Despite the increase in boomers retiring, according to the 2022 Employee Benefits Research Institute‡ Retirement Confidence survey, 23% of retirees feel not too or not all at confident in their ability to live comfortably in retirement. This lack of confidence comes at a time when the estimated cost of healthcare during retirement is $142,000 for a man, $159,000 for a woman, or $361,000 for a 65-year-old couple. This estimate assumes the retirees will have a 90 percent chance to have enough money to cover premiums and prescription drug expenses in retirement (EBRI‡).

With more boomers entering into retirement at an accelerated rate, the question of how to pay for healthcare expenses during retirement is more prevalent than ever.

Using HSAs for retirement expenses

One way to plan for future healthcare expenses is with a health savings account (HSA), a long-term savings option available when using a qualified high-deductible health plan (HDHP). Over the past decade, HDHPs paired with an HSA have steadily grown with the number of people enjoying the advantages of a tax-free1 way to pay for today’s rising healthcare expenses. But, only a small number of people are benefiting from the real power of HSAs—funding future health care needs in retirement. A 2020 study‡ found that 55% of people with an HSA don’t contribute to them.

An increase in the 2023 contribution limit to funding HSAs can create opportunities for people to invest in their financial future by allowing them to control their healthcare spending and retirement planning. In 2023, an individual with an HDHP can contribute up to $3,650 to their HSA. In addition, for family coverage, the contribution limit has increased to $7,300.

HSAs can play a crucial role in increasing retirees’ confidence to prepare and save for future medical expenses, so they shouldn’t be overlooked when planning for retirement.

HSAs as an investment vehicle

HSAs can be used like traditional retirement savings accounts, as many allow accountholders to invest the money they contribute, like a 401(k) or traditional IRA. Major HSA providers now offer multiple investment options, including money market funds or self-directed accounts for mutual funds.

Unlike other retirement accounts, HSAs have a triple tax advantage:

  • Advantage one: Money goes into the account tax-free
  • Advantage two: Money earns tax-free interest and investment earnings
  • Advantage three: Money comes out tax-free when used for eligible medical expenses

There are no income limits or required distributions when you reach a certain age.

Many people still view HSAs as spending vehicles or still believe that the funds are “use or lose.” Due to the triple tax advantage and opportunity for long-term health savings, if HSA accountholders can pay minor medical expenses out of pocket, it could be beneficial to let the account balance continue to grow for medical costs in the future.

Due to how HSAs complement other retirement vehicles, people can use an HSA to help build confidence and financial security for the future.

Create an HSA investment plan

Planning is the most critical aspect of a successful transition into retirement. One way to establish a sound financial plan for retirement is to work with a financial advisor. They can help ensure confidence in retirement by planning for all aspects, including the rising cost of healthcare. In addition, a financial advisor can examine individual and unique situations from all angles and help make the transition into retirement successful.

Learn more about UMB Healthcare Services, which ranks fifth in total accounts and seventh in total deposit assets among all HSA providers (Source: 2021 Devenir Mid-year HSA Market Statistics & Trends Report‡).

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1All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with each state’s tax laws to determine the tax treatment of HSA contributions or consult your tax adviser. Neither UMB Bank n.a., nor its parent, subsidiaries, or affiliates are engaged in rendering tax or legal advice. Withdrawals for non-qualified expenses are subject to income taxes and a possible additional 20% penalty, if you’re under age 65.

Investments in securities through HSA investment account are: Not FDIC Insured • May Lose Value • No Bank Guarantee