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HSA a New Safety Blanket?

Posted November 27th, 2009
by Amy K (no comments)

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As traditional sources of retirement funding like IRAs and 401(k) plans seem to be becoming less and less secure, consumers are finding new and creative ways to create their retirement savings safety blanket. One of the ways consumers are choosing to help hedge their bets and protect their golden years is with Health Savings Accounts, or HSAs.

A new study from the Employee Benefits Research Institute (EBRI) shows that the costs of retiree health and medical care is significant, and that older workers can set aside enough money in their HAS to cover their health needs that will occur after the age of 65. Even if a worker doesn’t start saving in their HAS until the age of 55, they can still cover most of their costs.

The study suggests that a man with no employer retiree health coverage will need around $102,000 in medical savings, while a woman with no employer retiree medical coverage will need around $137,000. For employees with employer coverage, the costs are $64,000 for men and $86,000 for women.

In many cases, financial advisors are recommending that clients make funding their health savings accounts a planning priority.

For individuals over the age of 55, the maximum HSA contribution is $6,700. If the HSA adds just 5% in income each year, by the time a person reaches age 65 the account will be more than $84,000. This is a good portion of the health needs estimate, according to the study.

Right now, studies of the HSA landscape, including a report from the General Accounting Office to Congress show that the contributions to HSAs are exceeding distributions to HSAs by a significant amount.

These trends support the argument that HSAs may be a valid model for retiree health care for many workers in the United States. Benefits consultants, carriers and banks are watching the demand for HSAs and other retirement programs rise, as folks getting ready for retirement try to fund their retiree health and lifestyle.

If an employer wants to support a retiree’s health needs without a full-blown medical insurance plan, they can make maximum insurance to HSAs for workers at 55 years old until 65 years old, which will cover the vast majority of the out-of-pocket costs for health care during retirement. If the HSAs are started with employees at an average workforce age of 42, all of those costs can be covered.