How Advisors Can Become Total Retirement Experts For Their Clients

In a recent survey of over 1,000 adults aged 50 or older, 60% of the participants were “terrified” of what healthcare costs might do to their retirement plans. In addition, over 70% of those surveyed listed out-of-control medical expenses as a top fear in retirement. Financial advisors, you should be chomping at the bit. By introducing your clients to health savings accounts (HSAs), you can give them financial stability and peace of mind about retirement medical expenses while branding yourself as a comprehensive retirement authority.

HSAs: The Other Retirement Savings Account

When asked to name a retirement savings account, most people would probably think of a 401(k) or IRA. However, while HSAs may be less well-known, they’re even more tax-efficient than 401(k)s or IRAs in saving for medical expenses. Remember, HSA contributions are tax-free or tax-deductible, earnings and interest grow tax-free, and HSA funds used to pay for or reimburse qualified medical expenses come out tax-free too. This triple tax advantage gives HSA owners unparalleled ability to save for healthcare costs.

A recent study found that over 80% of total HSA assets were held in cash/debit card accounts, showing that most HSA owners think of them primarily for current medical expenses. However, there’s a better way to use your HSA. By investing HSA funds instead of spending them, accountholders can create medical nest eggs to pay for retirement medical expenses. Investment HSAs can be a secret weapon for advisors; imagine being able to soothe your clients’ fears of retirement healthcare costs with a dedicated, supremely tax-advantaged savings vehicle. How would your clients respond to that?

Using HSAs To Build Medical Nest Eggs

Unfortunately, the concerns about retirement medical expenses from the earlier survey are well-founded. Another recent study found that the average couple retiring in 2019 at age 65 will be liable for $387,000 of non-Medicare-covered medical expenses. If your clients paid for that $387,000 of medical expenses with 401(k) funds, they could pay nearly $130,000 more in taxes. However, by investing their HSA dollars, they can grow funds to pay for those costs tax-free and save their 401(k)s for other retirement expenses.

Since HSA contribution limits are significantly lower than 401(k) limits, your clients might wonder how much they’ll be able to save for retirement medical expenses with an HSA. However, even if someone only started contributing to an HSA at age 50, they could still save over $119,000* (under a self-only health plan) or over $226,000 (under a family health plan). And if they started at age 30, they could save over $530,000 under self-only health coverage and over $1,098,000 under family health coverage. That’s a healthy chunk of change to pay for retirement medical expenses. And, in the event someone saved more in their HSAs than they needed for medical expenses, after age 65 they could withdraw funds for non-medical expenses and just pay regular income taxes like with a 401(k).

*These calculations assume a 6% rate of return, 25% tax rate, and 2% annual CPI increase.

Saving Money On Pre-Deductible Medical Expenses

Part of being eligible to make HSA contributions is being enrolled in an HSA-qualified health plan; HSA-qualified plans must have annual deductibles higher than $1,400 for self-only coverage and $2,800 for family coverage. Also, HSA-qualified plans aren’t allowed to pay for any pre-deductible medical costs (other than certain preventive services). This means that if your clients are investing their HSA funds, they must pay for all pre-deductible medical expenses out of pocket. While some of your clients might be in a financial position to do this, it could be a daunting task to others. For those less affluent clients, you can add value by helping them understand how to save money on medical expenses or how can they contest an inflated medical bill. When you’re investing your HSA, every dollar saved on medical expenses counts!

With retirement healthcare costs at the forefront of so many minds, advisors have a wonderful opportunity to integrate HSAs into their toolbox of retirement resources and serve as total retirement experts for their clients. Advisors, if you’re looking for an HSA partner, HealthSavings has been leading the way in investment HSAs since they were enacted in 2003. Learn more about our approach here.