A Smarter Way to Cover Healthcare Costs and Leave a Legacy
Planning a financially secure retirement while preserving your assets for your heirs or charitable causes requires proactive strategies—especially when it comes to healthcare. Rising medical and long-term care costs can quickly erode savings. Fortunately, two powerful tools—Health Savings Accounts (HSAs) and Long-Term Care Insurance (LTCI)—offer a tax-efficient strategy to manage these costs and safeguard your legacy.
The Rising Cost of Healthcare and Long-Term Care in Retirement
A 2024 Fidelity study estimates a 65-year-old couple retiring in 2025 will need approximately $315,000 for healthcare costs throughout retirement—excluding long-term care. Long-term care (LTC) expenses can add even more. According to the 2024 Genworth Cost of Care Survey, a private nursing home room costs $116,800 annually, and in-home care averages $68,640 for 40 hours per week.
This level of expense puts your retirement income and legacy at risk. Combining HSAs and LTCI can help you fund both routine and catastrophic healthcare needs while keeping other assets intact.
Health Savings Accounts: A Triple Tax Advantage
HSAs are available to individuals enrolled in a high-deductible health plan (HDHP) and provide significant tax benefits:
- Contributions are tax-deductible (limits for 2025: $4,300 individual / $8,550 family, plus $1,000 catch-up for 55+)
- Investment growth is tax-free
- Withdrawals are tax-free when used for qualified medical expenses
HSA funds can be used for:
- Medical, dental, and vision care
- Medicare Part B, Part D, and Medicare Advantage premiums
- Transportation for medical care
- Long-term care services
- LTCI premiums (up to annual age-based IRS limits)
After age 65, HSA withdrawals for non-medical expenses are taxed as income, similar to an IRA, but without penalty.
HSAs and Legacy Planning
Funding an HSA early allows you to grow a dedicated healthcare fund and preserve your traditional retirement accounts. For instance, someone contributing $4,300 annually at a 5% return could have over $200,000 saved by age 65. Using HSA funds for healthcare reduces the need to tap IRAs or 401(k)s—leaving more for your beneficiaries.
Long-Term Care Insurance: Protection Against Major Expenses
LTCI helps pay for services not covered by Medicare, including nursing homes, assisted living, and in-home care. Premiums depend on age, health, and benefit levels. For example, a typical 55-year-old can expect to pay $2,000–$4,000 annually.
The IRS allows partial deductions of LTCI premiums based on age:
- 40 or under: $470
- 41–50: $880
- 51–60: $1,760
- 61–70: $4,710
- 71+: $5,640
Importantly, HSA funds can be used to pay these premiums—tax-free.
How the HSA + LTCI Strategy Works 1. Pay LTCI Premiums from Your HSA:
For a couple age 65, up to $9,420 in LTCI premiums (combined) can be paid from their HSA tax-free in 2025, preserving other savings.
- Cover Ongoing Medical Costs with HSA Funds: Use HSA dollars to cover Medicare premiums and out-of-pocket costs, which can exceed $315,000 per couple in retirement.
- Protect Against Major LTC Events: LTCI kicks in for larger expenses like nursing home care, while HSA funds fill in smaller gaps.
- Maximize Legacy Potential: By covering healthcare and LTC costs without dipping into IRAs or brokerage accounts, you preserve those assets for your heirs.
Example: A Legacy-First Couple
A couple in their 50s contributes $9,550 annually to an HSA and pays $6,000 in LTCI premiums. Over 10 years:
- HSA grows to ~$126,000
- LTCI covers $328,500 per person in care costs
- HSA funds cover ~$50,000 in out-of-pocket expenses
Without this strategy, healthcare and LTC might require $422,000 in IRA withdrawals, potentially triggering $148,000 in taxes. The couple keeps nearly $500,000 more in assets by using HSAs and LTCI.
Why Start Early?
- Early HSA contributions benefit from compound growth
- Lower LTCI premiums when purchased younger
- HSA tax savings reduce current taxable income
- Assets in 401(k)/IRA stay untouched longer
Steps to Get Started
- Enroll in an HSA-qualified HDHP
- Max out HSA contributions annually
- Invest HSA funds for long-term growth
- Research LTCI policies in your 50s
- Align your healthcare and estate planning strategies
Risks and Considerations
- HDHPs come with higher deductibles
- LTCI premiums may increase
- HSA contribution limits require early and consistent saving
- Tax laws may change
A Dual Strategy for Long-Term Security
Pairing HSAs with long-term care insurance is a powerful way to manage retirement healthcare costs and protect your legacy. HSAs offer unmatched tax efficiency for routine and expected expenses, while LTCI defends against large, unpredictable care needs. Together, they support a more secure retirement and leave more for what matters most—your family, your values, your future.
For more information, visit IRS.gov or speak with a financial advisor to tailor this strategy to your personal goals.
Ready to protect your retirement and leave a legacy?
Contact Retirement Care Plans today for a free consultation and discover how HSAs and LTCI can work together to secure your future.