Using Health Savings Accounts for Retirement Planning

Using Health Savings Accounts for Retirement Planning

By Mike Rowan, 11/13/2009

HSAs: A Tax-free Medical Investment Fund and Additional Retirement Account The lack of health insurance is one of the biggest reasons more people don't retire before age 65. In addition, many Americans reach retirement age woefully unprepared for the medical expenses they'll face. Establishing an HSA, or Health Savings Account, is one solution that can be used to build up money for medical expenses incurred during retirement.

During retirement, the average couple retiring in 2008 will need $225,000 just to cover medical expenses according to Fidelity. This estimate, up an average of 5.8 percent a year since 2002, includes:

The cost of Medicare Part B and Part D premiums
Co-payments
Deductibles and excluded benefits
Out-of-pocket costs for prescription drugs
Vision and Dental Services

The Numbers about Health Expenditures don’t Lie Furthermore, these figures do not even include the cost of over-the-counter medications and long-term care insurance if needed. If you take these into consideration, the Employee Benefit Research Institute estimates that you’ll need nearly $300,000 over the course of your retirement.

It is a fact that medical costs are rising more than three times faster than salaries. As a result, individuals should be factoring life-long health-care expenses into their overall financial planning. HSA plans are overlooked typically in leiu of traditional retirement plans such as a 401k or company pensions. However, as the figures above illustrate, this is one planning scenario that generally isn’t part of the overall financial plan.