If you’re worried about how you’ll pay for healthcare as you age, you’re not alone. Research from Fidelity shows that the average 65-year-old needs $165,000 in after-tax savings to cover healthcare costs in retirement. This can come from individual retirement accounts (IRAs), investments, health savings accounts (HSAs), and more.

Unfortunately, many Americans will not reach that amount. An AARP survey found that 20% of Americans over 50 have no retirement savings at all.

Understand your medical costs

The rising cost of healthcare is a major concern for many Americans. According to a Nationwide survey, two-thirds of adults fear that healthcare costs could jeopardize their retirement savings.

This is understandable. Many people do not have the retirement savings they want and the thought of not being able to afford necessary medical care is frightening.

As you plan your retirement expenses, you should realize that health care will eat up a significant portion of your funds. Medicare can help, but it has limits—you’ll still have to pay your premiums, copays, and deductibles. And it doesn’t cover dental, hearing, and vision care.

Merrill estimates that Medicare covers about two-thirds of your medical costs. It’s important to understand how Medicare works, what’s covered, and what you’ll pay for. Learn about the pros and cons of Medicare Advantage and Medigap. Both offer additional insurance coverage, but in different ways.

In most cases, people are covered by the government’s health insurance program starting at age 65. If you plan to retire earlier, consider how you will manage your health insurance in the meantime.

For example, if your partner is still working, you may be able to join his or her plan. In some cases, you may also be able to stay on your employer’s health insurance plan for 18 months after you leave work.

How to build your health fund

When planning for retirement, you can take certain steps to save for healthcare costs. But for the most part, saving for retirement and healthcare go hand in hand, so it’s important to save as much as possible and make the most of tax-advantaged accounts and other benefits.

Here are three accounts to watch out for.

1. HSA

Health savings accounts can be an effective way to set aside money specifically for medical expenses. If you have a high-deductible health plan and are not yet enrolled in Medicare, they offer an extremely tax-efficient way to save.

You can make tax-free contributions, meaning your contributions can lower your tax bill today. You can then invest that money through your HSA and let it grow tax-free. Finally, you can withdraw the money tax-free—as long as you use it for healthcare purposes. That’s an incredible combination of tax benefits.

The maximum amount an individual can contribute to their HSA in 2024 is $4,150. Individuals over 50 can make additional contributions of an additional $1,000.

To give you a very simplified scenario, let’s say you’re 40 and you contribute $300 a month ($3,600 a year) into your HSA. You invest that in, say, an S&P 500 index fund and you can earn an 8% return per year. By the time you’re 65, you could have over $260,000 in your HSA. And you’ll also lower your tax burden a little bit each year.

2. IRA

IRAs are retirement accounts that come with tax advantages, but not as many as an HSA. If you choose a traditional IRA, you can reduce your tax burden today, but you’ll pay taxes on the withdrawals you make in retirement. A Roth IRA works the exact opposite. You pay taxes on the money you put in today, but you can withdraw it tax-free once you retire.

There is an IRA for everyone, and most top brokers offer a mix of IRA accounts. If you are self-employed or own a small business, consider whether a SEP or SIMPLE IRA would make sense for you.

3. 401(k) plans

401(k)s are workplace retirement plans, which means they aren’t an option for everyone. The Pensions Rights Center says about 45% of Americans participate in a workplace retirement plan like a 401(k).

If your employer offers such a plan, ask if they will match a portion of your contributions. 401(k) plans come with tax advantages, but employer matching is even more powerful because the extra money goes directly into your retirement fund.

Last thought

The financial side of healthcare is important. If you can build up enough savings, you can sleep easier knowing that you can pay for most medical problems that may arise. It also means you may be able to afford additional insurance, such as long-term care insurance.

Another way to reduce health pressure is to keep yourself healthy today. This includes eating a varied diet low in saturated fat, exercising regularly, and avoiding excessive alcohol consumption. If you’re struggling financially to meet your retirement goals, a healthy lifestyle can at least reduce your health risks later in life.