Can HSA Owners Really Save Enough to Cover Their Retirement Medical Expenses?
By William G. Stuart | Originally posted on Health Savings Academy
Health Savings Account enthusiasts tout these vehicles as the perfect opportunity to save enough to cover medical expenses in retirement. Are they right?
Health Savings Account enthusiasts encourage owners to fund their accounts to save for retirement medical expenses. Unlike a traditional retirement account, though, Health Savings Accounts offer tax benefits when owners make distributions for qualified expenses today, next year, or decades into the future. Given this flexibility, is it realistic for people to save enough to cover their qualified retirement medical expenses?
The Cost of Medical Coverage and Care in Retirement
Many people approaching retirement (and even more so for younger Americans) do not begin to understand how much taxes and medical coverage and care will cost in retirement. They assume that they'll pay less in taxes because their income is lower and that their medical costs will decrease - perhaps even to zero - because they will be enrolled on Medicare.
Both assumptions are dangerous. We won't take a deep dive into taxes in retirement, although they do play a role in the Health Savings Account narrative. Let's focus on the cost of medical care in retirement. Medicare charges a monthly premium for outpatient (Part B) and prescription-drug (Part D) coverage. [Most enrollees prepay their inpatient (Part A) coverage through payroll taxes during their working years.]
Medicare charges deductibles, copays, and coinsurance for most care. Medicare limits services, from the number of inpatient days to limits on outpatient therapy and other care. Medicare does not cover many emerging medical services, or most dental, vision, or hearing services, equipment, and supplies. And Medicare does not cap out-of-pocket expenses as ACA-qualified plans do.
The result? Fidelity, the most widely cited source for medical expenses in retirement, estimates that a 65-year-old retiring this year will spend about $160,000 from that point forward on medical care - a little more for women (they live longer than men and have more potential medical conditions), a little less for men. Thus, if you're married, build an additional $320,000 or so into your retirement budget for medical care.
Note that this figure includes Medicare premiums, Medicare cost sharing, and your financial responsibility for services that Medicare does not cover. It does not include the cost of long-term care.