Many people like to assume that their living costs will shrink once they enter retirement. And in some regards, they might.
A lot of seniors manage to pay off their homes by the time retirement rolls around, or are able to downsize to a less expensive living space. That alone can result in big savings. And of course not having to commute to a job can result in lower transportation costs.
But if there’s one expense that tends to rise during retirement, it’s healthcare. And unfortunately, that’s an expense that’s unavoidable.
Now there are different estimates as to what you might spend to care for your health once your career wraps up. But a recent estimate from cost projection software provider HealthView Services might leave you reeling.
A staggeringly large number
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The average healthy 65-year-old male-female couple retiring in 2021 can expect to be spend a whopping $662,156 on healthcare in retirement, reports HealthView. That accounts for an estimated annual inflation rate of 5.9%.
It also assumes that the average male will live until age 87 and the average woman will live until age 89. Couples who live longer might end up spending more.
Meanwhile, HealthView gives a range of costs that most 65-year-old couples retiring in 2021 can anticipate during retirement. That range bottoms out at $156,208 and tops out at $1,022,997.
Clearly, these are staggering numbers. And they also underscore the importance of saving for future medical costs.
Use the right savings tool
If you’re socking money away for retirement in an IRA or 401(k) plan, you can boost your contribution rate to account for higher healthcare costs than you may have anticipated. But it also pays to contribute to a health savings account, or HSA, if you’re eligible.
HSAs actually offer more tax benefits than IRAs and 401(k)s. That’s because they effectively combine the benefits of traditional and Roth savings plans.
With an HSA, the funds you contribute go in tax-free. Any money you don’t need to withdraw for near-term healthcare expenses can be invested for added growth. Investment gains in an HSA are tax-free, and withdrawals are tax-free, provided that money is used to cover the cost of qualified healthcare expenses.
Now the downside of HSAs is that not everyone is eligible to participate in one. To qualify, you must be enrolled in a high-deductible health insurance plan, the definition of which changes every year. Right now, that means a minimum deductible of $1,400 for self-only coverage, and a minimum deductible of $2,800 for family level coverage.
Don’t underestimate your senior healthcare costs
HealthView’s recent estimate is higher than some of the other numbers out there. But that’s not necessarily a bad thing, because it’s better to err on the side of saving more for medical care in retirement than less.
If you have an HSA, do your best to max it out so healthcare is less of a financial concern down the line. And if you don’t qualify for an HSA, make sure to put extra money into your IRA or 401(k) to make up for that.
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