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Should you consider using an HSA as a Retirement Vehicle?

September 19, 2019
Tags: HSA, retirement, tax

What does health care have to do with retirement? Plenty, and there’s an investment vehicle that can help. Health Savings Accounts (HSAs) are an option that most people don’t consider for retirement. As their name implies, these vehicles are designed to help Americans stash away cash for medical expenditures. Most people use them for near-term costs while still employed. But medical bills also accumulate in retirement and the money that builds up in your HSA can be used to meet such costs effectively.

HSAs are designed for people who use high-deductible health insurance plans that increasingly are included in benefits packages offered by employers. They also may be opened through the government health insurance marketplaces or exchanges.

Retirement health estimates

Most people will incur substantial health costs in retirement, for which HSAs can help.

According to a 2017 survey performed by HSA Bank, most people underestimate how much they will need for healthcare expenses in retirement. Approximately two-thirds (67%) of consumers believe they will need less than $100,000 for healthcare expenses, when in reality they could need double that amount.

The Center for Retirement Research at Boston College has estimated that a typical 65-year-old couple would need roughly $197,000 for health care spending in retirement. The Employee Benefit Research Institute itself assumed a 65-year old couple would need $265,000, while Fidelity Investments projected that a couple, also starting at age 65, would need around $280,000. None of those estimates included potential costs for long-term care.

The Vanguard Group, with help from Mercer Health & Benefits, took a different tack, projecting a typical woman could face $200,000 in out of- pocket medical costs starting at age 65 and extending over her remaining estimated lifespan of 24 years. The costs are roughly 2% less for men, partly because they tend not to live as long.

But that report mostly focused on these costs as an annual expense, not as a lump sum, for which the yearly costs would be closer to $5,200 per person. The point wasn’t to minimize the amount of money retirees might need but to portray the challenge in smaller, more manageable chunks.

For more information about how you might leverage the use of HSA as a retirement savings vehicle please click here to view the full white paper.

With offices in Williston and Rutland Vermont, Davis & Hodgdon Associates CPAs has been assisting Vermont’s residents and entrepreneurs for more than 30 years. Our proactive approach make us more than an accounting firm - we counsel our clients on a wide range of financial and management issues, resulting in better decision making and more confidence in their success.