Americans are struggling to save for future medical costs
When planning for retirement, many Americans are finding it hard to save enough for one key expense: health care.
Eighty-two percent of people see medical costs as their biggest financial challenge, both now and in the future, according to a new survey from global advisory firm Willis Towers Watson.
Fidelity Investments estimates that a couple retiring this year at age 65 will need $280,000 to cover their future medical costs – and that figure does not include the costs of long-term care, over-the-counter medications or most dental expenses.
One way experts have recommended that working individuals plan for mounting health care expenses is by contributing to a health savings account (HSA).
However, Americans still appear to have a slew of misconceptions about HSAs. Nearly 70 percent of survey respondents said they have not enrolled in a health savings account because they did not see the benefit or did not understand what it was.
An HSA is an account where an individual contributes pre-tax dollars for the explicit purpose of spending those funds on future medical expenses. HSAs can be used to cover everything from dental, vision and prescription costs to Medicare premiums.
These plans allow pre-tax investments to grow tax-free, and funds can also be withdrawn without penalty. But not many people use them for long-term savings purposes: less than half of Americans had more than $5,000 saved.
“From the data, it appears most employees are missing out on many HSA benefits, including the triple tax advantage, which can be invested to grow throughout their careers,” David Speier, managing director of benefits accounts at Willis Towers Watson, said.
Only one-quarter of respondents said contributing to a HSA was a top financial priority, according to the survey, while about 25 percent of those who said they didn’t enroll cited not having enough money to contribute.
And while Americans are struggling to save for retirement in general, HSAs can actually boost overall savings rates.
Fidelity found that individuals who saved using both an HSA and a retirement account, such as a 401(k), tended to stash away more cash overall than those who had just a retirement account. HSA users were found to have $119,000 more on average in retirement savings than their counterparts.