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Many Americans utilize retirement plans like IRAs and employer-sponsored 401(k)s to save money for the future, but these aren’t the only tools you can take advantage of to maximize your financial power. One often overlooked resource for retirement planning is the health savings account (HSA), a now common component in many employer-sponsored health insurance plans.
If you’re eligible to use one, an HSA will allow you to save a portion of your income before taxes are taken out, just like a 401(k). Unlike a 401(k), however, you can also avoid paying taxes on that income when you use it as long as you use it for approved medical expenses. That creates a unique opportunity for anyone looking to make the most of a fixed budget in retirement. Here’s a closer look at how an HSA might help you plan for the future.
A Dedicated Resource for Funding Senior Care
As of 2018, the average couple will need at least $280,000 to cover medical expenses in retirement. That represents a significant portion of your potential expenses, and it’s also an inevitable reality that you will need medical care in your senior years. An HSA can act as a specialized source of funds to cover this important aspect of your financial future. By contributing a portion of your retirement savings to your HSA today, you’ll be growing a tax-free pool of dollars available to help you cover anything from prescriptions to doctor’s visits to long-term senior care.
Less Taxes Means More Buying Power
Speaking of taxes, it’s important that you understand the tremendous tax benefits of an HSA. As we mentioned above, money saved in an HSA is taken out of your paycheck before taxes are collected. As long as you withdraw the money to pay for approved medical expenses, you don’t have to pay a tax when using the money, either. But there’s another big benefit to saving in an HSA: as your savings are invested and grown, you don’t have to pay taxes on your returns, either. That means you have the ability to designate a portion of your retirement savings to healthcare, while still compounding that money without having to worry about taxes later.
The Key to Retirement Success: Flexibility
There is one more major benefit HSAs present anyone saving for retirement that retirement plans can’t offer: flexibility in how you spend your money both tomorrow and today. If you’re still in your working years, your HSA dollars are always available to you to cover unexpected medical expenses. Compare that to an IRA or 401(k), which have early withdrawal penalties if you choose to use the money before retirement. With an HSA, you have the opportunity to save and grow your retirement savings while still being allowed to use your savings to cover medical expenses in the present. Additionally, if you still have a balance in your HSA after age 65, you are allowed to withdraw that money, even if you aren’t using it for medical reasons, without a penalty—though you’ll still pay taxes on those withdrawals that aren’t for medical expenses.
At Life Settlement Advisors, we are passionate about helping seniors find this level of financial flexibility as they seek to fund the retirement of their dreams. Did you know that you can sell all or a portion of a life insurance policy, even term insurance? Much like an HSA, a life settlement presents a little-known opportunity to increase the buying power of your assets in retirement. If you have a life insurance policy you no longer want or need, rather than surrendering the policy or letting it lapse you can sell it for an immediate payout, giving you increased flexibility as you chart your financial course through your golden years.
Jim and Mary had a life insurance policy they no longer needed. They bought life insurance when the kids were young to protect their future. Today, the kids are grown and Jim and Mary no longer need the coverage. They sold their life insurance policy and now they have money to help with the medical bills and anything else they choose to use the money for.
Life Settlement Advisors