- You can’t possibly know what health care will look like in retirement, so prepare for the worst.
- The health savings account is “like a secret IRA” with huge tax advantages for those that qualify.
- Look toward your family history and inheritance goals to determine your long-term care needs.
Health care has become one of the biggest — and most costly — unknowns during retirement. Financial advisors say ignore what you don’t know and prepare for the worst.
The health-care debate in the United States has turned into a jumble of ideas. Some want to go back to a system similar to the one we had prior to the Affordable Care Act, others want to fix the issues in the current system, while still others want single-payer. While compromise feels unlikely at this point, it leaves a huge question for savers: What will health care look like when I retire? For that, there’s no clear answer.
Take advantage of an HSA
When clients ask advisor Phillip Christenson about health-care planning, he admits he has no idea how health care will look when they’re ready to tap funds. Therefore, he runs a few different scenarios, analyzing how much they will need if health-care costs inflate by 10 percent or 15 percent or more. “There’s no real answer, since we don’t know what’s going to happen in the future,” said Christenson, who co-founded Phillip James Financial.
If the clients need more savings, he will see if they qualify for a health savings account.
“The HSA is not only a huge benefit for medical costs, but it’s also like a secret IRA,” Christenson added.
According to the American Health Insurance Plans, the rate of HSA use has risen to 20.2 million last year, up from 3.2 million in 2006. It has become a popular tactic to earmark some retirement savings specifically for health care, since you can carry over the balance if you don’t use the funds for health-related costs.
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