HSA savings calculator
See how your savings can add up to help pay for medical needs now and in the future.
Who will pay for your health care expenses in retirement? This is a good question, whether retirement is just around the corner or even if it is still far off in the future. Maybe your answer is “Medicare will pay for it.” And that’s partly true, with emphasis on “partly.” Medicare, the nation’s federal health insurance program for people over the age of 65, pays benefits if you are eligible for Social Security. If you’ve noticed the term “FICA” on your pay stub –that stands for Federal Insurance Contributions Act– you’ve been paying into Medicare.
But here’s the rub: Medicare covers some medical expenses, but not everything. And it isn’t free – you pay Medicare premiums in retirement, and these premiums can increase as the years go by, as can your out-of-pocket expenses. That’s why you need to be thinking about having a plan to cover your health care costs beyond Medicare.
"Medicare covers a lot less than people usually think," says Heather Evans, a financial advisor with Merrill. "It can be a huge surprise cost—and your quality of life is going to depend on what you can afford." The experts at Employee Benefits Research Institute (EBRI) agree. A recent EBRI study noted that “Medicare generally covers only about 62% of the cost of health-care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 12% of incurred costs, and private insurance covered 14%."1
So given this, how much will you need to plan on having? According to EBRI, a 65-year-old man would need $131,000, and a 65-year-old woman would need $147,000 to have a 90% chance of having enough savings to cover their health-care expenses in retirement. And a couple with median prescription drug expenses would need $301,000 to have a 90% chance of having enough savings.2 Of course, your needs will depend on a variety of factors, such as your age when you retire, your overall health and your access to quality care.
Estimate your needs A couple would need $301,000 to have a 90% chance of having enough savings to cover health care cost in retirement,according to EBRI2.
It’s certainly easy to get intimidated by these numbers. But don’t throw in the towel just yet. The good news is that there are tools and strategies available to help you prepare. “There are many opportunities to take proactive steps to become educated and financially prepared for potential health-care expenses down the road,” says Cyndi Hutchins, Director of Financial Gerontology at Merrill.Consider these proactive steps:
You may be wondering, shouldn’t I just save more in other traditional retirement vehicles, such as a workplace retirement plan? The answer is yes; you should always save as much as you can for retirement in a tax-advantaged vehicle. But when it comes to covering health care expenses in retirement, the HSA is a particularly good fit:
The HSA is designed for this when it comes to covering health care expenses in retirement,the HSA is a particularly good fit
Even if you feel you can’t save a lot in your HSA now, a little can go a long way, especially when you factor in the tax benefits.
Funding health care in retirement is a complex subject, and it’s worth seeking help as you consider your options. Learn as much as you can by reading more articles on this site, and consider talking to a financial advisor. An advisor is specially trained to help you develop a plan to cover all your needs in retirement, including health care expenses.
Tip : You can use your HSA to pay all types of medicare plans,but cannot use it to pay for Medigap supplemental policies.
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Any interest or earnings on the assets in the account are tax free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. Bank of America recommend you contact qualified tax or legal counsel before establishing an HSA.
1Employee Benefit Research Institute, December 2017, Vol. 38, No.10
2Sources: 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.
Bank of America makes available The HSA for Life® Health Savings Account as a custodian only. The HSA for Life is intended to qualify as a Health Savings Account as set forth in Internal Revenue Code Section 223. However, the account beneficiary that establishes the HSA is solely responsible for ensuring that he/she satisfies the Health Savings Account eligibility requirements set forth in Section 223. If an individual/employee establishes a Health Savings Account and he/she is not otherwise eligible, he/she will be subject to adverse tax consequences. In addition, an employer who makes contributions to an HSA of an ineligible individual may also be subject to adverse tax consequences. We recommend that HSA applicants and/or employers contact qualified tax or legal counsel before establishing a Health Savings Account.
Bank of America does not sponsor or maintain the Flexible Spending Accounts or Health Reimbursement Arrangements that you establish. Those programs are sponsored and maintained solely by the employer. Bank of America is nothing more than a claims administrator who performs ministerial administrative tasks with respect to such arrangements pursuant to agreement with the employer. The employer is solely responsible for ensuring that such arrangements comply with all applicable laws.
The planning tools and information calculators are illustrative only, and accuracy is not guaranteed. They are intended to provide a comparative tool for various consumer health care options and potential costs and savings of those options. Bank of America and its affiliates are not tax or legal advisors. The calculators are not intended to offer any tax, legal or financial advice and do not assure the availability of or your eligibility for any specific product offered by Bank of America or its affiliates. Please consult with qualified professionals to discuss your situation. This site may contain links to third-party content, which may be articles, videos, or calculators, regarding health plans only as a convenience. Some articles, videos and calculators may have been written and produced by third parties not affiliated with Bank of America or any of its affiliates.
Neither Bank of America nor any of its affiliates provide legal, tax, accounting or benefits consulting advice. Please consult with your own attorney or tax advisor to understand the tax and legal consequences of your HSA, Health FSA and/or HRA plan or program offerings to your employees and your particular situation in your capacity as employer and/or plan administrator. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice.
If you have questions regarding your particular health care situation, please contact your health care, legal or tax advisor.
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Mutual Fund investment offerings for the Bank of America HSA are made available by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”). Investments in mutual funds are held in an omnibus account at MLPF&S in the name of Bank of America, N.A. (“BANA”), for the benefit of all HSA account owners. Recommendations as to HSA investment menu options are provided to BANA by the Chief Investment Office (“CIO”), Global Wealth & Investment Management (“GWIM”), a division of BofA Corp. The CIO, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.
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