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Future medical expenses haunt the imaginations of millions of Americans. In fact, paying for health care costs during one’s golden years is Americans’ No. 1 retirement worry, according to Franklin Templeton Investments.
The firm’s latest annual Retirement Income Strategies and Expectations (RISE) survey — for which 2,000 adults were polled — was released earlier this year. it found that the top three retirement concerns are:
- Paying for medical and pharmaceutical expenses — cited by 31 percent of respondents
- Paying off debt — 18 percent
- Funding assisted-living care — 15 percent
Perhaps we should not be surprised. After all, costly health problems tend to strike later in life. And it has been projected that a 65-year-old couple who both retire in 2018 would need an estimated $280,000 to pay for their health care expenses throughout retirement.
A hidden fix for health care funding concerns
As it turns out, many Americans are not doing all they can to prepare for health care costs in retirement. The Franklin Templeton survey found that 76 percent of folks who were still working weren’t using a health savings account (HSA), or didn’t have access to one.
Of course, you can’t be faulted for not contributing to an HSA if you are not eligible for one. To be eligible, you must have a high-deductible health insurance plan. If you are not allowed to contribute to an HSA, you need to check out other options for cutting costs. You can start by reading “15 Ways to Beat the High Cost of Medical Care.”
If you are eligible for an HSA, though, opening and contributing to one is perhaps the best way to save money to pay for your medical costs in retirement — or before.
Kevin Murphy, senior vice president and national retirement plan strategist for Franklin Templeton’s U.S. Defined Contribution Division, notes that HSAs are often thought of as IRAs or 401(k) accounts for medical expenses. This is true in that HSAs are a tax-advantaged account in which you can save money for medical expenses.
From the tax perspective, though, an HSA is better than any retirement account. As we detail in “3 Bold Ways Retirees Can Cut Health Care Costs in 2018,” HSAs offer a unique hat trick of tax benefits:
- Contributions are tax-deductible in the year they are made.
- Gains on contributions grow tax-free.
- Withdrawals are tax-free if you spend the money on qualified medical expenses.
Want to learn more about the potential value of HSAs? Check out “5 Reasons a Health Savings Account Is a Great Place to Stash Retirement Cash.”
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