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Why You Need To Save Specifically For Retirement Medical Expenses

If you’re contributing to a 401(k), that’s a great beginning to reaching your retirement dreams. But if you’re not putting money into an HSA for retirement medical costs, you’re missing out on big-time tax savings.

How big? Well, a recent Healthview study indicated the average couple retiring at 65 years old today will need up to $404,000 to pay for non-Medicare-covered medical costs (and that doesn’t include over-the-counter medications, dental services, or long-term care). Also, in the past 35 years the inflation rate for medical care services has been double the general inflation rate. Medical expenses are only increasing, and there’s no sign they’ll stop going up anytime soon.

If you used 401(k) funds to pay for that $404,000 in medical care, you’d pay a total of $538,000 once you factor taxes in. But if you had been contributing to an HSA and accumulated $404,000 in that account, you wouldn’t have to pay any additional money in taxes. You’d save over $134,000 by paying out of your HSA.

Remember you can put money into an 401(k) tax-free, but you have to pay taxes on funds when you take them out. However, HSAs funds aren’t taxed when they’re put in, as they grow, or when they’re withdrawn for eligible medical expenses. That triple tax benefit makes HSAs the hands-down choice for saving for medical expenses, whether they’re current costs or retirement expenses.

If you’re HSA-eligible, you have a wonderful opportunity for an additional retirement savings stream dedicated to healthcare expenses. By opening an HSA and building a medical nest egg, you can take full advantage of their tax benefits and free your 401(k) to fund your retirement dreams.



Author: James Denison