You've surely heard the money away from a rainy day fund for any unexpected expenses. Whether you are a job, the refrigerator breaks, or your kid gets hurt at soccer practice, it's important to keep a few thousand dollars in the bank, just in case the unexpected happens.
There is one expense that almost half of Americans will bankrupt them: healthcare
Around 45% of Americans said a major health-related expense could potentially lead to bankruptcy, according to a Gallup poll. Healthcare expenses can break the bank at any age, but they're especially at older Americans – retirees in particular.
Not only are older adults more susceptible to health issues, but retirees usually live on a fixed income. And going bankrupt from healthcare costs is even more likely for the 42% of baby boomers who have nothing at all saved for retirement, according to an Insured Retirement Institute survey.
Nearly three-quarters (72%) of Americans admit that they don't fully understand how Medicare works , in a survey at the Nationwide Retirement Institute. Even more worrisome is that more than half of survey participants wrongly believe all Medicare coverage is free.
If you are planning to rely on Medicare to take care of all your healthcare needs without paying a penny out of pocket, you may be in for a nasty surprise. While most of the Medicare beneficiaries will not pay anything for part-coverage (assuming you have worked and paid taxes for at least 1
now. Long-term care is not covered by Medicare and it can easily cost thousands of dollars per month if you or a loved one needs it. If you are not ready for those costs now, there is a good chance healthcare expenses can be paid for your retirement fund.
long before you actually retire. If you wait until you leave your job to consider how you are going to pay your medical bills, it may be too late to put away a significant sum.
One way to start saving for future medical expenses is by opening a health savings account (HSA). An HSA is only available to people who have a high-deductible health plan (HDHP), which means your plan has a deductible of at least $ 1,350 for individuals or $ 2,700 for families. But if you qualify, you can contribute up to $ 3,500 per year (or $ 7,000 for families).
The beauty of an HSA is that your contributions are tax-deductible up front and you also don't have to pay taxes when you are the money as long as you spend it on eligible medical expenses. Your HSA dollars can be used for premiums, deductibles, coinsurance, or any other related healthcare expenses. You can invest the sum you save and the money never expires, so you can save it for retirement if you don't need it before.
to take care of yourself. People in poor health spend an average of $ 1,700 more per year out of pocket on healthcare than those in good health, according to a report from the Kaiser Family Foundation.
Those who are in poor health may also be more likely to spend a significant period of time in a nursing home, which can potentially cost hundreds of thousands of dollars. ($ 6,800 a month, according to the US Department of Health and Human Services.) By taking care of your health now, you're making a long-term financial investment.
There are plenty of expenses to think about in retirement, but healthcare costs are one of the most important. Understand how much you can spend on healthcare in retirement and plan for these costs well in advance, and your wallet will thank you. Fool.insertScript ('facebook-jssdk', '//connect.facebook.net/en_US/ sdk.js # xfbml = 1 & version = v2.3 ', true);
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