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Don't Even Think of Retiring Until You Do This

By Maurie Backman - Jan 31, 2021 at 9:02AM

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Skip this important planning step, and you could be in for a world of financial pain.

Retirement isn't the sort of thing you should jump into blindly. Rather, you should plan for your senior years by:

  • Consistently funding a retirement plan.
  • Establishing a budget for your senior years.
  • Figuring out where you want to settle down (keeping in mind that some parts of the county are a lot less expensive to live in than others).
  • Making lifestyle decisions that will dictate what your senior spending looks like (for example, traveling a lot versus staying closer to home).

But many seniors make one big mistake in the course of their retirement planning -- they don't research healthcare costs and save for them accordingly. And that's a mistake you ought to avoid, too.

Older man looking at stacks of paperwork while holding his head

Image source: Getty Images.

Don't let healthcare costs catch you off-guard

Many seniors are shocked to learn that Medicare isn't at all free. In fact, there are a number of huge expenses you'll face as a Medicare enrollee. These include:

  • Monthly premiums for Part B coverage.
  • Annual Part B deductibles.
  • Hospital stay deductibles.
  • Coinsurance for medical services and hospital or skilled nursing care.
  • Copays for medication.
  • Premiums for supplemental insurance.

Notice how that's a pretty long list? And it's not even comprehensive. It's not shocking, then, that an estimated 66% of seniors spend more than $375 a month on healthcare. And 31% spend more than $1,000 a month on healthcare. Ouch. Those are some numbers you may not be anticipating, so consider this your much-needed wakeup call that healthcare during retirement is going to be expensive.

Of course, having this information is helpful, but it's not enough. You'll need to figure out how you'll cover your medical spending during retirement, and one solution could be to fund a health savings account, or HSA.

Not everyone can qualify for an HSA. To participate, you must be enrolled in a high-deductible health insurance plan and have your plan meet other requirements. But if you are eligible, you'd be wise to max out your contributions.

HSA contributions go into your account tax-free, and you can withdraw that money as soon as you'd like to cover near-term medical costs. A better bet, however, is to leave that money in your account for as long as possible -- you can do that because HSA funds never expire. Unused HSA funds can be invested for added growth, and gains aren't taxed year after year. Withdrawals are also tax-free, provided they're used for qualified healthcare expenses.

This year, you can contribute up to $3,600 to an HSA if you're under 55 and are saving on your own behalf, or $7,200 if you're saving on behalf of a family. If you're 55 or older, these limits rise to $4,600 and $8,200, respectively. Having access to an HSA during retirement could spell the difference between covering your healthcare costs with relative ease and struggling financially, so it pays to participate in one if you can. And if not, at the very least, read up on healthcare expenses and know what you're in for so you can pad your retirement savings and budget accordingly.

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