According to Fidelity, the average 65-year-old who retires today will need about $165,000 after taxes to cover medical care throughout their retirement. The number doubles to $330,000 for a couple. One way to save on these future costs is to utilize tax-advantaged retirement accounts, such as a Health Savings Account (HSA).
With this type of account, contributions are tax-free, the money grows tax-free, and distributions on qualified medical expenses are also tax-free. However, to use an HSA, you must have a high-deductible healthcare plan, which means higher out-of-pocket costs in the short term. Once you’re ready to enroll in Medicare, do your research.
There are numerous options, all with varying costs.
Planning for healthcare in retirement
Consider using a comparison site to help you determine the best and most cost-effective plan for your situation.
Reassess your options annually during Open Enrollment, which starts on October 15th and ends on December 7th. If your income exceeds a certain threshold, your Medicare Part B premium will be higher than average. The same goes for Part D premiums.
A forward-thinking income distribution strategy and tax planning strategy that lowers your modified adjusted gross income can prevent this. Working with a fiduciary financial advisor can be very helpful in this situation. Healthcare costs are likely to eat up a big chunk of your retirement budget.
Making a plan for them now will serve you well.
Noah Nguyen is a multi-talented developer who brings a unique perspective to his craft. Initially a creative writing professor, he turned to Dev work for the ability to work remotely. He now lives in Seattle, spending time hiking and drinking craft beer with his fiancee.
