Once you retire, you may find that some of your expenses don't cost you as much. You might spend less on transportation, for example, in the absence of having to commute to work five days a week. And you might also spend less on food if you have more time to cook and don't have to fall back on takeout due to a busy job schedule.
But if there's one expense that tends to increase for seniors in retirement rather than decrease, it's healthcare. And that's due to a combination of factors -- namely, the tendency for medical issues to arise with age, and also the many costs seniors commonly face as Medicare enrollees.
If you're worried about paying for healthcare as a senior, you're not alone. A recent survey by the American Society of Pension Professionals & Actuaries found that 86% of respondents are concerned about rising medical costs in retirement. But there's one account you can fund during your working years that could make your healthcare costs more manageable down the line.
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Take advantage of an HSA if you can
Many people tend to confuse FSAs (flexible spending accounts) with HSAs (health savings accounts). An FSA won't help you cover your future medical costs because these accounts require you to spend down your balance year after year. With an HSA, on the other hand, your funds never expire. So you could spend years funding an HSA while you're working and carry a large balance with you into retirement.
What makes HSAs such a useful savings tool is that they offer three distinct tax benefits:
- Contributions go in on a pre-tax basis.
- Unused money that's invested gets to grow tax-free.
- Withdrawals are tax-free when they're used to pay for qualified medical expenses.
The only hiccup you might encounter with an HSA is that you need to be enrolled in a compatible health insurance plan to contribute to one. This year, your plan has to have a minimum deductible of $1,600 for self-only coverage and a minimum $3,200 deductible for family coverage. Your plan's out-of-pocket maximum also can't exceed $8,050 for individual coverage or $16,100 for family coverage.
But if you're able to put money into an HSA, it pays to do so. That way, you'll have an opportunity to bring funds with you into retirement that are dedicated to healthcare spending.
A better option than simply padding your IRA or 401(k)
If you aren't eligible to contribute to an HSA -- this year or in general -- then your next best bet is to try to boost your IRA or 401(k) balance, so you have more money available later in life for whatever expenses might arise. But there's something really comforting about knowing that you have a pile of cash that's specifically earmarked for future medical bills. So, if you're worried about rising healthcare costs in retirement or future healthcare costs across the board, then it definitely pays to contribute to an HSA if that's an option for you.
