Worried About Healthcare Costs in Retirement? Here's One Account It Pays to Fund Today

For many people, the idea of retirement can be scary. Even if you do your best to save a bundle in an IRA or 401(k), you might still end up short on funds to cover your essential costs.

And then there's healthcare to worry about. Health issues tend to increase with age, so it's important to be prepared to cover that expense.

In a recent Empower survey, 44% of respondents cited healthcare costs as a major retirement worry. But there's one account you may be able to fund today that could help ease that concern.

Are you eligible for an HSA?

You have different options when it comes to socking money away for healthcare bills. You could simply fund a regular savings account and dip in as needed. But if you're eligible for an HSA, then it pays to contribute to one of these accounts.

HSAs offer benefits beyond what savings accounts offer. With a savings account, you might earn some interest on your money. With an HSA, you can invest funds you don't need and grow your money into a larger sum over time.

Plus, HSA funds don't expire. And because of that, it's a good idea to try to fund an HSA steadily during your working years but reserve the use of that money for retirement since you're not forced to spend down your balance annually. That way, you'll have access to more money at a time when your healthcare costs may be highest.

Now that said, there's a catch with HSAs -- not everyone is eligible. Your health insurance plan needs to conform to different rules that change annually to be able to participate. That's why it's a good idea to check your eligibility every year.

In 2024, however, you'll qualify if you have self-only coverage and a minimum deductible of $1,600, or family coverage with a minimum $3,200 deductible. Your plan must also have a MOOP (maximum out-of-pocket) of $8,050 for self-only coverage or $16,100 for family coverage.

How much can you put into an HSA?

The nice thing about HSA contributions is that they go in tax free. Incidentally, investment gains in an HSA are tax free, as are withdrawals used for healthcare expenses.

HSA contribution limits change annually. In 2024, you can contribute up to $4,150 for self-only coverage or $8,300 for family coverage. And if you're 55 or older, you can make an additional $1,000 contribution.

Best of all, unlike a flexible spending account, you don't have to worry about overfunding an HSA, because your money doesn't have to be spent by a certain point. You have all of retirement to use up your HSA, so there's little pressure involved.

As such, if you're someone who's already starting to stress about the idea of paying for healthcare in retirement, do your part to fund an HSA if that option is on the table for you. And if not, check your eligibility next year and each year that follows to make sure you're not passing up the opportunity to contribute to a useful account that's loaded with tax benefits.