3 Unexpected Ways to Start Saving for Long-Term Care in Retirement

3 Unexpected Ways to Start Saving for Long-Term Care in Retirement

1000 667 Bethany Ockerbloom

More than half of people over the age of 65 will require long-term care at some point during their retirement years . And unless your retirement funds are backed up with lottery winnings, affording this necessary care can be tricky.

Use these three simple tips to ensure that whatever arises down the road, you’ll be ready.

1. Open an HSA

If you’re enrolled in a high-deductible health plan, opening a health savings account (HSA) could be a great tool to start building up your savings. Earmarking funds through an HSA for qualified health care expenses gives you a tax-advantaged way to pay for extended care later in life. The maximum individuals can contribute in 2019 is $3,500 — and that money rolls over from year to year, unlike a flexible spending account, which means setting aside these savings annually can really add up. Anyone over the age of 55 can contribute an additional $1,000 known as a catch-up contribution, so if you’ve been procrastinating on saving, you still have a bit of leeway. Bear in mind, though, that moving funds out of an HSA before you reach 65 could leave you paying taxes and a 20% withdrawal penalty.

When it comes to paying for long-term health care costs in retirement, one often overlooked option allows you to invest your HSA funds. It’s easy to fall into the status quo by keeping your HSA accounts as cash-only investments, but with most HSAs topping out at a 1% interest rate, even modest investment returns could make the effort worth your while. Remember, once you hit age 65, there are no more penalties for withdrawing HSA funds, so it really pays to do what you can to build them up over the long term.

2. Leverage Your IRA and 401(k)

Withdrawing funds from an IRA or 401(k) account prior to age 59 and a half incurs a 10% penalty tax. However, there’s an exception to that rule. Withdraw money from those same accounts to pay for qualified medical expenses, and the penalty doesn’t apply. Essentially, this is a method of taking care of medical bills without losing the tax benefits that come with years of ownership of these accounts.

By upping your annual contributions to these accounts (within the maximum contribution limits, of course), you get a tax-advantaged way to save for long-term care. As a reminder, those limits are:

  • 401(k): $19,000 per year, plus $6,000 in catch-up contributions once you hit age 50
  • IRA: $6,000 per year, plus an extra $1,000 after age 50

3. Consider Supplemental Coverage

Enrolling in a supplemental insurance plan helps you cover blind spots in your current coverage and take care of major health care costs that could arise, especially before Medicare coverage kicks in to shoulder some of the burden. Hospital indemnity insurance plans, for example, pay out a lump sum for qualifying hospital stays or care. Critical illness coverage pays out for expenses that crop up during periods of major illness. If you’ve come down with something that keeps you from working, those payouts can keep the bills paid and the kitchen cabinets full in addition to absorbing health care costs.

If you’re looking for a policy that specifically targets the needs associated with extended care, then long-term care insurance is a smart bet. This type of coverage handles the costs of skilled, daily care (either at home or in a qualified facility), as well as custodial, respite and hospice care. Medicare and Medicare Supplement Insurance (also called Medigap) help with the cost of long-term care, but they don’t cover all of it — and some people who need long-term care need it before age 65.

As you age, staying in good health will only become more financially taxing. Knowing your options and preparing for the future is the best way to pave the way for living the life you want.

Bethany Ockerbloom

Bethany Ockerbloom specializes in health insurance policy, Affordable Care Act news and reform, employee benefits, and other healthcare-related topics such as lifestyle and wellness.

All stories by:Bethany Ockerbloom

Bethany Ockerbloom

Bethany Ockerbloom specializes in health insurance policy, Affordable Care Act news and reform, employee benefits, and other healthcare-related topics such as lifestyle and wellness.

All stories by:Bethany Ockerbloom