It's no secret that healthcare is a major expense -- and burden -- for seniors. In fact, in a recent Nationwide survey, healthcare costs topped future retirees' list of financial concerns. Yet many older Americans are underestimating those costs in a very big way.
The average pre-retiree aged 50 and over expects healthcare in retirement to cost $7,000 a year. But in reality, that figure is $10,739, according to data cited by Nationwide.
Of course, the amount you spend on healthcare in retirement will depend on a number of factors, like the specific state of your health, the type of Medicare plan you choose, and whether you purchase supplemental insurance. But chances are, healthcare will cost more than you expect, so it pays to set aside dedicated funds to cover it once you're no longer working.

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Saving for healthcare in retirement
The money you save in your IRA or 401(k) can be used for any purpose in retirement, healthcare included. But if you sock away funds in a health savings account, or HSA, you'll have a specific steam of income for your healthcare needs.
An HSA is similar to a flexible spending account, only you're not required to use up your plan balance year after year. In fact, the point of an HSA is to put more money into your account than you expect to use in a given year. That way, you can invest the excess, grow it into a larger sum, and then use it during retirement, when your healthcare costs are more likely to skyrocket.
The best part of HSAs? They're triple tax-advantaged for maximum savings. The money you contribute goes in on a tax-free basis, and then you don't pay taxes on investment gains in your account. HSA withdrawals are also tax-free, provided they're used for qualified medical expenses. These include things like doctor visit copays, prescriptions, and durable medical equipment. You can even use your HSA to pay your Medicare premiums in retirement.
The only drawback of HSAs is that not everyone qualifies for one. To be eligible, you must have a high-deductible health insurance plan, which, currently, means $1,350 or more for individual coverage, or $2,700 or more for family coverage. You must also have an annual out-of-pocket maximum of $6,750 as an individual, or $13,500 as a family.
Maxing out your HSA
If you do qualify for an HSA, it pays to max out and benefit from the tax savings involved. Currently, you can contribute up to $3,500 a year to an HSA as an individual, or up to $7,000 as a family. If you're 55 or older, you can put in an extra $1,000 on top of whichever limit you qualify for.
Now you may be wondering: "What happens if I overfund my HSA?"
First of all, that's a pretty good problem to have. But secondly, you won't really take a financial hit if that ends up being the case. That's because once you turn 65, you're allowed to withdraw funds from your HSA for any purpose without incurring a penalty. You will need to pay taxes on your withdrawals, but the same would hold true if you were to take withdrawals from a traditional IRA or 401(k).
Withdrawing funds for non-medical purposes prior to age 65 is a different story. In that case, you risk a 20% early withdrawal penalty on the funds you remove, plus taxes on that withdrawal. That's double the penalty for taking an early withdrawal from an IRA or 401(k). However, it's a situation you can avoid by leaving your HSA alone until at least age 65 if you find that you somehow don't need it for medical bills.
Even if you manage to maintain good health during your golden years, chances are, your medical costs will be substantial. The better you prepare for them, the less financial stress you'll find yourself under when you're older.