Rising health care costs are leading financial advisors to discuss the advantages of Health Savings Accounts (HSAs) for clients to help pay for health care costs during retirement. In a recent blog post, we highlighted the growing costs retirees are expected to face from medical health care costs not covered by Medicare and custodial health care costs, for which individuals are personally responsible. This week Fidelity Investments released new data from its annual study concerning healthcare costs retirees can expect during retirement. In 2016, the expected healthcare costs for a retired couple, age 65, is expected to grow to $260,000, up 6% from the previous year’s study.
According to Fidelity’s Retiree Health Care Cost Estimate Study, “The estimate applies to retirees with traditional Medicare insurance coverage and provides a general idea of the monthly expenses associated with Medicare premiums, Medicare co-payments and deductibles, and prescription drug out-of-pocket expenses.” But this is half the story, Fidelity examined the need for custodial health care, for which Medicare provides a limited benefit. The Fidelity Study estimates the likely need for long term care “could impact seven in 10 Americans who reach age 65 in the next five years.” The Fidelity study estimates the cost of long term care insurance policy, “a 65-year-old couple would need $130,000, in addition to savings for retiree medical expenses, to insure against long-term care expenses. This assumes the couple is in good health and purchases a policy with $8,000 monthly maximum benefit, with three years of benefits, and an inflation adjuster of 3 percent per year.”
Health Savings Accounts for Retirement
Health Savings Accounts (HSAs) offer substantial tax advantages for individuals who save for qualified medical expenses in the current year, but also for your retirement years. For individuals who have high deductible medical insurance policies, HSAs offer substantial long term tax benefits. Over time, most insureds save more in their HSA than is spent, which can build funds that can be withdrawn tax free during tirement for qualified medical expenses. Heath Savings Accounts should be considered triple-tax advantaged: tax deductible contributions, tax deferred growth and tax free withdrawals for qualified medical expenses.
True North Financial Advice
True North Financial Advisors, located in Boca Raton, Florida provides personalized retirement planning services, including help planning for your medical and custodial health care costs. To help with a personalized financial planning experience we provide a web based platform which is easy for clients to upload and organize their financial information on their own personalized financial website — largely without any assistance. To learn more go to our video library.
This is a hypothetical example used is for illustrative purposes only.
This article should not be used for tax advice.
You should seek the guidance and advice of your own tax advisor.
