Budgets and Money

Managing Healthcare Costs During Retirement with a Health Savings Account

Rising healthcare costs can make a huge dent in your retirement savings. Consider opening a Health Savings Account to help offset higher costs and keep your finances in check.

Health Savings Account

Managing health care costs in retirement

Even if you've been a loyal saver over the years, the reality is that healthcare expenses in retirement can take a big bite out of your budget. Fortunately, there are certain steps you can take now that may help offset rising healthcare costs in retirement and keep your finances healthy. One step could be to open a Health Savings Account (HSA).

What is a HSA?

Simply put, an HSA combines a high-deductible health insurance plan with a tax-favored savings account. It's similar to a traditional IRA in that contributions to your account are 100 percent tax-deductible and your money grows tax-deferred. Moreover, any withdrawals you make are tax-free, provided that funds are used to pay for qualifying medical expenses. An HSA is different from a Flexible Spending Account in that the money in your HSA doesn't come with a use-it-or-lose-it clause. In other words, it doesn't have to be used within a year or else forfeited. The money in your HSA is all yours.

Is an HSA a good way to manage costs in retirement?

An HSA allows you to save money to cover healthcare expenses in the future. So when you need it, you could have a pool of money earmarked especially for healthcare. That can allow you to have the cash on hand and not depend completely on your savings.

However, the rub with HSAs is that you are not allowed to make non-medical withdrawals prior to age sixty-five without incurring a 20 percent tax penalty and income tax. And while non-medical withdrawals can be made penalty free once you hit age 65, you'll still be subject to income taxes1. The reason for these rules is so that you learn to budget accordingly and don't end up squandering away your future healthcare money.

The good news (and why HSAs can be a great way to manage costs in retirement), is that as long as you use your HSA money for qualifying medical expenses - which include deductibles, copayments, coinsurance, etc. - that money is entirely tax-free.

HSA Eligibility

To be eligible for an HSA, you must be signed up for a high deductible health plan (HDHP) and have no other health insurance.* In addition, there are minimums required by the government for an HDHP to be eligible for an HSA. For current eligibility information on the minimum annual deductible, visit the IRS website.

If you're considering an HSA, there are some great online calculators that could help you determine the potential savings of an HSA compared to your current health insurance plan, any potential tax savings, and how much you may be able to save with an HSA.

If you'd like to read more about retirement directions you may want to consider, as well as learning to budget for life after your last paycheck is cashed, visit the Protective Learning Center.

*This restriction on other health insurance does not include disability and long-term care insurance.

1https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204020

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Health Savings Account and Your Money

Learning to budget for healthcare expenses in retirement can be challenging. Fortunately, with a Health Savings Account (HSA), you can set aside pre-taxed dollars so that when the time comes, you'll have cash readily available to cover healthcare costs. This article looks at the basics of an HSA. For more information, visit the Protective Life Learning Center.


All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.

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