77% of Older Americans Worry About Paying for Healthcare Expenses in Retirement. Funding This Account Could Help in a Big Way.

Once you retire, certain expenses of yours may go down. If you’re no longer commuting, for example, you can expect to spend less on transportation. And if you pay off your mortgage ahead of retirement, you might spend less on housing, despite having to cover additional costs like property taxes, maintenance, and repairs.

But there’s one expense that tends to rise during retirement instead of fall, and it’s healthcare. Many seniors find that between an uptick in medical issues (which aging tends to bring about) and Medicare limitations, they’re spending more on healthcare than they did in the past.

It’s not surprising, then, to learn that 77% of older Americans — including some who are currently retired — worry about paying for healthcare during their senior years, according to a recent Nationwide survey. If you share that concern, there’s one specific account it pays to fund during your working years if you can.

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Take advantage of an HSA

Many people are familiar with retirement savings plans like 401(k)s and IRAs. A health savings account (HSA) isn’t a retirement plan in the traditional sense. Rather, it’s a healthcare account that you can tap penalty-free well ahead of retirement age, provided you’re using your money to cover qualified medical expenses.

However, HSAs don’t require that you use up your plan balance every year. So if you have one of these accounts, you can fund it consistently while you’re working, invest the money you don’t need for near-term medical bills, and then, ideally, carry a larger balance with you into retirement. From there, you can tap your HSA, as needed, to cover healthcare expenses when you’re older, whether it’s medications, coinsurance for doctor visits, or deductibles.

Are you able to fund an HSA?

There’s one “gotcha” you might face in the context of opening an HSA — your health insurance plan may not be compatible with one. To qualify for an HSA in 2024, your health plan must:

  • Have a minimum deductible of $1,600 for self-only coverage
  • Have a minimum deductible of $3,200 for family coverage
  • Have an annual out-of-pocket maximum of $8,050 for self-only coverage
  • Have an annual out-of-pocket maximum of $16,100 for family coverage

If your health plan isn’t HSA-compatible this year, things might change next year or the year after that. So don’t write off the idea of funding an HSA completely just because you aren’t eligible this year.

Other ways to make healthcare more manageable in retirement

Carrying a large HSA balance into retirement is a good way to make it so that your healthcare costs don’t completely bust your budget. But in addition to taking that step, it also pays to:

  • Sign up for Medicare on time to avoid surcharges for enrolling late.
  • Choose the right Medicare coverage during annual open enrollment.
  • Talk to your providers about low-cost medications.
  • Stay on top of your health and attend scheduled checkups.

Unfortunately, healthcare has the potential to be a burdensome expense in retirement. Taking these steps could help you avoid some of the financial stress so many seniors face today.

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