Can the Health Savings Account double as a retirement account?
In some ways it can and no one is talking about it. Why? We tend to look at things from our own perspective. It is natural for employers to look at it through a health benefits angle and financial advisors who manage money tend to look at it from an investment point of view.
As financial educators, we look at benefits from the financial planning point of view. We are looking at how employees can maximize all of their benefits not just ones we manage (because we don’t manage any).
Here is an example of how the HSA can serve two purposes:
I recently sat down with a 38 year-old woman who was worried she wasn’t saving enough for retirement. After running a retirement projection together based on her salary deferral to her 401(k), I unfortunately had to confirm her concern. She needed to save about 5 percent more than her current 6 percent to get her to where she needed to be.
We started talking about where she could come up with the extra savings and she then mentioned she was maxing out her Health Savings Account (HSA), but was thinking about lowering her deferral during the next open enrollment. Since she was putting almost $3,000 a year in her HSA and she only had an $1,800 deductible, I decided to count the excess as a supplement to her current 401(k). The amount she was contributing to her HSA was pretty close to what I would have recommended as an increase to her 401(k). Why would she want to do that?
There are reasons why it might be beneficial for an employee to retire with a large balance in an HSA.
Can you imagine the look on the face of the employee when she connected the dots? Can you imagine how grateful your employee base will be when they truly understand how to make the most of their benefits? Her employer had given her the flexibility of using the HSA not only for medical expenses today, but to help her pad her nest egg for the future!
Can you imagine how appreciative she was of her employer? So the Health Savings Account is not just to be healthy but also wealthy – if employees use it wisely.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.