Financial Planning Update: Planning for Rising Health Care Costs
Health care costs continue to rise, making them one of the most significant risks to retirement planning today. As Americans live longer and medical technology advances, many retirees face unpredictable and growing medical expenses. In this update, we explore strategies like using an HSA (Health Savings Account), understanding the triple tax benefit, and building a diversified investment strategy to stay ahead of healthcare inflation. A solid financial planning approach can help protect retirement savings while offering peace of mind about long-term care needs.
Planning for Rising Health Care Costs
Hi. This is Brad Barrie, Chief Investment Officer and portfolio manager with Dynamic Wealth Group.
Welcome to this financial planning topic review. Over the next few minutes, we’ll discuss the rising cost of health care and some of the strategies that can help. According to research by Fidelity, a 65-year-old retiring today can expect to spend around $165,000 on health care through retirement, and it could be much more if long-term health care is needed. As Americans live longer and health care inflation outpaces general inflation, preparing for these expenses becomes an essential component of any comprehensive financial plan. Also, having a smoother return experience helps in managing those unexpected health care expenses, as does having a solid, well-thought-out financial plan.
Now, in the past, I’ve discussed how having a multi-dimensional asset allocation means planning for a range of outcomes for your investment portfolio. Now financial planning should be the same way. You want to plan for all roses but be prepared for when the weeds start to come up. Diversification should mean targeting to have something in your portfolio that is always doing well. That way, when that unexpected event occurs, you have something to tap into, instead of having to sell something at a loss, and hence locking in that loss.
Healthcare Inflation and Spending Trends
First, this chart shows how much health care spending has increased. Health care spending in the United States reached an unprecedented $4.9 trillion in 2023, nearly 18% of our nation’s Gross Domestic Product, GDP. To put this in perspective, health care consumed just 5% of GDP back in 1962. Multiple factors are driving this trend: our aging population, rising chronic conditions, advances in medical technology, and persistent health care inflation. Without adequate planning, health care expenses can rapidly deplete retirement savings. One powerful financial planning tool that is available to Americans with qualifying High-Deductible Health Plans are HSAs, or Health Savings Accounts. HSAs stand out for their triple tax benefit structure. First, contributions are tax deductible and reduce your taxable income. Second, any growth of investments within the account is tax deferred. And third, withdrawals for qualified medical expenses are tax free as well.
HSA Strategy and Long-Term Savings
Next, this chart highlights longer life expectancies, which make planning for healthcare costs in retirement more important than ever. We’ve touched on some of the benefits of HSAs. Now let’s talk about a powerful strategy you can use to grow your HSA as a specialized retirement account specifically for healthcare expenses. This approach is straightforward but impactful. First, maximize your annual HSA contributions to capture immediate tax deductions. For 2025, families can contribute up to $8,550. Second, invest these funds for longer-term growth, a critical step many accountholders miss. Third, when financially feasible, pay current medical expenses out of pocket, thus allowing your HSA investments to grow tax free.
Finally, keep receipts for qualified out-of-pocket expenses, as these can be reimbursed from your HSA at any point in the future. This is a key point that many may not even realize. You see, you don’t need to have the qualified medical expenses in the year of distribution alone. If the qualified medical expense happened in the past, when you had the HSA, and you keep records, then you can take out of your HSA in the future at any time up to that amount. This can really help to compound your HSA and thus tax-free retirement savings.
Estate Planning and Healthcare in Later Life
Finally, this chart shows how healthcare expenses increase dramatically as we age, and that increase has only grown in recent years. Unlike other retirement accounts, HSAs have no required minimum distributions in your lifetime, meaning that you can save and grow your investment for when you need it most. Additionally, after age 65, HSAs become even more flexible. The penalty for non-health care withdrawals disappears, though ordinary income tax would still apply for non-health care expenses.
HSAs can also play a strategic role in estate planning. If your spouse is named as your beneficiary, they inherit your HSA with all the tax advantages intact. However, non-spouse beneficiaries, the treatment is much less favorable and could create significant tax burden, as they would be required to take it as a taxable distribution and cannot continue the inherited HSA.
We Are Here To Help
I hope you found these, these high-level insights helpful. If you are a financial advisor and would like more information on the solutions we provide, including multi-dimensional asset allocation, please download our white paper titled Busting Seven Risk and Return Myths, or click on the link below, or visit our website at dynamicwg.com, or simply email us at info@dynamicwg.com.
If you are a financial advisor and would like more information on our multi-dimensional approach towards asset management, you can download our white paper titled Busting Seven Risk and Return Myths by visiting our website at DynamicWG.com, or email us at info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor, if so desired.
Until next time, take care, everyone, and make smart, logical, and fact-based financial decisions.
Disclaimer:
Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities. No part of this should be taken as investment advice. Consult your financial advisor for specific investment recommendations tailored to your specific situation.
Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.
Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.
Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.
< Commentary
Financial Planning Update: Planning for Rising Health Care Costs
Health care costs continue to rise, making them one of the most significant risks to retirement planning today. As Americans live longer and medical technology advances, many retirees face unpredictable and growing medical expenses. In this update, we explore strategies like using an HSA (Health Savings Account), understanding the triple tax benefit, and building a diversified investment strategy to stay ahead of healthcare inflation. A solid financial planning approach can help protect retirement savings while offering peace of mind about long-term care needs.
Planning for Rising Health Care Costs
Hi. This is Brad Barrie, Chief Investment Officer and portfolio manager with Dynamic Wealth Group.
Welcome to this financial planning topic review. Over the next few minutes, we’ll discuss the rising cost of health care and some of the strategies that can help. According to research by Fidelity, a 65-year-old retiring today can expect to spend around $165,000 on health care through retirement, and it could be much more if long-term health care is needed. As Americans live longer and health care inflation outpaces general inflation, preparing for these expenses becomes an essential component of any comprehensive financial plan. Also, having a smoother return experience helps in managing those unexpected health care expenses, as does having a solid, well-thought-out financial plan.
Now, in the past, I’ve discussed how having a multi-dimensional asset allocation means planning for a range of outcomes for your investment portfolio. Now financial planning should be the same way. You want to plan for all roses but be prepared for when the weeds start to come up. Diversification should mean targeting to have something in your portfolio that is always doing well. That way, when that unexpected event occurs, you have something to tap into, instead of having to sell something at a loss, and hence locking in that loss.
Healthcare Inflation and Spending Trends
First, this chart shows how much health care spending has increased. Health care spending in the United States reached an unprecedented $4.9 trillion in 2023, nearly 18% of our nation’s Gross Domestic Product, GDP. To put this in perspective, health care consumed just 5% of GDP back in 1962. Multiple factors are driving this trend: our aging population, rising chronic conditions, advances in medical technology, and persistent health care inflation. Without adequate planning, health care expenses can rapidly deplete retirement savings. One powerful financial planning tool that is available to Americans with qualifying High-Deductible Health Plans are HSAs, or Health Savings Accounts. HSAs stand out for their triple tax benefit structure. First, contributions are tax deductible and reduce your taxable income. Second, any growth of investments within the account is tax deferred. And third, withdrawals for qualified medical expenses are tax free as well.
HSA Strategy and Long-Term Savings
Next, this chart highlights longer life expectancies, which make planning for healthcare costs in retirement more important than ever. We’ve touched on some of the benefits of HSAs. Now let’s talk about a powerful strategy you can use to grow your HSA as a specialized retirement account specifically for healthcare expenses. This approach is straightforward but impactful. First, maximize your annual HSA contributions to capture immediate tax deductions. For 2025, families can contribute up to $8,550. Second, invest these funds for longer-term growth, a critical step many accountholders miss. Third, when financially feasible, pay current medical expenses out of pocket, thus allowing your HSA investments to grow tax free.
Finally, keep receipts for qualified out-of-pocket expenses, as these can be reimbursed from your HSA at any point in the future. This is a key point that many may not even realize. You see, you don’t need to have the qualified medical expenses in the year of distribution alone. If the qualified medical expense happened in the past, when you had the HSA, and you keep records, then you can take out of your HSA in the future at any time up to that amount. This can really help to compound your HSA and thus tax-free retirement savings.
Estate Planning and Healthcare in Later Life
Finally, this chart shows how healthcare expenses increase dramatically as we age, and that increase has only grown in recent years. Unlike other retirement accounts, HSAs have no required minimum distributions in your lifetime, meaning that you can save and grow your investment for when you need it most. Additionally, after age 65, HSAs become even more flexible. The penalty for non-health care withdrawals disappears, though ordinary income tax would still apply for non-health care expenses.
HSAs can also play a strategic role in estate planning. If your spouse is named as your beneficiary, they inherit your HSA with all the tax advantages intact. However, non-spouse beneficiaries, the treatment is much less favorable and could create significant tax burden, as they would be required to take it as a taxable distribution and cannot continue the inherited HSA.
We Are Here To Help
I hope you found these, these high-level insights helpful. If you are a financial advisor and would like more information on the solutions we provide, including multi-dimensional asset allocation, please download our white paper titled Busting Seven Risk and Return Myths, or click on the link below, or visit our website at dynamicwg.com, or simply email us at info@dynamicwg.com.
If you are a financial advisor and would like more information on our multi-dimensional approach towards asset management, you can download our white paper titled Busting Seven Risk and Return Myths by visiting our website at DynamicWG.com, or email us at info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor, if so desired.
Until next time, take care, everyone, and make smart, logical, and fact-based financial decisions.
Disclaimer: