The proper water temperature for a water heater is high enough to kill harmful bacteria and organisms within the water heater. The proper temperature for a person is another matter. Commercial dishwashers use 180F water to degrease and kill organisms. Water at 140F will kill many organisms, including people immersed in it. People will have damage to their skin after a few seconds at that temperature, so recommendations are to release water from taps at less than 120F, which can still burn, but people will tend to remove their hand before serious damage occurs.
So the proper temperature for sterilizing is boiling to 180F, the proper temperature for the inside of a water heater is 140F+, and the proper temperature for a person is 110F or less.
Dishwashing machines often use electric heaters within the dishwasher to provide the scalding for plates and pots, so the residential water heater doesn’t have to do that. A possibility is to keep the water heater at 140F, but temper the water by installing a good mixing valve to let the water go on to the taps at 120F or less.