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.
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.
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.
