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July 01, 2005
Health Savings Accounts offer an Additional Retirement Account
Health Savings Accounts (HSAs) offer yet another form of long-term investment. From 1926 to present, annual rates of return in the stock market have varied from a negative 40%, to a postive 50%. But for the long-term investor, rates of return have always been positive.
Even an investor who put his money in the market just before the 1929 crash would have earned 6% if the money was held for 25 years. The worst lowest annual return for an investor who invested on a regular basis (taking advantage of "dollar cost averaging") was 7% over a 25-year period. The lowest return for any 35-year period is 10%.
Let's assume that a 40 year old couple places the maximum investment of $5,250 per year in their Health Savings Account, and earns 7% on their money for the next 25 years. If they do not withdraw any of that money for medical expenses until retirement (the wise investment decision), they will have $322,057 in additional retirement money in their HSA at age 65. A 10% return will result in $516,322 in their account, and a 15% return will give them over $1 million in additional retirement savings.
If they haven't reimbursed themselves for medical expenses incurred during that 25-year period, they can do so at that time, and that money can all be withdrawn tax-free.
Posted by Wiley Long at July 1, 2005 10:19 AM