When thinking about your retirement, there are many factors you likely are considering — where you’ll live, where you’ll travel, new hobbies you may want to pick up and how you will spend your newfound free time, to name a few. While these are all important factors to consider, there is one large consideration for retirement that many fail to plan for: Healthcare.

According to the Centers for Medicare and Medicaid, U.S. healthcare spending grew almost 3% in 2021, and the amount individuals are paying for coverage continues to increase. In fact, when we create financial plans at Emerj360, we inflate overall healthcare costs at 5.6% annually for each coming year, it’s estimated that individuals will need around $300,000 in retirement for healthcare costs.

Your healthcare coverage is critical to your wellbeing, which is why it’s essential you take steps to properly save for your retirement.

Consider Your Timeframe

While health insurance may not seem like a make-or-break factor in your retirement decisions, it does play an important role in timing. Individuals cannot collect Medicare until turning 65 years old so if you plan on retiring early, you will need to purchase a private health insurance plan which can be costly depending on your needs. Even if you are on Medicare, you are still paying premiums and typical costs associated with insurance, so it’s essential that before you retire, you have extensive savings to cover these expenses. While creating your retirement plan, it is best to consult a financial professional to weigh the pros and cons of your decisions, and determine your projected costs.

Evaluate Your Needs

Your current and potential future health needs will not only determine what healthcare plan you will need in retirement, but also how much it will cost. Do you have a personal or family history of a certain illness? Are you currently managing a chronic condition or taking a variety of medications? No matter your history, your health needs typically increase as you age, which impacts the amount of healthcare and coverage you’ll need.

What is an HSA?

A tool for retirement savings, a health savings account — also known as an HSA — is a tax-advantaged account specifically for covering healthcare costs. HSAs can be treated like long-term investment accounts or as regular savings accounts, but are only available to those with a high-deductible health plan. HSA funds can be used for current or future healthcare related costs, including Medicare premiums at age 65.

For 2024, HSA contribution limits have increased for both individual and family plans:

  • For individuals: $4,150 (from $3,850 in 2023)
  • For families: $8,300 (from $7,750 in 2023)
  • For those 55 or older, catch-up contributions: $1,000

Benefits of an HSA

Unlike a 401(k) or an Individual Retirement Account, HSAs can only be used for health expenses, allowing you to separate your healthcare savings from your general retirement savings. When deciding how much to contribute to your retirement accounts, we recommend contributing to an employer-sponsored plan first, followed by your HSA as your second priority.

Using an HSA, you can pay for copayments, deductibles, coinsurance and other related expenses, which ultimately can lower your out-of-pocket healthcare expenses. An HSA’s most significant benefit is that the money contributed and withdrawn from your account is not taxed if you follow the proper requirements. If you are looking to treat your HSA as an investment, you can also invest a portion of your HSA balance into investable securities, allowing your money to grow tax free.

Boost Your Savings

HSAs aren’t the only avenue to save for healthcare in retirement. Contributing to a 401(k) retirement account is one of the most important and easiest ways to accumulate savings over time, as well as an Individual Retirement Account (IRA). Downsizing, eliminating existing debt, and adhering to a budget are other ways to reach your savings goals. While it is never too late to plan for retirement, the sooner you begin saving, the easier it will be to reach your savings goals in the long run.

Work with a Professional

If you are concerned about how you will cover healthcare costs in retirement, or just looking for ways to increase your savings, consider enlisting the help of an Emerj360 professional. We can work with you to plan for your health insurance costs and care needs. You can schedule an initial consultation with us to start you on your path.




Written By  Brett Sebion, Financial Coach
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