The scary thing about retirement is that it can be difficult to estimate your future living costs way in advance. If you intend to keep your current home, its property tax bill could rise by $2,000 over the next 20 years. Or, it could rise by $10,000, and that's a big difference.
Similarly, the cost of healthcare could rise once you enter retirement, and that could be due to a number of factors. First, there's inflation -- something many consumers are familiar with these days. Inflation has been notably strong within the realm of healthcare, so in time, your costs could climb even if your health stays strong. But along these lines, the state of your health will also dictate how much money you end up having to spend on medical care in the future.
If you're worried about affording healthcare once your time in the workforce comes to an end, you're in good company. In a recent Principal survey, 64% of workers cited healthcare costs in retirement as a factor that's preventing them from feeling financially secure about the future.
The good news, though, is that there are steps you can take to save for healthcare in retirement. And the sooner you start, the less of a burden your senior medical costs might be.
Save now, stress less later
If you're decades away from retirement, predicting your future healthcare costs can be difficult. And so your best bet is to simply save as aggressively as possible.
To that end, you have some options. First, you could look at maxing out your IRA or 401(k) plan, if your employer offers one. The money you sock away in either account will be yours to use for any purpose come retirement, so the higher a balance you accrue, the better.
You can also look at contributing to a health savings account, or HSA. Not everyone is eligible for one of these accounts, and you'll only be allowed to participate if you're currently enrolled in a high-deductible health insurance plan. But if you do qualify for an HSA, it pays to max out or get as close as possible.
Unlike flexible spending accounts, HSA funds never expire, so you can fund your account today and carry that money into retirement. Meanwhile, HSAs allow you to invest funds you aren't using. And like Roth IRAs and 401(k)s, any investment gains you enjoy in your HSA will be yours to enjoy tax-free. HSA withdrawals are also tax-free, provided they're used to cover qualifying healthcare expenses.
It's also worth noting that once you turn 65, HSAs effectively convert to a regular retirement savings plan. At that point, you won't be penalized for taking withdrawals for non-medical purposes (whereas you will be penalized for doing so at a younger age). That gives you a world of flexibility with your money.
Set yourself up for an easier retirement
There are certain living expenses you may end up cutting back on in retirement if money gets tight. But healthcare shouldn't be one of them. IF you do your part to fund your IRA, 401(k), or HSA consistently for as many years as possible, you could end up with more than enough money to pay not just your future medical bills, buy your living costs on a whole.