFP®

Aug 30, 2023

We’ve all heard truisms such as “Health is Wealth,” and when something goes wrong with this resource that we tend to take for granted, we do quickly realize that health in all its wellness aspects—physical, mental and emotional—is one of our most valuable assets. In my work at TCI, I often see the intersection of health and wealth in the lives of my clients, and this has led me to think more deeply about how the two are connected.

Health and Wealth: A Positive Correlation

A large body of research ties greater wealth to better health and of course, the flip side of that coin is that even a moderate level of financial distress is detrimental to health and well-being. Wealth and income are positively correlated to healthier living conditions, access to better health care, lower stress, fewer chronic health conditions, and lower levels of depression. From another perspective, health and wealth are linked because advances in medicine and the sciences that support wellness and well-being have resulted in the potential for greater longevity, which in turn increases the need to plan for a retirement that could be measurably longer than previous generations have enjoyed.

Finally, on a more personal basis, we can see how health decisions throughout life could cause a chain reaction affecting financial outcomes, and vice versa. For example, making good health decisions earlier in our working years may lead to lower health care expenses and a more consistent employment experience, which could result in the accumulation of more financial resources to meet goals, and ultimately, the ability to enjoy greater longevity and financial security in retirement. Financially speaking, proactive planning may reduce some of life’s money stressors that could lead to poor health outcomes.

Establishing Healthy Habits

In matters of both health and wealth, we’ll have better experiences if we can find ways to make smart behaviors easier for ourselves. That seems obvious, but we’ve all had that moment of smacking ourselves on the forehead for eating that third (or fourth, or fifth) cookie, or unexpectedly blowing our budget at Costco. In their book Well Being: The Five Essential Elements, Tom Rath and Jim Harter discuss Career, Social, Financial, Physical, and Community Well-Being as five interconnected areas that shape the quality of our lives. As they discuss these five elements, they encourage the setting of what they call “positive defaults,” writing that “making even small changes to our daily routines can have a major and lasting impact on our wellbeing.”

I’ve seen firsthand the benefit of setting positive defaults as they relate to health and wealth. For example, I know that exercising is good for my health, but I can usually find a thousand reasons to put it off, so the process of doing it needs to be as frictionless for me as possible. If I set an intention in advance and put my workout clothes, water bottle, and sneakers together in a bag by the door, I’m a lot more likely to “just do it” as the Nike slogan says, because I have set up the positive default that makes it harder to fail. On the wealth front, I’ve seen that my clients who work for companies that automatically enroll employees in their 401(k) plan have significantly higher plan participation rates. It’s also clear that this automatic enrollment practice promotes retirement readiness because it makes a positive default out of saving for the future, a task which can easily fall to the bottom of the priority list for many.

The Costs of Health Care

In my work with clients, the most common intersection of health and wealth comes up in the discussion of health care costs. One of the topics we address during the planning process is health care costs in retirement, because this is often a significant concern for clients, even those who are in excellent health. The Employee Benefits Research Institute (EBRI) and other organizations regularly publish updated reports about the costs of health care in retirement, and the amounts can be startling. According to the EBRI Issue Brief related to 2022 health care costs, couples enrolled in a Medigap plan with average premiums will need to have $318,000 saved in order to have a 90% chance of covering their health care costs, including Medicare, Medigap premiums, and out of pocket spending, over their retirement. For couples enrolled in Medicare Advantage plans, that number drops to $184,000, which is still a large sum. These reports are highly publicized and do not include long-term care, so it’s unsurprising that we talk with many people who are more concerned about their future health care costs than they are about running out of money in retirement. As we think about their retirement plan, though, we see that it’s not likely they would incur those expenses all at once—we tend to pay out a more moderate amount for health care, year after year, throughout our retirement. Breaking down the lump sum needed for health care into an anticipated annual amount based on the client’s health insurance coverage, overall health factors, and other variables makes that nut a lot easier to crack.

People of All Ages Should Focus on Their Health

We often think of health and its related costs as being an issue primarily for retirees, but it’s relevant for younger adults, too. In 2019, Blue Cross Blue Shield published a study on the health of millennials, which is the demographic group born between 1981 and 1996 who are now 27-42 years old. The study measured this group’s overall health in the year 2017 and found that older millennials were less healthy than Generation X members (those born between 1965 and 1981) at the same age. The report also noted that many millennials in the 2017 study experienced a “major decline in health, on average” beginning at age 27 and that they were impacted more than the overall U.S. population by behavioral health conditions such as major depression, hyperactivity and Type 2 diabetes. Clearly, health and health care costs can be a major potential quality of life issue for anyone, at any age.

If we think of our health as a resource, just as we would our financial assets, it’s easy to understand why safeguarding it is a smart investment. Health crises and market meltdowns are beyond our control, but preventive care and planning to foster better health and help us reach our wealth-related goals increase the chances that we’ll experience a higher quality of life. And just as it doesn’t make sense to put off exercising until we’re in shape, we don’t need to wait until our finances are in order before engaging in the financial planning process. In matters of health, wealth, and all their interconnections, planning shines as an incredibly valuable tool and the earlier in life we can get started, the better.

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