More younger workers investing in health savings accounts (HSA) for retirement

Approximately 50% of workers age 41 and under are investing in an HSA, according to a recent study.
Approximately 50% of workers age 41 and under are investing in an HSA, according to a recent study.
Published: Nov. 30, 2022 at 8:40 PM EST
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GREENVILLE, S.C. (FOX Carolina) - Don’t underestimate the cost of health care in retirement. A new report finds some senior couples could expect to spend over $300,000 in medical expenses, and it’s numbers like these that have more workers in their 20′s and 30′s investing in a health savings account.

34-year-old Ashley Davis works in IT for a company that offers a health savings account (HSA) as part of the benefits package.

“Medical care is important (just like) work-life balance is important,” Davis said. “We talk about tradeoffs all the time when it comes to what we want out of our lives and if I’m thinking about jobs, certainly that’s top of mind.”

A recent study from Fierce Healthcare finds almost 90% of workers rank health care as the most important benefit.

“It’s extremely expensive if you’re doing it on your own,” Davis said.

Which is why she’s contributed to her HSA account over the last six years, for medical expenses right now and in the future.

“I have two kids, so when they’re young we tend to go to the doctor quite often,” Davis said. “(Also) I think I’ve got diabetes as well as cancer on both sides of the family, so that’s certainly top of mind.”

And top of mind for around 50% of workers age 41 and under, all of whom are investing in an HSA, according to a recent Charles Schwab study.

“I’m making small decisions now that will have a significant impact on my future,” said Davis.

Goldfinch Wealth Management partner and financial advisor Ashton Lawrence says younger workers are being more proactive for a slew of different reasons to include the transition from pensions to 401ks, to the financial struggles of older generations.

“It’s definitely picked up more recently,” Lawrence said. “(They) see what (they) went through and don’t want to actually go through that.”

He also says HSAs weren’t introduced until 2003, allowing workers to set aside money on a pre-tax basis to pay for qualified medical expenses. Contributions don’t expire, nor do they go away when you change employers or retire.

“It’s taxed deferred growth and qualified distributions are going to be tax-free, and those distributions go toward Medicare and healthcare expenses,” Lawrence said.

For 2023, the contribution limit climbs to $3,850 for “self-only coverage”, and $7,750 for a “family”. Still, Lawrence calls how much to contribute “situation specific”.

“If your employer is offering you a match on your HSA, at a minimum make sure you’re getting that match. Just like your 401k,” Lawrence said. “Let’s not leave that free money on the table. But if you are able to max it out, max it out every year. That compounding is going to be extremely beneficial later in life.”

But experts warn an HSA isn’t the right option for every worker. You must be covered under a qualified high-deductible health plan, for example.

“If you’re in the hospital every other month, you may need some better care than that high-deductible health plan may provide,” Lawrence said.

You also can’t be covered under a plan that’s not an HDHP or claimed as a dependent on another person’s individual tax return.

“You might like an HSA, but you’re not going to be eligible for it,” said Lawrence.

A reality check in financial literacy, more younger workers have recognized.

“What works for your life? What are you trying to accomplish right now? What are your goals for the future? And essentially designing it the way that you need it to work for you,” David said.