Some Somewhat Unusual Financial Planning Advice - Diet & Exercise
Here is some somewhat unusual financial planning advice. The advice is simply this: You need to diet and exercise. One of the primary reasons for doing so isn’t just the physical benefits but the financial ones as well. It is recommended that anyone 50 or over puts in an hour of work per day on their body. It is also recommended that those younger should start, or continue, healthy diet and exercise habits as well. The reason why good health is so important is that healthcare now, and especially in retirement, is darn expensive! The investment company Fidelity estimated the average couple will need a whopping $285,000 in today's dollars just for medical expenses in retirement. This does not even include long-term care expenses. That is a TON of money. (I’ve included a link to the Fidelity article below).
Those who think they have not time for bodily exercise will sooner or later have to find time for illness.
- Edward Stanley
But Wait, Doesn’t Medicare Cover these expenses?
Now some of you might be wondering, but what about Medicare? Well it doesn’t cover nearly as much as you might think. The money you spend beyond what Medicare provides is spent on deductibles, premiums, and drugs. To be more specific 42% is spent on co-payments, co-insurance, and deductibles for doctor and hospital visits. Another 39% is spent on Medicare Part B and D premiums, and the final 19% is spent on generic and specialty branded drugs. It all adds up pretty fast.
How Best to Pay for Retirement Healthcare Expenses?
Very few people have employer health benefits that extend into retirement. If you are one of the few ones that do, count your lucky stars. For those that don’t, there are some excellent ways to save for your health care expenses. This includes a Health Savings Account (HSA). These are absolutely amazing vehicles to combat the potential costs of healthcare both now and in retirement. Here are some important details:
Health Savings Accounts - The only Triple Play When It Comes to Taxes
- HSAs are the only investment vehicle that is triple tax free. Yes triple! The contributions are tax deductible, and both the growth, and distributions (if used for a qualifying medical expense) are tax free. Roth, Traditional IRAs, and 529 College savings accounts are only double tax free.
- Not all people are eligible to invest in an HSA. You must have a qualifying high deductible medical plan. Additionally, the contributions are limited to the following amounts in 2020: Individual $3550, and Family $7100. For those 55 and older you can contribute an additional $1000.
- You can use the money in the HSA at any time to cover health care expenses, but to really see the benefit you will want to let the money grow and pay for current health care expenses from other sources of personal savings when possible.
- But what if you don’t need all of the money for Healthcare Expenses? It essentially becomes just like a Traditional IRA. Distributions are taxed at ordinary income rates.
- For my clients that are younger or “youngish” who think they can wait until later, remember that the earlier you invest your monies the longer it has time to grow, and that growth can be significant. Just $2000 invested in an HSA each year for 30 years that earns a 7% rate of return would grow to over $200,000. That would go a long way to help offset health care expenses in retirement.
There are a number of factors one should consider and understand about Health Savings Accounts that I’d be happy to review with you. Although HSA accounts are not offered at my firm, I do want to ensure my clients and others take advantage of the powerful financial instruments that may be available to them.
Thank you for reading my article, and please stay healthy my friends as we only get one body!
Fidelity Article:
https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
Investing involves risk including loss of principal. No strategy assures success or protects against loss. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
