Current:Home > MarketsA retirement expense of $413,000 you'll need to be prepared for-LoTradeCoin
A retirement expense of $413,000 you'll need to be prepared for
View Date:2024-12-23 16:42:49
Retirees should be prepared to cover all of their costs from their Social Security and savings. Most people think about expenses like housing, cars and travel when they predict their future financial needs. But, there's another important expense you cannot overlook: healthcare.
While you may assume Medicare will pay for everything you need, that couldn't be further from the truth. A recent study has shown the out-of-pocket costs of medical care could be far higher than you might imagine.
Retirees may need a six-figure nest egg for healthcare costs
According to the Employee Benefit Research Institute, a couple with high prescription drug needs will require $413,000 in savings earmarked for medical care to have a 90% chance of being able to cover all of their expenses. While Medicare offers coverage to seniors, there are copays and coinsurance costs as well as limits on what it pays for.
While $413,000 is on the high end of the scale for those who need more prescriptions than most, EBRI's data also showed even the typical senior will require a lot of money for medical care:
- The typical man needs $184,000 in savings to have a 90% chance of meeting out-of-pocket healthcare spending needs.
- A typical woman needs $217,000.
- A couple with a standard Medigap plan charging average premiums would require $351,000.
All of these are big numbers and you could find yourself quickly draining your 401(k) if you aren't prepared to pay up.
How can you be ready to cover healthcare costs in retirement?
Since medical care will be a huge expense for many seniors, it's important to prepare financially throughout your lifetime so you're ready when doctor visits begin and drug prescriptions must be filled.
If you're eligible for a health savings account (HSA), investing in one each year is the best way to prepare for senior care expenses. An HSA allows you to make tax-deductible contributions up to the annual limits. You don't have to use the money right away -- you can invest it each year and allow it to grow tax-free. And, as long as the funds are used for qualifying care expenses, you can even take tax-free withdrawals.
The triple tax benefits of an HSA are unlike any other account. Even tax-advantaged retirement plans like a 401(k) or IRA only give you a tax break either when you contribute or when you withdraw money, but not both. And, as a bonus, if you don't use your HSA for healthcare, you can take money out for any reason penalty-free after age 65. You'll just pay taxes on the withdrawals, similar to a 401(k).
Now, not everyone can invest in an HSA, as you need a qualifying high-deductible health plan to do so. If you aren't eligible, you may want to think about opening an IRA that you specifically dedicate to healthcare savings. You can contribute to this account along with your other retirement plans so you'll have the money you need for doctors and everything else your future self will require.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
The $22,924 Social Security bonus most retirees completely overlook
Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" »
veryGood! (1633)
Related
- Judge weighs the merits of a lawsuit alleging ‘Real Housewives’ creators abused a cast member
- Katy Perry Calls New Woman's World Song Satire After Facing Criticism
- Halloween decor drop: Home Depot's 12-foot skeleton, 7-foot Skelly dog go on sale soon
- Fans without tickets enter stadium before Copa America final; people receive treatment
- Megan Fox Is Pregnant, Expecting Baby With Machine Gun Kelly
- Millions remain under heat alerts as 'dangerous' weather scorches Midwest, East Coast
- Tori Spelling Applauds Late Beverly Hills, 90210 Costar Shannen Doherty for Being a Rebel
- Why Armie Hammer Says Being Canceled Was Liberating After Sexual Assault Allegations
- Brands Our Editors Are Thankful For in 2024
- Nursing aide turned sniper: Thomas Crooks' mysterious plot to kill Trump
Ranking
- Georgia House Republicans stick with leadership team for the next two years
- How husband and wife-duo JOHNNYSWIM balance family, music
- Princess Kate attends Wimbledon men's final in rare public appearance amid cancer treatment
- Tori Spelling Applauds Late Beverly Hills, 90210 Costar Shannen Doherty for Being a Rebel
- Mega Millions winning numbers for November 8 drawing: Jackpot rises to $361 million
- Panel recommends removing ex-chancellor from Wisconsin college faculty post for making porn videos
- Signs of trouble at Trump rally were evident in minutes before gunman opened fire
- Mass dolphin stranding off Cape Cod officially named the largest in U.S. history
Recommendation
-
Advance Auto Parts is closing hundreds of stores in an effort to turn its business around
-
Judge removed from long-running gang and racketeering case against rapper Young Thug and others
-
The Republican National Convention is coming. Here’s how to watch it
-
Millions remain under heat alerts as 'dangerous' weather scorches Midwest, East Coast
-
'I was in total shock': Woman wins $1 million after forgetting lotto ticket in her purse
-
2024 Home Run Derby: Time, how to watch, participants and more
-
How many points did Caitlin Clark score? Indiana Fever rally to beat Minnesota Lynx
-
Mechanical issues prompt 2 Delta Air Lines flights to divert, return to airport