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How to Plan Now for Health Care Costs in Retirement

December 21, 2018
In a recent report by Fidelity Investments, it is estimated that the average couple will need $280,000 for medical expenses in retirement, excluding long-term care.1 With health care being among the largest expenses for retirees, it is important to start preparing now for the future. Not sure where to start? We’re here to help!
 
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Starting now can save you money later

It’s estimated that the average couple will need $280,000 for medical expenses in retirement, excluding long-term care.1

With health care being among the largest expenses for retirees, it’s important to start preparing now for the future.

The Cost of Care

Retiree health care expenses are expected to increase at an average annual rate of 5.5% for the foreseeable future.2 Currently, a 65+ year-old should expect to pay around $5,000 a year on health care premiums and out-of-pocket expenses.

A 55 year-old couple planning on retiring in 10 years will need 92% of their Social Security benefits to cover health care costs.

Don’t let these numbers scare you too much — there are ways to cut costs by planning ahead.

HSAs

Health Savings Accounts, or HSAs, work a lot like regular savings accounts, although withdrawals can only be used for medical needs and funds put into a health savings account are both tax-deductible and tax-free.2 So the money you're putting in today can be used for your retirement expenses, even if they are still many years away.

In order to qualify for an HSA, you must have a high-deductible health plan. Furthermore, you cannot be listed as a dependent or covered by Medicare.

What you should know about an HSA:
  • There is an annual maximum for HSA contributions
  • Individuals 55+ can contribute an additional $1,000 on top of their annual maximum contribution
  • Deductible contributions reduce taxable income
  • oney in an HSA earns tax-free interest
  • Withdrawals can be used, tax-free, for eligible expenses
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1 https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
2 www.forbes.com/sites/catherineschnaubelt/2018/06/06/planning-for-the-high-cost-of-healthcare-in-retirement/#71de0cf6513d
3 https://www.anthem.com/blog/infographic/health-insurance-basics/5-things-you-need-to-know-about-long-term-healthcare-services/
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