This One Thing Can Hugely Impact Your Retirement. Here's How to Prepare

When it comes to retirement planning, there are many different factors people try to plan for, including how much to save, how long retirement will last, and what things you want to do in retirement.

But one thing that some people overlook, which can significantly impact their retirement, is their health. Here's why your healthcare -- and all the expenses that come along with it -- should be a factor in your overall retirement planning strategy.

Many people retire early for health reasons

Federal Reserve data from 2020 shows that 30% of people entered retirement earlier than expected due to health reasons. That's worth repeating: Nearly one-third of people entered retirement earlier than planned because of their health.

So, let's say you enjoy your work and plan on doing it until you're 75. That can be an excellent strategy for stretching your Social Security income. Working longer also keeps you active and engaged with other people.

But with such a large percentage of people being forced to retire for health reasons, many retirees will have fewer years of earned income than they originally planned for.

In addition, the cost of covering healthcare expenses is costly. Fidelity says the average 65-year-old will need $157,500 to cover healthcare expenses in retirement.

When added together, some retirees will not only have fewer working years than planned, but they'll also have to spend a significant sum on healthcare expenses.

How to save up for healthcare costs

It's easy to feel overwhelmed by some of this data, but it is important to focus on what you can control. Thankfully, there are some ways that you can adjust your planning to put yourself in a better position to cover future healthcare expenses.

Here are a few steps you can take to prepare for health-related expenses in retirement.

1. Maximize your 401(k) contributions

Maximizing your contributions can be a great way to plan for future healthcare expenses. In 2023, you contribute up to $22,500 to your 401(k) and $30,000 if you're 50 or older.

Even if you can't afford to max out this amount, make sure you're contributing enough to earn the maximum amount for your employer contribution program. Many companies offer matching programs that will contribute to your 401(k) up to a certain percentage of your income as long as you contribute.

2. Let your investments grow in an IRA

If you don't have access to a 401(k) or want to contribute more money to your retirement investing, setting up an individual retirement account (IRA) is a good idea. You can find one by checking out the best stocker brokers.

You'll have the choice between a Roth IRA or a traditional IRA, and both have their own tax advantages. In general, the Roth IRA will allow your contributions to grow tax-free, while you'll have to pay taxes on withdrawals in retirement if you choose a traditional IRA.

In 2023, you can contribute up to $6,500 per year to an IRA -- or $7,500 if you're 50 or older. Maximizing these contributions will help your money grow faster and help offset future healthcare expenses.

3. Consider long-term care (LTC) insurance

If you think you'll need to cover healthcare costs out of pocket in retirement or supplement Medicare, you may want to consider buying an LTC insurance plan.

LTC plans may cover expenses like at-home care, assisted living, and nursing home care. Like other insurance policies, you choose how much coverage you want, and then pay a monthly premium.

According to the American Association for Long-Term Care Insurance, the average annual cost of an LTC plan for a 55-year-old woman is $2,675.

4. Focus on your health

Focusing on your health will do more than just make you feel good in retirement; it could also help you save money. Keeping up to date on medical screenings, staying active, eating healthy, and staying connected to a community are all factors you can control.

Of course, there's no guarantee keeping up with your health will help you reduce your expenses. Still, some research has shown that healthcare costs are significantly lower in retirement for people who maintain moderate physical activity or increase their physical activity before or into middle age, with savings of between $824 and $1,874 per year during retirement years.

Even if you can't do everything on this list, it's a good idea to pick a few that will put you in the best possible financial shape to cover future healthcare expenses. Now, if you'll excuse me, I need to get away from my desk and do some push-ups -- I'm planning for my retirement.