Retirement can be a financially precarious period of life. Not only must seniors learn to navigate their expenses without the paychecks their full-time jobs once provided, but they must also grapple with one whopping expense: healthcare.

The average 65-year-old couple today in good health can expect to spend $387,644 on medical care throughout retirement, not including long-term care. Why so much money? For one thing, Medicare coverage is costly, between its premiums, deductibles, copays, and other out-of-pocket expenses. Second, health issues tend to escalate as people age, which means many seniors inevitably wind up needing to see the doctor more, not less.

Doctor talking to older man


As such, having funds set aside for healthcare expenses in retirement is a big part of the planning picture. And recent data from Fidelity underscores that importance. According to this year's Retirement Savings Assessment, those who have a health savings account, or HSA, have a higher retirement readiness score than those without.

If you're not setting funds aside in an HSA for future medical costs, you're running the real risk that you'll struggle financially in retirement once those bills start pouring in. And that's a mistake you're more likely than not to regret.

Why it pays to save in an HSA

The great thing about HSAs is that they're extremely flexible. The money you contribute can be used for near-term medical expenses, or it can be left alone, invested, and carried forward for future medical expenses. This means you can fund an HSA today and use that money 20, 30, or 40 years later when you're retired and need it the most.

HSA contributions are tax-free, just like contributions to traditional IRAs and 401(k)s. Any unused funds in an HSA can then be invested for tax-free growth, and withdrawals are tax-free as well, provided they're used to pay for qualified medical expenses.

To participate in an HSA, you must be enrolled in a high-deductible health insurance plan, defined currently as an individual deductible of $1,400 or more, or a family deductible of $2,800 or more. If you qualify for an HSA, you can contribute up to $3,550 this year as an individual, or up to $7,100 on behalf of a family. And if you're 55 or older, you get a $1,000 catch-up contribution, similar to the catch-up provision you'll find in tax-advantaged retirement savings plans.

Now, imagine you're single and put $3,550 into your HSA this year, but you only end up needing $1,550 of it. That remaining $2,000 can be invested and carried forward into retirement. And if that milestone is 20 years away, and you invest that money at a relatively conservative average annual 5% return, it'll grow to $5,300. And that's just one year's worth of unused contributions. Meanwhile, once retired, you'll be able to use that money to pay your Medicare premiums, buy prescription drugs, and cover a host of health-related expenses that are apt to creep up.

It pays to have dedicated healthcare savings

Of course, if you're not eligible to fund an HSA because you're not on a high-deductible health plan, you can always pad your IRA or 401(k) and use that money to pay your medical costs down the line. But if you do have the option to contribute to an HSA, it pays to jump on it not just for the tax benefits, but for the purpose of having specific funds earmarked for medical expenses down the line. Like it or not, healthcare may grow to be your single greatest expense during retirement, and the more prepared you are for it, the less stress you'll encounter during your senior years.