Episode 31: HSAs: The Holy Grail of Retirement Savings Accounts

In this episode, Brett shares a powerful retirement savings tool that can help you prepare for rising healthcare costs in retirement: HSAs.

Today I’m going to talk about how much healthcare will cost in retirement. The average retired couple aged 65, in 2021, will end up spending about $285,000 in medical expenses during retirement. If you’re single, that’s going to be about $150,000 if you’re a female and $135,000 over your lifetime if you are a male. Either way you slice it, that pie is going to be expensive.

So today, I’m going to talk about how you can pay for those healthcare costs in retirement now—before you retire. And you can do that through the holy grail of retirement savings accounts, the health savings account. If you have a high deductible medical insurance plan through your work, you can save up to $7,300 as a family and $3,650 as an individual into a health savings account (HSA). And if you’re over the age of 50, you can throw in another $1,000 on top of either of those amounts in 2022.

I find that many people who have access to an HSA through their work just view it as the savings account that exists to help them pay for doctor visits and medical bills now. Or there seems to still be this misconception that it’s like a use it or lose it type of account. But it’s not.

I want you instead to think about the health savings account as a tool that will help you pay for healthcare costs long after you are retired. And the reason is, you can invest your monies into the stock market to grow over time. They do not have to sit in cash. And you also do not have to spend the money.

And actually, if you’re close to retirement and you’re saving into an HSA, it’s probably better in a lot of cases to let the money grow instead of spending it on this year’s medical expenses. You’d want to pay for those expenses out of pocket instead. And so, the beauty of the HSA and why we consider it the holy grail of retirement savings accounts is that it offers triple tax benefits that no other retirement account can match.

HSAs: A Powerful Retirement Savings Tool

First, you have tax deductible contributions on the money you put into it. Second, those monies will grow, so you have tax-free growth. And third, on the way out when you take those withdrawals to pay for your healthcare costs, those are tax-free as well.

Instead, I want you to think about an HSA as this vehicle that allows you to put money aside, invest it, and let it grow over time. Then, you can pay for doctor’s visits, prescriptions, all kinds of healthcare costs 20 years down the road when you’re retired.

I also want you to think about it as a long-term investment vehicle. And if you try to maximize the amount that you can put into an HSA each and every year, and then let it grow over time, the benefit later on in retirement from that growth and those tax-free withdrawals will be huge.

Because every dollar that goes into your HSA and grows over time is one less dollar that you have to spend on healthcare costs when you’re retired. And, as you can realize, those costs are growing up and up over time.