Ask Terry Questions HSA Withdrawals

HSA Withdrawals

By Terry Savage on December 20, 2019 | Financial Planning / Retirement

My wife and I are 74 years old and have a sizeable HSA account which I funded before I retired. I use my HSA to pay for prescription co-payments but not for larger expenses like Medigap and LTC insurance premiums for me and my wife. It is advisable to continue paying large medical expenses from our yearly income and let the HSA grow with stock market investments or at my age, should I start spending the HSA money? My wife and I have adequate yearly income and don’t need to HSA money to make ends meet. It’s not a black and white answer for us and would like your thoughts and advice. Thanks for your help.

Terry Says

You’re right. It’s not a black and white decision. There are a few things to consider. First, have you named a beneficiary for your HSA? Presuming you die before your spouse, she can continue to withdraw from it on a tax-free basis. Read this article from the experts at Ed Slott’s IRA Help website.
Second, did you purchase long-term care insurance? That’s the most expensive and devastating healthcare cost you are likely to face in the future! You could pay the premiums from this HSA account. (Or you could purchase a combo life/LTC policy, which requires a large one-time deposit — not from your HSA). But you should cover that possibility. And if you do have a LTC insurance policy, HSA funds could pay for the typical 100-day deductible period.
And finally, don’t underestimate the likely cost you’ll need to pay in the future. The latest Fidelity survey shows: A 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement, compared with $280,000 in 2018 According to Fidelity’s annual Retiree Health Care Cost Estimate. As you can see, these costs will keep rising.

Also, the money in your HSA account might be invested more conservatively, since you know you’ll be using it in the fairly near future!

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