Health savings accounts are touted as tax-advantaged savings and investment tools to help handle retiree healthcare costs in the future — as long as you can afford to pay for your healthcare out of pocket today.
To qualify for an HSA, you must be enrolled in a high-deductible health-insurance plan, which has a lower monthly premium, but means you will have to pay thousands in medical expenses yourself before your insurance kicks in. In theory, the HSA gives people a tax-friendly way to save and invest money to offset healthcare costs.
College kids are moving into retirement communities for reasons beyond 'cheap rent'
Apple heads for $460 billion wipeout with its stock seeing worst post-earnings drop in 13 years
My girlfriend is 62. Can she claim her late husband's full Social Security benefit — or does she have to wait?
HSAs are considered "triple tax-advantaged" accounts. The contributions can be made pretax; withdrawals for qualified medical expenses can be made tax-free; and any potential investment growth is tax-free. Officially, beneficiaries are supposed to use that stash of money to pay for today's health costs.
But the real magic comes when you don't actually spend that HSA money on your current medical bills — instead putting more money into the account, investing it and letting it grow. As the cost of healthcare in retirement continues to balloon, financial experts say a well-funded HSA is one of the best tools for managing these costs.
And that money would come in handy since healthcare is only getting more expensive for retirees. A 65-year-old retiring in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout retirement, according to Fidelity Investments. That forecast does not include long-term-care expenses, such as home healthcare support, assisted living or extended nursing-home stays.
"The most effective way to use them is to let it compound and let it work for you for 20 to 30 years. By and large, it takes a lot of patience and it takes a lot of set up and it takes resources to cover your current expenses and not touch it," said Christopher Walsh, senior adviser and regional director at Capital Choice Arizona. "You need to have a plan and a budget that's flexible enough to allow it."
But most people don't have that kind of budget or flexibility — they need the money now.
Two-thirds of HSA holders reported using their account to pay for current or near-term out-of-pocket healthcare expenses, according to the Employee Benefit Research Institute (EBRI)/Greenwald Research Consumer Engagement in Health Care Survey. Only 35% reported using their HSA primarily to save for healthcare expenses in retirement.
"Health Savings Accounts are another tax shelter that primarily benefits higher-income families. People with enough income can put money into HSAs and let those investments compound tax-free for decades," said Teresa Ghilarducci, a professor of economics and policy analysis at the New School in New York City and a retirement expert.
"Most families, however, need the money to pay current healthcare expenses — or worse, have to borrow to cover medical, dental or pharmacy bills. HSAs have become another example of a tax preference that disproportionately rewards higher-income households while doing little to make the healthcare system more efficient or people more cost-conscious. They make both the tax code and our healthcare financing system more unequal," Ghilarducci said.
For a beneficiary of a high-deductible health plan, the minimum deductible in 2026 is $1,700 for an individual or $3,400 for a family, with out-of-pocket maximums capped at $8,500 and $17,000, respectively. The maximum HSA contribution limit is $4,400 for individual coverage and $8,750 for a family. That total includes both your contributions and any contributions made by your employer. For account holders 55 or older who are not enrolled in Medicare, an additional catch-up contribution of $1,000 is allowed.
A bonus with an HSA is that you don't need to spend the contributions each year, unlike a healthcare flexible savings account. The account is also portable, meaning if you change employers, you can take it with you.
"The real purpose of them is not to be burdened with healthcare costs in retirement," said Steve Azoury, a financial adviser and owner of Azoury Financial. "It's an extra tool to have some peace in retirement."
While HSA balances can be invested, 40% of account holders don't invest those funds and keep the assets in cash — giving up the potential for growth, according to Fidelity Investments.
"It's a wonderful retirement vehicle that people aren't using correctly. They aren't investing the money — it's just sitting in cash. I grow concerned about that. When you don't see it growing and compounding, you're not excited to keep funding it," Walsh said.
"I wish they were more popular. It's really hard to get education out there on healthcare benefits. There's no effective way that showcases how to make good use of those funds," Walsh said.
Among enrollees with HSAs, employer contributions were the most commonly cited reason for opening an account, followed by saving for future healthcare expenses, according to the EBRI/Greenwald findings.
Most HSA holders consider their account a savings account rather than an investment vehicle. Only about 30% view their HSA primarily for investing, indicating limited use of HSAs as long-term savings tools, EBRI found.
"HSAs are an underused option," John Rafferty, partner and investment adviser representative at Solomon Financial, said. "If you have the ability to choose an HSA, do it. If you're able to keep some of the money in an HSA and not use it all in a year, that's great. You can use the medical expenses in retirement. You will have expenses that go beyond Medicare," Rafferty said.
We're in our 60s with $1.5 million. Would a trust be more effective than a will to prevent conflict among our heirs?
Implosion of Situational Awareness hedge fund has Wall Street betting the bottom is in for the AI trade
Rising Medicare Part D premiums could drive more people into Medicare Advantage plans