Why an HSA should be part of your employee's retirement savings plan

The COVID-19 pandemic has undoubtedly impacted people’s mindset on health and wellbeing, but it has also been a financial wake-up call that’s prompted many Americans to rethink how they plan for their futures. For employers, this means reconsidering the benefits, especially around retirement preparation, that they offer their employees.

The 2021 HSA Bank Health & Wealth Index found that future financial preparedness for Americans is a serious concern. Ninety-three percent of consumers over 55 years old are worried about current or future medical bills and of those consumers, more than one-third reported they rarely save money for future healthcare expenses. 

This is a real problem for all Americans however, not just older consumers. According to a recent study by HealthView Services, it is estimated that a healthy, average couple age 65 who retired in 2021 will spend $662,156 on retirement healthcare expenses. 

So how can employers help? Recommending a multi-pronged savings approach by offering a variety of benefit options might be the best way to help employees save specifically for retirement.

We’ve found that health savings accounts (HSAs) are a particularly critical component of this kind of approach. Simply stated, HSAs are one of the most powerful tools in retirement preparation toolbox for Americans.

First, HSAs have a triple tax advantage: Contributions are not subject to federal income taxes; earnings from interest and investments are tax-free, and distributions to pay for qualified medical expenses are tax-free. They are the only triple tax-free vehicle in existence, providing them an advantage over other savings accounts. In addition, if they aren’t used for qualified healthcare expenses, withdrawals after age 65 are taxed as ordinary income without penalty.

Second, HSAs play both a short- and long-term role in preparing for the future. There’s no “use it or lose it” when it comes to HSAs and for both investment and cash accounts, balances carry over from year to year and grow tax-free, offering an opportunity to save specifically for healthcare costs in retirement. In fact, according to the HSA Bank Health & Wealth Index, HSA consumers are 17% more likely to save for future healthcare expenses than those without an HSA.

HSAs also provide tax savings for employers, so optimizing this benefit through a combination of plan design, incentive structure and year-long employee engagement benefits both employers and employees. For example, offering an employer match for both 401(k) accounts and in an HSA can increase employee engagement and savings with both accounts.

For these reasons, employers should encourage their employees to compare their HSA to their 401(k) when it comes to saving for retirement. Both can be important components of a holistic retirement savings plan, and employers have an important role to play in helping to guide their employees through these decisions.

Kevin Robertson is Chief Revenue Office at HSA Bank. HSA Bank can help – learn more here.