Does Healthcare Really Account for 40% of All Retirement Spending?

It’s often said that relying solely on Social Security is not the way to go during retirement. Workers are told to expect the unexpected when it comes to retirement costs and to make sure that a healthy amount is stashed away. With comfortable savings, retirees can meet all unexpected costs rather than struggling to make ends meet after leaving the working world behind. 


In particular, workers seem to worry about the unpredictable nature of healthcare costs after retirement. According to a recent survey, Americans expect to pay around four in every ten retirement dollars on healthcare. Is this an accurate estimate? We’re sure the hearts of some readers have started pumping just a little quicker after reading this survey result. 


Healthcare Costs in Retirement 


Thankfully, we do have an accurate prediction of healthcare costs because Fidelity releases the average figure annually. With the average in 2021 at $300,000 per couple, the 40% estimate from Americans isn’t actually too far from the mark in many cases. 


How do you prepare for such spending? Although it sounds obvious, one option is to save more for retirement. If you aren’t contributing the maximum amount in your 401(k) or IRA, now is the time to start. Take advantage of matched employer contributions and max out an HSA (health savings account) too. 


Often, workers enjoy better tax benefits in an HSA compared to a 401(k) and IRA. For example, you don’t have to worry about tax when contributing, gaining from investments, or even withdrawing. Of course, this is only true if you use the withdrawals on healthcare-related expenses. In recent years, some people have used their HSA as a savings account since it’s a place to store funds with free withdrawals and very few restrictions. 


Today, we want to shift this mindset slightly because we think people should use it as a retirement savings account rather than a short-term solution. If you don’t use these funds, you’ll benefit from tax-advantaged investments. 


Sadly, no retirement savings solution is perfect, and participation is only possible for those already benefitting from a high-deductible health insurance plan. For the next two years, you’ll need $2,800 as a family deductible or $1,400 as an individual. If you qualify due to your health plan, HSA contributions are generous. 


If you’re an individual under age 55, contribution limits are set to $3,600; this increases to $4,600 for those over age 55. If you’re at the family level and under age 55, the contribution limit is $7,200; this increases to $8,200 when over age 55. 




Healthcare costs account for a HUGE chunk of retirement expenses. Therefore, the best way to deal with them is to plan. Boost your savings, reduce short-term expenses, and take advantage of an HSA. The more you plan, the less this expense will cause problems in retirement!

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