For most people medical expenses will be the biggest expense in retirement. The Employee Benefit Research Institute’s latest estimates some couples may need as much as $350,000 savings to cover health expenses in retirement. That estimate is assuming high prescription drug costs and the couple retires at age 65 in the year 2016.  In 2016, a 65 year old woman would need $93,000 and a 65 year old man would need $72,000 to just have a 50% chance of having enough savings to cover health care expenses! That is an huge number, and unfortunately those costs are only going higher with each passing year.

However, for people still in their working years there is one retirement savings vehicle we highlighted in a previous blog.

Health Savings Accounts are Triple tax-free

Health Savings Accounts (HSA)s are offered to any individual covered by a high deductible health plan (HDHP).

Do you already have an HSA?

According to a 2017 survey by the Employee Benefits Research Institute, just 4% of all health savings accounts were invested in anything other than cash. That means 96% of people who currently have HSAs are missing a great opportunity. It is impossible to leverage the tax-deferred and tax-free benefits if the investments do not have time to grow tax-preferred in the first place.

Is an HSA right for me?

Anyone who plans on one day retiring should consider an HSA. If you are generally in good health and have minimal annual health care costs HSAs are the most powerful retirement savings tool available. The key to maximizing the benefit is to maximize the annual contribution, invest the funds within the plan and pay actual medical expenses out of pocket.

The HSA offers investors a unique opportunity to address one of the largest expenses in retirement in their earning years. This is one of the most overlooked, yet most powerful tools for people in their earning years as they look ahead to retirement. This time of year most employers are doing their annual benefits enrollment, which means now is the time to see if you can access an HSA and start using the best retirement savings tool available!

Pro-tip: If you are already maxing out your 401k and IRA, the HSA offers another way to stash cash for retirement!

Roadmap to Retirement – Webinar

Tuesday, March 16th, 2021 at 12 PM via Zoom

At Pleasant Street Wealth Advisors, we have developed a roadmap to help guide you through the retirement process, helping you design a customized plan that fits your goals.

Navigating Turbulent Markets - Webinar

Learn the 5 questions you should ask yourself to guide your investments through volatile markets.

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