Should I spend or save my HSA?

To spend or to save? It’s the age-old tug of war when it comes to financial matters. And with a health savings account, it’s a particularly important question. An HSA lets you save for out-of-pocket medical expenses or spend as needed. But there are many good reasons consider the "savings" feature of a health savings account. After all, that’s really what it’s designed for.

Consider these reasons for saving:

  • When you use HSA funds for qualified medical expenses, you don’t pay taxes. The money you contribute to your account, any earnings and any withdrawals for qualified expenses -- all are tax-free. These tax advantages can make for compelling reasons to save in your HSA.
  • Think about your health care costs in retirement. These could be anywhere from $144,000 to $163,000 to pay for your health care if you are single, and about $301,000 if you are married.1 The sooner you start saving in your HSA, and emphasizing saving over spending, chance are the more you'll have to cover your medical needs in retirement.
  • Your HSA can be an investment tool. An HSA parked solely in cash to cover short term needs will only keep you focused on the here and now. By putting your HSA dollars to work by investing them, you’ll have a chance to grow your account over the long term. And don’t worry, if you ever need money for current medical expenses, your HSA funds are always accessible
  • You can take it with you. If you change jobs or retire, your HSA moves with you.

How to become an HSA “saver”

Commonly, people think of their health accounts as a spending vehicle. Knowing what you may need for health care costs in retirement, here are some tips to help you transition from a “spender” to a "saver":

  • Think small to go big. Consider paying out of pocket for small health expenses, like prescriptions, yourself. Banking (and investing) those small amounts instead into your HSA can add up to potentially bigger funds over time.
  • Plan for the unexpected. Consider hanging onto your HSA funds to cover bigger/unexpected medical expenses that may occur in the future.
  • Try mail order prescriptions. If you take prescriptions regularly, you could save money by buying them in bulk through the mail versus going to your local pharmacy. Then, you can link your payments to your checking account instead of you HSA, making it part of your monthly budget. That frees up your HSA for bigger expenses.
  • Think prevention. Many people don’t like going to the doctor, but may not realize the advantage of going in for a regular annual checkup. One, preventative care is included in your high deductible health care plan and two, its smart to get ahead of any trouble areas in your overall health BEFORE they occur. Taking preventative measures to manage your health is a smart move.

You get the idea:

The more money you can keep in your account,the better the chance you’ll have that your funds can grow, and don’t forget, compound tax free. And that can mean more money to cover your health care costs in retirement.

Ready to learn more? You may want to read Use your HSA as an investment tool.

1 Sources: Employee Benefits Research Institute, Issue Brief, no. 481, May 16, 2019. A 65-year-old couple, both with median drug expenses needs $301,000 to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement. Savings needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at age 65 in 2019. A 65-year-old man needs $144,000 or a 65-year-old woman would need $163,000 to have a 90% chance of having enough money to cover health care expenses (excluding long-term care) in retirement.