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Your mission: To build a nest egg of $175,000 for healthcare costs in retirement. How are you going to get there? Great question. It’s a big goal! But it’s achievable. We wanted to show you how you can get to that number exclusively by using your health savings account (HSA) as the savings tool it’s intended to be.
A recent study found that the average healthy 65-year-old couple retiring in 2020 “is projected to spend approximately $351,000 in today’s dollars ($535,000 in future dollars) on healthcare” in their lives. If a couple needs about $350,000, then an individual can expect to need half that — $175,000 — in retirement.
HSAs are booming in popularity, with total assets eclipsing $82 billion in 2020. That’s nearly triple from just five years earlier.
Unfortunately, many HSA participants use their HSAs exclusively as short-term savings vehicles. Only 41 percent of HSA participants save money in an HSA to prepare for retirement, while just 6 percent invest their HSA funds. That’s despite HSAs having comparable — or better — retirement-planning perks than 401(k) or IRA, including:
We’ve developed a model to help you see how you can reach your retirement goals with an HSA. The model is based on the following:
As with any retirement planning, the earlier you start, the better. That will become very clear as you progress through these scenarios.
Based on our model, if you wanted to get to $175,000 in your HSA for retirement, you would only need to set aside about $18 per week. That’s well short of an HSA’s contribution limit (in 2021, it was $3,600 per year for individuals). To put it in perspective, $18 per week might be less than what you spend on coffee each week.
Thirty years still leaves you with a lot of time and wiggle room. By contributing just $33 per week to an HSA, you’ll be on the path to $175,000. That’s less than the average American spends on gas, motor oil, and other fuels in an average year.
Even at 20 years until retirement, $175,000 is still achievable within an HSA’s contribution limits. Within our model, you would need to contribute $65 per week to reach $175,000 by retirement. That’s less than the average used car payment, and the return is a lifetime of healthcare coverage after age 65.
The good news is it’s not too late to get to $175,000! It will be a little more challenging to achieve this goal if you’re confined to self-only HSA contributions due to the IRS’ self-only limits. However, you have options:
If you’re an employer and consultant interested in learning more about how HSAs can enhance your employees’ retirement-planning strategy, contact us today!
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