When planning for retirement, people often forget to include the cost of healthcare which can be a significant expense. Opening a Health Savings Account can help those planning for retirement also plan how to pay for their healthcare as well. Keep in mind there are certain qualifications for eligibility. Here are 5 reasons to open an HSA:
- Tax-Free Money
Contributions to a Health Savings Account are tax-free. This means when spent on qualified medical expenses, there are no taxes due.
- Tax-Free Growth
The growth earned on HSA contributions is also tax-free. The money stays in the account until used to pay for healthcare expenses. Contrary to popular beliefs you CAN use your HSA to invest partner with your IRA in alternative investments.
- Personally Owned
The owner of the Health Savings Account owns the money in it, making using the money for healthcare a lot easier. In addition, if the account owner changes jobs or loses their health insurance, the Health Savings Account remains intact. The money remains in the account and can be added to either by the individual or by a new employer.
Although there is a limit on annual contributions, there is no overall limit on how much money can be in the Health Savings Account. Any unused money in the account at the end of a year rolls over and continues to accumulate. In addition, after the age of 65, the funds in a Health Savings Account can be withdrawn for any purpose, penalty-free. Prior to 65 years of age, there can be income taxes due on money taken for something other than medical expenses.
- Reduce Stress
Having some control over paying for healthcare expenses can give account holders peace of mind. They know where their healthcare finances are coming from, which takes away some financial concerns in retirement.
Considering opening a Health Saving Account? Contact Mountain West IRA for more information. Also, visit our website to learn about qualifying for an HSA and the contribution limits.
Many younger workers have the task of balancing debt reduction with retirement savings. Often the debt they have accrued is related to student loans and credit cards. Many of these workers believe they need to pay off their debt before they begin actively saving for retirement.
However, to be able to save a sufficient amount for their golden years, young workers are going to need to save while also paying off debt. Here are some ideas on how to do that:
- Focus on High Interest Debt
Getting out of high interest debt should be a priority. Credit cards are usually the main culprit with interest rates as high as 18 or even 25 percent. Once rid of high interest credit card debt, try to stay out of it. When these debts are out of the way, there will be more funds available to allocate to retirement savings.
- Be Smart with Loans
Often, loans are just a necessary evil in life. This is especially true when making large purchases, such as buying a new car. Try to find the best deal possible, with smaller payments. Sometimes this means buying a used car or a less expensive option. The larger the down payment, the smaller the monthly payments. With smaller payments, more money can be put toward retirement.
- Set Realistic Goals
Instead of having an illusion of spending very little in retirement, plan for spending more. The average annual spending for those age 65 and older is $40,938. Workers need to realize they will probably spend more and account for that in their savings.
This is especially true of spending money on healthcare. Many retirees do not account for medical needs when saving. One way to be cognizant of upcoming healthcare costs is to start a health savings account. These accounts help retirees cover the medical costs rather than dipping into their retirement savings.
Often, younger workers are only encouraged to take advantage of a 401(k) match plan through their company. While this is a great tool, opening a separate account in addition to a work-sponsored one can bump up their savings potential. Visit Mountain West IRA’s website to learn about their retirement plans and investment options.
When estimating how much money is needed for retirement, workers must keep in mind the rising costs of healthcare. In a recent study, it was found that retiree health care costs amount to 13 percent of annual spending for people 65 and older.
While it is usually recommended that retirees have enough saved up to replace 80 percent of their pre-retirement income, this may not be enough to cover health care costs these days. Household expenses in retirement are assumed to rise with overall inflation, which is about 2.5 to 3 percent per year. However, healthcare costs are assumed to rise about six percent in the next 10 years. This makes health care more of a concern when looking at finances.
Another cost factor is the increase in average life expectancy. People are living longer, thanks to health care becoming more advanced. While this is a great thing, it means retirees will likely end up spending even more out-of-pocket for health care. A 55-year-old male with an average life expectancy of 86 who ends up living to 88 will end up being responsible for almost an additional $70,000 in health care costs not included in retirement savings projections.
One way to combat the rising health care costs, is to open a Health Savings Account with Mountain West IRA. Contributions to an HSA are 100 percent deductible, just like with a Traditional IRA. It combines high deductible health insurance with a tax-favored savings account. The distributions used to pay qualified medical expenses can be taken out at any time.
- Covered by qualified high deductible health insurance plan
- Not covered by other health insurance
- Not enrolled in Medicare
- Not another person’s dependent
For those eligible and wanting to maximize their retirement savings, contact Mountain West IRA. Opening an HSA could help retirees pay less out-of-pocket for health care. Nobody can predict exactly how much they will need for health care expenses but it is better to have extra money available to cover these and other costs.
Heath Savings Accounts have gained popularity over the last few years. These accounts combine high deductible health insurance with a tax-favored savings account. Some experts aren’t sure HSAs are living up to their potential.
The recent up spike in popularity is in part due to employers adopting high-deductible health insurance plans. These plans make the employees more responsible for medical costs. They pay for most medical expenses out-of-pocket until it hits a certain deductible. To combat trying to pay out-of-pocket for medical expenses, they save money in a Health Savings Account.
Just like a Traditional IRA, contributions are 100 percent deductible. Unlike a Traditional IRA, distributions can be taken out tax-free at any time to pay for qualified medical expenses.
An Employee Financial Wellness Survey revealed that only 16 percent of employees with HSAs are planning on using it for healthcare costs in retirement. Also, only five percent have invested their HSA. They are being used more for short-term purposes of paying for medical expenses now instead of saving them for retirement.
The truth about retirement is, there will probably be a lot of medical costs. With age comes more risk of having medical issues. By contributing to a Health Savings Account and investing, retirees could grow a healthy amount of money to help with medical expenses and long-term care costs that might be necessary down the road.
Interested in contributing to a Health Savings Account? Contact Mountain West IRA.
Some retirees find fulfillment in continuing to work after retirement. And it might not be such a bad idea to consider working part time after you decide to retire. There are numerous benefits that can come from it.
If you aren’t comfortable with where your retirement savings are sitting, part-time work could be a good option for you. Hopefully you set up some type of retirement plan whether it be a self-directed IRA or 401(k), but if not, you could be in the same boat as a lot of households between the ages of 55 and 64 that only have $12,000 in retirement assets. Continuing to work could help increase your nest egg and make retirement a bit more comfortable.
Do you currently have a mortgage? Almost half of homeowners age 62 and older have a mortgage. If you have to withdraw from your retirement account to pay off your mortgage, you’ll have to pay more taxes on your retirement distributions. Finding part-time work to pay off the mortgage will reduce your cost of living during retirement.
Sometimes you can be lucky enough to find a part-time job with health care coverage, which can help cover your health care costs. Medicare kicks in at 65, but if you decide to retire before you reach that age, you’re on your own. Setting up a Health Savings Account is another way to help take care of health care costs.
For decades, your purpose in life was your career. It can be daunting leaving that behind and trying to find a new purpose. Working-part-time can help ease that transition while helping to fill your days and bank account. Along with giving you a purpose, continuing to work can help keep you in shape physically and mentally.