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47% of Americans Worry About This Unavoidable Retirement Expense

By Maurie Backman – Jul 29, 2020 at 8:04AM

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Hint: It's an expense that actually tends to rise as we get older.

Healthcare is an unavoidable expense, both during our working years as well as retirement. But when it comes to the latter, many Americans worry about covering their costs. In fact, 47% rank paying for medical bills as a major retirement concern, according to SimplyWise's July 2020 Retirement Confidence Index. If you feel similarly, here are a few things you can do.

1. Know your costs

The amount you'll spend on medical care as a senior will hinge largely on what your health looks like and how well you manage to take care of yourself both prior to and during your senior years. But you should know that the average healthy 65-year-old couple retiring in 2019 is expected to spend $387,644 on healthcare in retirement, according to cost projection software provider HealthView Services. Of course, this figure is just as estimate -- but it's one you can use as a baseline to map out a retirement budget that lets you cover your necessary expenses.

Older man holding his face and closing his eyes

Image source: Getty Images.

2. Figure out what to expect from Medicare

Many seniors are shocked to learn that Medicare not only isn't free, but doesn't cover specific expenses that are basically unavoidable, like dental care, eyeglasses, vision exams, and hearing aids. And services under Medicare are subject to deductibles, copays, and coinsurance.

Not only that, but Medicare Part B charges a standard premium of $144.60 per month this year that could easily rise in the future, and that's on top of the premium you'll pay for your Part D drug plan. The only part of Medicare that is free (for most seniors) is Part A, which covers hospital care. It's important that you understand what your spending will look like under Medicare, and also, what services you might have to completely cover out of pocket.

3. Max out your health savings account

If you're enrolled in a high-deductible health insurance plan -- defined this year as a deductible of $1,400 or more for yourself, or $2,800 or more for you and your family -- you may be eligible to contribute to a health savings account, or HSA. And if so, it pays to max out. The money you put into an HSA can be used immediately, but it can also be set aside, invested, and carried all the way into retirement, when you might need it the most.

The amount you can contribute to an HSA varies from year to year, but currently, it's $3,550 if you're putting in money on your own behalf, or $7,100 if you're contributing on behalf of a family. And if you're 55 or older, you can add another $1,000 to whichever limit applies to you. By boosting your HSA balance, you'll have a dedicated source of funds to cover your healthcare expenses during your later years.

4. Boost your IRA or 401(k)

The more money you have in your IRA or 401(k) plan going into retirement, the easier it'll be to pay your medical bills -- or any other expenses that arise. It pays to get as close as possible to maxing out one of these accounts so that you give yourself more financial flexibility later in life. Currently, the annual contribution limit that applies to savers under 50 is $6,000 for an IRA and $19,500 for a 401(k). If you're 50 or older, these limits rise to $7,000 and $26,000, respectively.

You may be inclined to favor an IRA or 401(k) over an HSA since you get the option to use your funds as you please. But remember, HSAs offer added tax benefits. With an HSA, your contributions are tax-free, investment gains are tax-free, and withdrawals are tax-free as long as they're used for healthcare expenses. With a traditional IRA or 401(k), contributions are tax-free, but investment gains are only tax-deferred (which means you pay taxes eventually), and withdrawals are taxed during retirement. Roth IRAs and 401(k)s work the opposite way: Contributions are made with after-tax dollars, while investment gains and withdrawals are tax-free. But from a tax perspective, HSAs win.

It's natural to worry about paying for medical care when you're retired, but rather than stress about that eventual expense, read up on it and save enough to cover it. At the same time, take the time to learn about how Medicare works so you're able to maximize your benefits under it.

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