Looking for Ways to Save on Healthcare in Retirement?

6 Reasons Gen X & Baby Boomers Should Consider an HSA
Jenifer Dorsey
2018-09-12 November 9th, 2016 |
Read time: 11 minutes

As consumers scramble to determine what direction Obamacare will take after the election of Donald Trump, one thing is evident, health savings accounts (HSAs) will play a prominent role in healthcare reform. To help provide information on HSAs, we are republishing a previously posted article from December 23, 2015. Numbers have been updated for 2017.

You’ve been busy raising your children and saving for their college education. Now it’s time to start focusing on your retirement savings. Saving for retirement sounds good, in theory, but if you’re like 74 percent of Americans recently surveyed, you might find it difficult to actually set aside money for the future while paying bills in the present.1

One way to maximize retirement savings is through investments. However, 39 percent of respondents to an annual investment survey said they wanted to have “cash saved as a security blanket reserve for unforeseen events” before they could think about investing.2

There’s one retirement savings tool consumers can take advantage of that can offer a way to both save for retirement and have funds accessible for unforeseen events: a health savings account.

Enrolling in an HSA-eligible high deductible health insurance plan and pairing it with a health savings account allows consumers to set aside pre-tax funds that can be used for healthcare expenses now or in the future. These funds gain interest and can even be invested.

“It’s worth considering for healthy Gen Xers and baby boomers who can enroll in high deductible bronze or silver plans,” says Dave Keller, Chief Sales and Marketing Officer for IHC Specialty Benefits. “HSAs are a way to save for healthcare expenses in retirement.”

Keller notes that HSA adoption is at its highest level ever. In 2015, enrollment in HSA-eligible high deductible health plans increased 13 percent from 2014.3 He speculates that as high deductible health insurance plans increase in popularity, more and more consumers are realizing the potential healthcare savings and tax advantages offered by HSAs.

People at all stages of adulthood can benefit from opening and using an HSA. However, those planning their retirement will find it especially advantageous for the following reasons:

1. HSAs can be a smart way to set aside money for healthcare costs in retirement.

When people enter retirement, other expenses tend to decrease, but healthcare spending consistently fails to decline.4 The average annual out-of-pocket healthcare costs for households between 65 and 74 years old is $4,838—11 percent of total household spending.

The money you save in an HSA can be used to pay for qualified medical expenses—now or in the future. Visit IRS.gov for a current list of qualified medical expenses.

2. An HSA has tax advantages that can help lower your overall healthcare costs.

Because HSA funds are not taxed, you can use an HSA to help lower what you spend on healthcare now or in the future.

  • You can deposit pre-tax dollars through payroll deductions—or, if you place money in your account after being taxed on it, you can deduct contributions at tax time.
  • The interest your HSA funds earn is tax-free.
  • The withdrawals you make for qualified medical expenses are tax-free.

Note that if you withdraw funds for non-medical expenses prior to age 65, you will be taxed and also incur a 20 percent penalty. Once you turn 65, you will still be taxed on funds used for non-medical expenses but will not incur the penalty.

3. The money you save in an HSA earns interest.

Your HSA funds roll over from year to year, and these funds also earn interest, which is compounded. If you do not withdraw money for qualified medical expenses, your account will continue to grow and remain available for when you do need it to pay for healthcare.

4. Your HSA is portable.

That means it is yours to keep, regardless of if you retire and go on Medicare or if you change health insurance plans—even to a plan that is not HSA-compatible. You will be able to continue using your HSA funds and they will continue to accrue interest.

However, it is important to keep in mind that once you cease to have an HSA-compatible health insurance plan, you will not be able to deposit additional funds.

5. You can invest your HSA funds.

When your HSA reaches a certain balance, you may have the option to invest your funds for higher returns. You can discuss this possibility with a financial adviser, or a tax or legal professional.

6. There is no minimum contribution amount for an HSA.

You can deposit funds into your HSA at whatever amount and intervals you prefer. There is no minimum. However, there is an annual contribution limit, which changes each year.

For 2017, the annual maximum contribution limit for health savings accounts is5:

  • $3,400 for an individual
  • $6,750 for a family

Considering an HSA? Make sure to enroll in an HSA-compatible health insurance plan.

If you want to open a health savings account or continue to deposit funds in an existing HSA, be sure to look for HSA-compatible health insurance plans when shopping for Obamacare health insurance. These are high deductible health insurance plans that must meet a minimum deductible amount set by the IRS and the plan description will specify that the plan is eligible for an HSA.

For 2017, the IRS considers high deductible health plans to be those with a minimum deductible of $1,300 for individuals and $2,600 for families.6 HSA-compatible, high deductible health insurance plans are available on and away from the state-based and federally facilitated health insurance exchanges. If you are not sure whether the plan you are considering is HSA compatible, contact the health insurance company to verify prior to enrollment.

To learn more about health savings accounts, read our FAQ. For additional guidance and information about HSAs, consult a health insurance producer or a financial adviser.

If you need assistance selecting an HSA-compatible health insurance plan, you can call the number at the top of your screen to speak with a producer. You can also find a local agent using Agent Finder.


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Originally Published On November 9th, 2016