Step 11: Use an HSA to Self-Insure for Long-Term Care
Phase 3: Build a Legacy · Step 11 of 12
Protect your retirement from a long illness.
In short
A Health Savings Account (HSA) lets you save before tax, grow tax-free and spend tax-free on medical costs. Fund it, invest it and leave it alone, so it can pay for long-term care late in life without draining your retirement accounts.
Why this comes now
An HSA requires a high-deductible health plan, which is only safe once you have a full emergency fund and no consumer debt. And the risk is real: nearly half of people who turn 65 will need long-term care at some point.
How to do it
- At open enrollment, check whether a high-deductible plan with an HSA makes sense for your family.
- Contribute up to the yearly limit if your budget allows, through payroll if you can.
- Invest the balance in low-cost index funds instead of leaving it in cash.
- Pay everyday medical bills from your budget when you can, and let the HSA grow.
- Treat it as long-term care money. After 65 it can also be used much like a traditional retirement account.
Example Family: Alex and Jordan
With their emergency fund full and consumer debt gone, they switch to a high-deductible plan and open HSAs. In the book's example, someone who contributes about the yearly limit from age 50 to 64, growing about 8% a year, has roughly $150,000 at 65 and about $250,000 by 71: two to three years of care.
Examples are hypothetical.
You're done when
You have an invested HSA that you add to every year and leave alone for routine costs.
Your next step
For education only. Not individual financial, tax or legal advice. Talk to a tax pro or attorney about your situation.