You don’t need us to tell you that the cost of healthcare is out of control. All you have to do is turn on the news or take a look at your latest medical bill. In just twenty years, between 2000 and 2020, annual spending on healthcare tripled to $4.1 trillion per year! And according to Fidelity Investments, the average retiring couple today can expect to spend $315,000 on healthcare over the course of their retirement years.
Of course, each individual’s healthcare spending will vary according to their lifestyle choices, their genetics, and some events which are outside of anyone’s control (like accidents). But we do know that regardless of your own healthcare costs, Medicare won’t pay for everything you need throughout your retirement years. You will still owe premiums, co-payments, and deductibles. Some services like dental procedures are not covered at all. And you will pay for part of your prescription drugs and medical equipment.
Hopefully you’re preparing for a form of income in retirement, but medical bills can quickly overwhelm anyone’s budget. What else can you do to cover the cost of healthcare in your retirement years?
We have one simple answer: If you’re enrolled in a high deductible healthcare plan now, you are probably eligible to open a health savings account (HSA).
An HSA allows you to save money for your healthcare expenses, using pre-tax dollars. Not only will you budget for healthcare expenses; you can also save a bit on your income taxes.
But if you don’t use all of the money in your HSA each year, you can roll it over to the next year. The money keeps rolling over, all the way into retirement. And at that point you can use it for Medicare premiums and any uncovered healthcare expenses that you incur.
For 2022, the annual contribution limit for an HSA is $3,650 for an individual, or $7,300 for couples or families. And if you’re over age 50, you can stash an additional $1,000 in your account. Over the years this money can really add up, and provides another form of security in retirement.
For more information on an HSA, contact your benefits manager at work. And remember to call us with your retirement planning questions, so that we can help you address any other dilemmas you might be facing.