Prepare for Medical Expenses in Retirement

Several recent articles (here’s one) have suggested that perhaps the company retirement plan is not necessarily always your best choice for putting aside money for the future.  That’s partly because many Americans don’t know how to assess their future needs for medical care despite warnings from Fidelity and others that we should be prepared for six-figure hits to our savings for out-of-pocket medical expenses when we retire.  Even more sobering, the six-figure costs come afterwhat Medicare pays and does not include projections for long-term care needs.

For the past twelve years, I have advised individuals to first maximize their company’s matching funds to their retirement plan under the theory that “free money” is the best money of all.  While this is a good reason to put one’s money into their company-sponsored retirement plan, my advice did not consider that tax advantages under a Health Savings Account, combined with the high likelihood of using much of our savings for medical care in retirement, actually might make putting money into an HSA first, before drawing drawing down matching funds for our retirement savings plan, a better strategy for many Americans.

And now a technical analysis by Greg Geisler, an associate professor of accounting at the University of Missouri-St. Louis, shows us how an HSA can sometimes be superior to a 401(k) with an employer matching contribution.  Just another reason to consider an HSA, especially if your focus is on life after retirement.

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