If you're in the process of planning for retirement, there are certain expenses you probably know to account for, like housing, transportation, and of course, healthcare. But the latter may end up being costlier than you imagine. Here are some of the main reasons why.
1. Medicare won't cover everything
Many people assume that once they're eligible for Medicare, they'll have all of their healthcare needs covered. But there are actually a number of services that Medicare won't pay for at all.
It might shock you, for example, to learn that Medicare won't cover the cost of dental care. It also won't pay for eyeglasses or hearing aids, which are common needs among seniors.
2. Medicare costs can rise
Another big misconception about Medicare is that it's free to enroll, but that's far from the truth. While Part A, which covers hospital care, is generally free for enrollees, Part B, which covers outpatient services, charges a monthly premium. And that premium has the potential to rise over time, eating up more of your income.
In addition to Parts A and B, you'll have to sign up for a Part D prescription drug plan. Your costs there can also rise over time, even if you're willing to spend the time researching different plan choices year after year.
3. Health issues can escalate due to aging
It's not a given that your health will decline once you get older. And you can potentially do your part to avoid health problems by following your doctor's advice and sticking to the recommended diet and exercise routine.
But generally, health issues tend to arise with age. You may find yourself seeing the doctor more often and having to pay for tests, treatments, and medications that weren't necessary when you were younger.
An HSA could make healthcare costs in retirement less stressful
Since it's not a secret that healthcare might end up being a huge expense in retirement, one thing you may want to do during your working years is fund a health savings account, or HSA, if your plan is compatible, and then reserve those funds for your senior years. Since HSAs don't require you to spend down your plan balance year after year like flexible spending accounts do, that's an option you can easily pursue.
In fact, HSAs pretty much encourage savers to carry their balances forward because you're allowed to invest untapped funds to grow that money into a larger sum. And just as importantly, investment gains in an HSA are tax free, as are withdrawals used to cover qualified healthcare expenses.
Another thing you should know about HSAs is that they're extremely flexible. Once you turn 65, you can take an HSA withdrawal for any purpose without penalty. In that scenario, the only hiccup you might face is having to pay taxes on your withdrawal, but you'd be in the same boat with a traditional 401(k) or IRA.
Now, not everyone is eligible to fund an HSA. Your health insurance plan has to meet certain requirements, such as having a minimum deductible and out-of-pocket maximum that can change from year to year. But it's a good idea to see if your health plan is HSA-compatible. Funding one of these accounts could spell the difference between stressing out over healthcare costs in retirement or covering them with relative ease.