Health Savings Account Blog

Many people do not retire until the age of 65, as 65 is the age that they can qualify for Medicare health care coverage. As a result, many people work longer than they want to simply to get the health insurance benefits provided by their employers. By establishing a Health Savings Account, participants are able to set aside funds that they can use to pay for their medical expenses now or in retirement, helping to ensure their financial independence and security.

But just how much money should Health Savings Account participants have when they retire in order to cover their health care expenses (expected and unexpected)? According to Fidelity Investments, in 2006, the average couple retiring will need $190,000 to be financially comfortable paying for their retirement medical expenses. This figure is based on the average life expectancy for people who retire at age 65, which is 15 years for men and 20 years for women.

Some financial advisors believe that Health Savings Accounts are more important for an individual’s retirement security than IRAs and even 401(k) accounts. Health Savings Accounts allow individuals to withdraw money from their savings to pay for any expense, including medical expenses, but not limited to medical expenses. When withdrawing money to pay for qualifying medical expenses, individuals will not pay taxes on the withdrawal. However, individuals only pay taxes when they withdraw money to pay for non-medical expenses. Therefore, Health Savings Accounts are versatile and tax-friendly savings accounts that provide account-holders with flexibility they can use to their advantages.

It’s also important to note that if you do have an IRA as a retirement savings account, the funds that you withdraw from you Health Savings Account will not affect your annual IRA limit.

The tax advantages of a Health Savings Account are also extremely beneficial to many participants and help to save them a significant amount of money each year, which reduces an individual’s annual tax burden. Individuals over the age of 55 can contribute catch-up money as well. The amount of the catch-up amount changes each year, but that catch-up limit is also tax-deductible. If a couple shares a Health Savings Account, the couple can establish the Health Savings Account in the older person’s name so that they can contribute a larger sum of money each year once the older person turns 55. In other words, I both participants do not have to be over the age of 55 in order to take advantage of the catch-up limit increase.

One of the many advantages of Health Savings Accounts is also that they are self-directed, which means that participants are able to control how much money they contribute to their accounts each year, where that money will be spent, and how that money will be invested while it is in the Health Savings Account. Therefore, Health Savings Accounts help individuals to stay in control of many aspects of their health care management more effectively.

How to Increase Your Health Savings Account Growth

There are three simple strategies that Health Savings Account participants can use to improve the growth within their Health Savings Accounts:

1: Invest the funds from the Health Savings Account into a mutual fund or stock that has a high-interest yield. As with any investment, there is a degree of risk involved, so make sure that you are comfortable with your investments and with the risks.

2: Keep your funds in your account for as long as you can. Of course, you can withdraw your Health Savings Account funds at any time to pay for qualifying medical expenses – and those withdrawals will not be taxed – but the longer you leave your money in a high-interest yielding vehicle, the greater the funds will grow.

3: Contribute as much as you can as early as you can in the year. You have until April 15 to make a Health Savings Account deposit in time for tax season. However, if you fund it early, your money will grow tax-free for a longer period of time than if you funded it later. By contributing to your Health Savings Account on January 1 of each year rather than April 15, you can earn more than $40,000 in interest over 20 years and over $100,000 in interest over 30 years.

Health Savings Accounts Can Provide You With Funds You Can Use to Pay for Medical Expenses During Retirement

Health Savings Account funds can be used to pay for Medicare expenses, including Medicare premiums, deductibles, copays, and coinsurance. Many Medicare beneficiaries are responsible for paying for their own nursing home expenses, unconventional terminal illness treatments, and proactive health screenings. The only exclusion from the qualifying Medicare expenses list is Medigap insurance; you cannot use Health Savings Account funds to pay for Medigap policies.

Health Savings Accounts can also be used to pay for health care expenses that you may have even if you pay for your healthcare through an employee retirement plan. Health Savings Account funds can even be used to pay for long-term care assistance, and has maximum annual limits that change every year.

If you are interested in establishing your own Health Savings Account now, you’re taking the first step towards financial freedom and independence. In order to get started, you’ll need to open a qualifying high-deductible health insurance policy that is compatible with HSA plans. Speak with an experiences Health Savings Account advisor to learn more about which health insurance plans may be best for your specific health care needs or for more information about how Health Savings Account plans can help you establish better financial freedom for yourself and your family.