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Why a Health Savings Account Should Be Part of Your Retirement Income Plan

7/24/2017

 
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​Think you’re fully covered for health care costs in retirement? Think again. According to Fidelity, the average retired couple will spend nearly $260,000 on out-of-pocket health care costs.1 Those costs are for things like deductibles, copays, prescription drugs, premiums and much more. It doesn’t include costs for long-term care, which could significantly increase your health care expenses.
 
Many retirees assume that Medicare will cover all their medical costs. That assumption is often incorrect. While Medicare is a valuable resource, it usually covers only a portion of your expenses. Some types of care may not be covered at all. That means many retirees face sizable bills that they must pay out of pocket.
A health care funding strategy can help you prepare for these costs and prevent them from derailing your retirement. You may want to consider a health savings account (HSA) as one component of your plan.
 
As their name implies, HSAs are accounts established specifically for health care saving purposes. You can contribute to your HSA straight from your paycheck and then manage the funds as you see fit. When you have health care costs, you can simply use your HSA to pay the bill or to reimburse yourself for the expense.
 
Still not sold on using an HSA as part of your retirement strategy? Below are a few reasons why an HSA could be an important funding tool for you:

Tax Efficiency
HSAs offer tax efficiency in a variety of ways. First, your contributions to your HSA may be deductible, depending on your income and the amount of the contribution. Your contributions then grow on a tax-deferred basis while they stay in the plan.
 
When you take distributions from the plan, those distributions are tax-free as long as the money is used for a qualifying medical expense. If the money is used for a nonqualified expense, you could face taxes and early distribution penalties if you’re under age 59½. As long as you use the money for health care, however, your HSA can be a highly tax-efficient savings vehicle for medical expenses.

Accumulation Potential
Many people assume that an HSA has a “use it or lose it” feature. That is, they assume they must use their HSA money within a specific calendar year. The truth is that your HSA balance can carry over from year to year. There’s no need to use it before the end of the year. That means your HSA funds could grow over an extended period of time.

Also, your HSA balance isn’t tied to your job. Although your contributions may come out of your paycheck, you keep your balance with you when you leave your employer. You can keep contributing to your HSA at each job you have and even after you retire.

Flexibility
Finally, while HSA funds must be used to pay for medical expenses, the IRS actually has a very broad definition of what constitutes a qualified expense. Nearly any payment to a medical services provider, such as a doctor or hospital, qualifies. Copays for prescriptions and other services qualify. Even payments for medical supplies can qualify as a medical expense.
 
You could also use your HSA to pay for long-term care costs. For instance, you may need to pay a home health aide to come to your house and assist with basic tasks. Or you may need to modify your home to accommodate a wheelchair. You could use your HSA funds to pay those costs.
 
Ready to develop your retirement health care funding strategy? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.

 
1https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-in-retirement-rise
 
 
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16770 - 2017/6/20


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Licensed Insurance Professional. Respond and learn how financial products, including insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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