A healthy mindset can help you prepare for retirement

If you knew there was something that you could do to would improve your quality of life in retirement, would you take that step? And, no it's not the obvious --- "start early, save more" advice. Instead, encourage yourself to have an "I want to be financially healthy" mindset. Having a healthy mindset can have a dramatic impact on both your quality of life and your financial freedom in retirement.

Starting with a diagnosis

Begin by asking yourself, how am I feeling? Asking yourself how you feel about your current financial situation and future plans will allow you to reflect on your goals and to begin constructing a plan to get you to where you want to be. But it's not just about the financials, first consider how you can improve your quality of life in the short term and have more time in retirement. Secondly, consider your physical health. Going into retirement healthy, will allow you to do more and supports point number three, which is ---- you can avoid some of the healthcare costs that come with aging. While it's up to you to determine how or if you want to live a healthy lifestyle, you may want to think about how healthcare costs may impact your retirement plan.

The good news is that there is a specific savings vehicle to help you pay for your healthcare costs now and/or in your retirement years.

Health Savings Accounts (HSAs) are the most tax advantaged account available in the marketplace because they are what's called triple tax advantaged:

  • All contributions are pretax
  • Any account earnings grow tax-free; and
  • Any distributions are tax-free as long as they go towards qualified medical expenses

Therefore, an HSA can be a very tax-efficient investing tool, if used properly. However, it is important to remember that you are eligible to contribute to an HSA only if you are enrolled in a high deductible health plan (HDHP) through your employer. In addition, like your 403(b) or 401(k), your HSA is yours to keep even if you change jobs and any unused balance rolls over to the following year.

Let your HSA grow

Medicare is limited in what it covers and even for the services it does cover, you generally have to pay your deductible, coinsurance, and co-payments. And since no one knows how long they will they will live or any health conditions they may develop ------- those costs may be significant over the course of your retirement. To help mitigate this unknown, if you can afford to pay for your current healthcare expenses out of pocket; consider not withdrawing any funds from your HSA and saving the balance for retirement.

Contribute the maximum amount you can afford to both your retirement plan (especially if there is an employer match) and health savings account to increase your overall total account savings values and your overall tax savings. Plus both accounts are generally pre-tax and earnings grow tax-free1. Then, if your HSA provides an investment menu, invest your HSA balance, just as you can with a retirement account. Upon retirement you will have access to a tax-free source of funds to pay for your healthcare expense in retirement from your HSA. As an aside, you can use your HSA to pay for Medicare premiums and out-of-pocket expenses including deductibles, co-pays coinsurance and some long-term care expenses.You can also withdraw from your HSA at age 65 for any reason and just pay ordinary income tax.

One final prescription

Getting healthy now, physically and financially, during your working years, can enhance your lifestyle immediately and create great benefits for your life in the long-term. Healthier individuals can experience lower healthcare costs which means more to spend on what matters most to you and you'll be in better shape to pursue your goals. While fitting into your favorite swimsuit may not be enough motivation, start looking at your decisions as an investment into living the life you want.

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1Applicable to Traditional accounts, Roth accounts follow different regulations.

This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor's own objectives and circumstances.

This material is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular type of health coverage or account type. It does not take into account the specific health status, investment objectives, tax and financial condition or particular needs of any specific person. Federal, state, and local tax treatment of HSAs and distributions may vary. HSA account holders should discuss their specific situation with their legal, tax or financial professional. Distributions for qualified medical expenses are tax-free.  State and local tax treatment of health savings accounts and distributions may vary. Health savings account holders should discuss their specific situation with their legal, tax or financial professional.

HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free. Please consult a tax advisor regarding your state’s specific rules.

Investing may not be suitable for everyone and before making any investments, you should carefully consider the investment objectives, risks, charges and expenses of any mutual fund before investing. A prospectus and, if available, a summary prospectus containing this and other important information can be obtained by visiting the fund sponsor’s website. Please read the prospectus carefully before investing.

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The TIAA group of companies does not provide legal or tax advice. Please consult your legal or tax advisor.