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.

Sources:

https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical#:~:text=U.S.%20health%20care%20spending%20grew,spending%20accounted%20for%2018.3%20percent.

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/2024-irs-contribution-limits-for-hsas-and-high-deductible-health-plans.aspx

Written By  Brett Sebion, Financial Coach
Building Wealth the Time-Tested Way
Heather Jordan  – May 24, 2024
While it can be pleasant to dream of sudden wealth, it’s not a realistic way to approach retirement planning. If you want to increase your chances of enjoying a financially secure retirement, use a time-tested method — save and invest through a tax-favored retirement plan. It will require patience, but it is doable. Here are […]
Keep Reading
Building a Solid Financial Foundation
Emerj360  – April 30, 2024
When you read about money matters, you may see the phrase, “getting your financial house in order.” What exactly does that mean? To some, when your financial “house is in order,” it means it is built on a solid foundation. It means that you have the “pillars” in place that are designed to support your […]
Keep Reading
Financial Longevity: Planning for a Longer Life
Heather Jordan  – April 22, 2024
Americans are living longer. That’s the good news. The bad news is that most people aren’t financially prepared. Many Baby Boomers will be in retirement for over 20 years and unfortunately, many aren’t saving and investing with a longer life-expectancy in mind. There are serious consequences to financial planning around the wrong life expectancy. Some […]
Keep Reading

What are you waiting for?

Everything we do boils down to this: by doing what is best for you, we do what’s best for our company. Helping you build financial security and plan for retirement so you can look forward enjoying life.
Open Account right-arrow-dark Sign Up Now right-arrow-dark