Consider a health savings account

Probably the best way to save for healthcare expenses in retirement is through an HSA (Health Savings Account), according to Katie Kavehrad, a financial planner with Paradigm Wealth Partners. As she explained, HSAs are accounts with a triple-tax advantage.

You can see them as a long-term investment, as they are especially good for those who enrolled in a high deductible health plan (HDHP). It’s a personal savings account, where many contributions are tax deductible, it is completely tax-free, and even the withdrawals are tax-free, just as long as you use the funds for qualified medical expenses (deductibles, copayments, and maybe long-term care premiums, too). For instance, in 2022, the contribution limits reached $3,650 per individual and $7,300 per family.

If you’re 55+, you also have access to an additional catch-up contribution of $1000. If you’re planning to retire before being eligible for Medicare at 65 years old, you should see what are your health insurance options until you are able to access Medicare.

For those who decide to retire earlier, this is a great burden, because it will require a significant expense. In other words, you should expect higher costs, and perhaps even poorer health than what you would expect. It’s not because you should be more pessimistic, but it will help you be more prepared for the unknown.

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