Despite the recent increase in discussion around the need to save wisely for retirement, many Americans underestimate the healthcare costs they will face when they retire. In a study conducted by HSA Bank, 67% of consumers believe they will need less than $100,000 for healthcare expenses in retirement, and 82% believe they will need less than $200,000.[1] According to Health View Services, a healthy 65-year-old couple retiring today can expect to pay over $360,000 in healthcare expenses alone during retirement when including supplemental insurance, Medicare Parts B and D, copays, deductibles, and all other out-of-pocket costs.
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The retirement savings gap is a struggle facing many Americans today, and it poses an intimidating challenge for many employees preparing to retire. Employers can play a significant role in ensuring employees are well prepared for retirement by making smart decisions on the medical and retirement benefits they choose to offer.
What does a successful employee benefit package look like? There are many traditional options to choose from when saving for retirement, including 401(k)s, traditional and Roth IRAs, and more. None of these solutions, however, provide the benefits that Health Savings Accounts (HSAs) do. HSAs can be used to save for current and future health expenses, demonstrating their value as a tool for both physical and financial health today and in retirement. As you create your organization’s health and retirement benefits package, it’s important to consider the role of HSAs for the following key reasons.
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HSAs have a triple tax advantage.[2]
The most important factor to consider when thinking about an HSA for your company’s retirement and benefits package is the triple tax advantage. The HSA is the only account in existence that delivers three separate tax benefits. First, funds can be contributed to an HSA tax-free through payroll deduction. Second, HSA funds grow tax deferred, meaning any interest earned on the account is tax-free. And third, HSA funds can be withdrawn tax-free to pay for IRS-qualified medical expenses. Whether the funds are used for current healthcare expenses or saved for future needs, the combination of these tax advantages makes the HSA a key savings solution for your employees in every stage of their lives.
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HSAs can be invested.
While the triple tax advantage is a well-known perk of the HSA, there are many other reasons to leverage the HSA as a retirement savings tool.
One of the most significant reasons is the fact that HSA funds can be invested—and in a wide variety of ways, too. Your employees can choose to invest their HSA dollars in mutual funds, stocks, and other linked investment options, empowering them to invest in ways that fit their unique long-term retirement strategy. As an employer, you can help your employees by considering HSA plans and administrators that offer strong investment solutions.
Additionally, HSAs are not subject to any Required Minimum Distributions (RMDs). RMDs are the minimum amount you are required to withdraw from your retirement plan account after reaching age 701/2. These regulations apply to some of the traditional retirement accounts—such as IRAs and 401(k)s—but not HSAs.
Check the HR Daily Advisor site tomorrow for the final two items on our list as well as for tips on educating your employees about HSAs this open enrollment season.
Chad Wilkins is the President of the HSA Bank.
[1] Results from a proprietary third-party Omnibus Study conducted by HSA Bank, September 25–29, 2017, surveying 1,200 individuals across the United States.
[2] State taxes may apply to HSA contributions. HSA Bank does not provide tax or legal advice. Please consult with a qualified tax or legal professional if advice is needed regarding your specific situation.