With recent news that the Medicare and Social Security systems are on a pace to disappear even sooner than expected, the need for personal fiscal responsibility is now greater than ever. Today’s economic crisis has put both systems, the primary health care and income sources for millions of retirees, in peril, according to reports issued by the government recently when Treasury Secretary Timothy Geithner announced that Medicare will run out of money in 2017, and Social Security will do the same in 2037, both sooner than previously projected.
Many financial advisors are encouraging these clients to be more conservative with their spending during their remaining working years and establish larger cash reserves to cover medical-related variables during retirement. But that is still far too much un-certainty for most Americans, particularly when it comes to one of a client’s largest expenses during retirement. A married couple retiring this year is expected to need an average of $240,000 for medical costs during retirement, above and beyond what Medicare will pay, according to Boston-based Fidelity Investments.
These cost are causing more and more advisors to recommend that their clients to take advantage of health savings accounts (also known as an HSA), accounts that essentially work like a 401(k), but specifically for health care and medical costs that one may incur before or during retirement. Of course it is always smart to save as much of your income as possible, but it’s far more prudent to set aside those dollars on a tax free basis. That way, when you do have medical bills that you must pay out of your own pocket, you will be able to pay them with dollars Uncle Sam did not tax.