A retirement Health Savings Account (HSA) won't solve all your financial problems in your senior years. But it does address one of the biggest sources of financial stress for retirees, and that's future healthcare costs. If you aren't worried about retirement healthcare expenses just yet, take a look at the three sobering facts below. They might cause you to rethink that relaxed perspective.

1. The estimated cost of healthcare in retirement is $325,000

A May 2020 study from the Employee Benefit Research Institute (EBRI) estimates that a 65-year-old couple will pay out $325,000 in cumulative healthcare costs in retirement. The couple with $270,000 in savings has a 90% chance of being able to cover medical expenses, while a savings balance of $168,000 has a 50% chance of being sufficient. The EBRI study analyzed health premiums and prescription drug costs only -- so these numbers do not include any projected long-term care expenses.

Hundred dollar bills and stethoscope

Image source: Getty Images.

Here's where the HSA comes in. Many workers contribute to an HSA with the goal of taking tax-free withdrawals to pay for current-year medical expenses. But also saving for the long term will set you up for far less stress in retirement.

You can start by investing your HSA contributions in index funds that should grow along with the stock market. That growth averages about 7% annually after inflation over the long term. At that rate, you'd have to contribute nearly $660 monthly  for 20 years straight to amass $325,000.

Admittedly, that's a hefty contribution. But there's more bad news. By the time you retire, $325,000 in today's dollars may not even be enough. Here's why. As the chart below shows, healthcare inflation has outpaced general inflation much of the last 10 years.

US Health Care Inflation Rate Chart

US Health Care Inflation Rate data by YCharts.

On top of that, average lifespans are on the rise. If healthcare inflation continues to run high and you live three months longer in a nursing home, for example, your costs could be much higher. The takeaway? Save as much as you can afford. Every penny will count.

2. Retirees spend $4,300 a year on healthcare

Boston College research estimates the average retiree spends $4,300 annually on premiums, copayments, coinsurance, and deductibles. You could absorb those expenses with your Social Security and 401(k) or IRA withdrawals. But taking HSA withdrawals instead provides added tax savings. Your standard 401(k) withdrawals are always taxable, and your Social Security is probably partially taxable. HSA withdrawals used for healthcare expenses, including Medicare Parts B and D premiums, are tax-free. That saves you 10% or more, depending on your tax bracket.

3. Seven of 10 people will require long-term care in their lifetime

The U.S. Department of Health and Human Services predicts that someone turning 65 today has a 70% chance of needing long-term care at some point. As well, 20% of today's 65-year-old population will need long-term care for five years or more.

According to insurance company Genworth, long-term care costs can range from $1,600 monthly for adult day healthcare to $8,800 monthly for a private room in a nursing home. Those numbers translate to annual costs of $19,200 to $105,600.

The point here is that you don't really have to worry about over-funding your HSA. If you don't use the money on Medicare premiums and copays, you might need it for long-term care. And if you are among the lucky 30% of folks who won't need long-term care, you can also use your HSA money for living expenses. Non-medical withdrawals are allowed after you turn 65. The only catch is that those withdrawals are taxable.

If you missed your employer's open enrollment

You qualify for an HSA if you have a high-deductible health plan or HDHP. Typically, when your healthcare is through work, you know you're eligible because your employer offers you an HSA during the open enrollment period. If you have the account open already, great. Just start saving.

If you declined the HSA during your last enrollment period, though, don't despair. You don't have to wait for the next open enrollment period to start saving.

What you can do is open an HSA elsewhere and make your contributions there. Consider this a temporary solution, because you'll likely want to transition to your employer's HSA as soon as you can open the account. Your employer-based HSA allows for contributions directly from your pay as well as automatic tax deductions on those contributions. With an HSA housed elsewhere, you'd have to make contributions with after-tax money manually, and then claim the deductions on your next tax return.

The normal HSA contribution limits apply either way. In 2021, you can contribute up to $3,600 if you have individual HDHP coverage or up to $7,200 if you have family HDHP coverage. Those caps are not per account; they are cumulative across all HSAs. If you open up an HSA with your employer later in the year, your total contributions to both accounts for the year can't exceed those limits.

Start saving for retirement healthcare expenses now

Healthcare expenses in retirement are a common source of financial stress for seniors. Take the pressure off your future self by saving now to an HSA for the long term.