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The role of health savings accounts in retirement

It is anticipated that almost four million Americans will retire in the next 15 years forcing many to face the question, “Am I ready for retirement?” As this growing number of Americans start to consider the next chapter in their lives, they are discovering a gap in their retirement plan—how to pay for medical expenses during retirement.






Employee Benefits Research Institute estimates that the average retired 65-year-old couple will need a combined savings of $370,000 simply to cover their medical expenses during retirement. According to Vanguard, the average American has about $100,000 in their retirement savings—creating a retirement income gap. Millions of Americans are facing retirement unprepared for their financial future.

Using HSAs for Retirement Expenses

A medical plan can also serve as a long-term savings plan if it’s a qualified high-deductible health plan (HDHP) paired with a Health Savings Account (HSA). Over the past decade, HDHPs paired with an HSA have steadily grown the number of people who are enjoying the advantages of a tax-free way to pay for today’s health care expenses. But, only a small number of people are benefiting from the real power of HSAs—funding future health care needs in retirement.

While HSAs are a great way to pay for current health care expenses, they have a lot more to offer. HSAs create opportunities for people to invest in their financial future by allowing them to take control of their health care spending and retirement planning. They are playing a key role in reducing the retirement income gap.

HSAs as an Investment Vehicle1

HSAs also 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.

Some employers also make a lump sum contribution to an HSA either when it’s opened or on an annual or semi-annual basis. If this is the case, HSAs become an even more attractive savings option.

Triple Tax Advantage2

While HSAs were not originally intended to be a tax-management vehicle, tax savings is one of the HSA’s most notable features. Health savings accounts offer a triple tax advantage2:

  • 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

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

Many people still view HSAs as spending vehicles, but financial and investment advisors are taking notice of their tax saving advantages. Due to the way HSAs complement other retirement vehicles, many consider them an important aspect of creating financial security for the future.

Who is investing?  

HSA assets are starting to add up. By year end 2018, HSA total assets were projected to hit over $54 billion with account growth up 11.2 percent from a year ago. Despite all of the advantages of HSAs, only a small fraction of people are investing their balances.

Each year UMB conducts a segmentation analysis to understand how 1 million UMB HSA accountholders are interacting with their HSAs. They are categorized into spenders, savers or investors. Currently, only four percent of the overall HSA market, and less than two percent of UMB accountholders, are investing any part of their balance. Savers (those whose distributions are less than 30 percent of their contributions) make up the largest part of UMB’s accountholders.

Creating a plan to invest

Planning is the most important aspect of a successful transition into retirement. One way to establish a sound financial plan for retirement is to work with a financial advisor. Working with a financial advisor can help ensure that all aspects of retirement, including the rising cost of health care, is being considered from all angles, making the transition into retirement successful. 

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1Investments in securities through HSA investment account are:
Not FDIC Insured • May Lose Value • No Bank Guarantee

2All 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 and this document is not intended as tax or legal advice.

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When you click links marked with the “‡” symbol, you will leave UMB’s Web site and go to Web sites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other Web sites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.