Investment Advisor Focus: HSAs in Retirement and Paying for Long-Term Care

In previous posts, we’ve sung the praises of a health saving account (HSA), and how individuals can use it as a tax-advantaged savings vehicle to build a nest egg for retirement. If you’re a registered investment advisor, you may already know you need to encourage your clients to save for the inevitable medical costs that usually accompany the aging process. Even so, there’s a common misconception among many Americans that Medicare has them covered for all health-related costs in retirement.

But that’s not always the case.

When it comes to saving for the golden years, long-term care is a pricey—and often overlooked—retirement expense. In this article, we’ll break down long-term care, and how an HSA plays a role to help offset the cost.

What Is Long-Term Care?

In retirement, long-term care refers to services that help older adults with daily living. These daily living services may include in-home care to help a person maintain their independence, but they can also allow for an extended stay in a nursing home. The need for long-term care often happens gradually as a person ages, though it can happen suddenly if a chronic condition worsens, or in the event of a heart attack or stroke.

Importantly, this type of care does not come cheap. According to the U.S. Department of Health & Human Services, the national average costs for long-term care are:

  • $3,628 per month for care in an assisted living facility (for a one-bedroom unit)
  • 6,844 per month for a semi-private room in a nursing home

  • $7,698 per month  for a private room in a nursing home

Why Medicare Falls Short with Long-Term Care

Medicare typically only covers short-term care for people ages 65 and older. Part A covers hospital care (after an individual pays for a deductible), short stays in a nursing home for specific illnesses, and hospice care for the last six months of life. Part B covers doctors’ services, outpatient care, and some preventive care. Medicare Part C covers a combination of A and B, while Part D covers medication costs only.

Although Medicare can be a big help with certain medical costs, individuals are often left paying for long-term care with personal funds.

Where a Health Savings Account Comes In

When the need for long-term care arises, a person can use their HSA to help offset the monthly cost. However, doing so could quickly drain a retirement nest egg. (Remember, long-term care can cost nearly $100,000 per year!)

Another option is a long-term care insurance policy. Individuals can purchase this type of insurance, then use their HSA to help pay the premiums. However, this type of coverage must be purchased before it is needed; individuals cannot wait until they need long-term care to buy. If your client has retirement in mind and a robust HSA, planning ahead to purchase this type of insurance could be beneficial to protect their retirement savings.

Long-term care is not something most people want to think about, but a little planning can go a long way when it comes to protecting retirement savings and valuable HSA funds.

If you’re a registered investment advisor looking for more information on HSAs and retirement, see the previous posts on HSAs and IRAs and Navigating Medicare, Social Security, and HSAs.  

Want to pass along more information to your clients about the retirement benefits of contributing to an HSA?

Check out our Tale of Two Employees guide, with an easy-to-follow overview of how two different savers reaped big rewards by contributing to their HSA over the years.
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Juan Godina, Director of Channel Sales and Strategy at ConnectYourCare Author: Juan Godina is a health care banking and insurance service professional with two decades of experience.  He has helped thousands of individuals figure out the rules of the road with HSAs, Medicare, and Social Security. He enjoys educating consumers about the benefits of HSAs and how to maximize their triple tax benefits, rounding out their understanding of their High Deductible Health Plan insurance. His background in health care banking, insurance regulations, and technology provide a holistic perspective into consumer-driven health care for individuals, families, and businesses.

This material is for informational purposes only and is not an offer of coverage. ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive, nor is it a representation of actual savings to be had by your plan specifically. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.
By |2019-07-29T15:14:13-05:00July 25th, 2019|Brokers, Employer Posts, HSAs, Registered Investment Advisors, Retirement|
Disclaimer: ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.