Health care in retirement: What’s your plan?

Health care remains one of the biggest expenses you’ll need to plan for in retirement. With inflating health care costs, increased expenses as you age and the unpredictable nature of health itself, the only certainty in saving for retirement is that it’s a good idea to start now. And your Health Savings Account (HSA) could be an important part of that plan.

Many people use their HSA like a Flexible Spending Account (FSA) and spend most of what they contribute each year, but this misses an important benefit of an HSA—one that may be the key to your future health care security. What’s different about an HSA is that your account balance rolls over from year to year and can be invested to help you build your account for the future.

Make your HSA a part of your retirement strategy

An HSA offers flexibility to align with your individual needs and goals, whether you want to start out with small incremental increases to your account, or begin investing a portion of your HSA savings for long-term growth potential. Let’s take a look at an example of how one couple is making an HSA part of their retirement planning.

Nora and Joe: Maximizing their benefits to plan for retirement

Nora and Joe use both their 401(K) and HSA to plan for retirement. Once they retire, they are planning to take tax-free withdrawals from their HSA to pay for qualified health care expenses so they can preserve their 401(k) savings for other retirement expenses. To help build their health account for retirement, they contribute a total of $7,200 to their HSA each year, and spend only half of what they contribute. They decide to invest the remaining $3,600 balance for potential to grow their savings. Check out how they are maximizing their HSA’s potential versus if they left their HSA in cash only.

Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. Scenario assumes 5% rate of return on investments and 0.03% interest rate for cash account and $3,600 in annual deposits for 20 years.

Bar chart shows comparison of HSA dollars in cash and investments. Assuming a .03% interest rate, a cash balance of $3,600 could be $72,217 after 20 years. Assuming a 5% rate of return, investing $3,600 could potentially grow to $122,237 over 20 years.

What’s your plan?

Whether you are just starting out, or approaching retirement, investing your HSA can help maximize your HSA benefits to prepare for the future. The more proactive you are now in your health care savings goals, the better off you’ll be when retirement comes. Take the next step by setting up automatic investing today.