woman consulting with doctor

Can HSAs help close the retirement healthcare savings gap? – Voya

While traditionally viewed as the side car of the high-deductible health plan, HSAs can also be used for healthcare costs in retirement. Read more.

Today, 30% of workers who reported an increase in healthcare costs indicated they were delaying retirement as a result.1  To put it into perspective, a couple is estimated to need $296,000 in savings for a 90% chance of covering healthcare expenses in retirement.2 Currently, the average balance in Health Savings Accounts (HSAs) —tax-advantaged, savings vehicles designated for healthcare expenses — is less than $3,000. The difference creates a substantial retirement healthcare savings gap and is forcing many potential retirees to delay retirement.

Costs of delayed retirement to employers

With an estimated 10,000 Baby Boomers turning 65 each day, the potential costs associated with workers delaying retirement can be significant for employers.4 For starters, insuring older workers because of delayed retirement tends to drive the company’s healthcare costs higher. This comes as no surprise to many because 73% of employers have already planned for the increased benefits required to handle older workers within their companies.5 In addition to higher healthcare costs, delayed retirement will typically require higher labor costs due to the higher salaries of more seasoned workers.

The organizational shift toward an older workforce can impact both ends of the talent spectrum, including younger workers. When the company has fewer annual retirements, there may also be fewer opportunities for young, emerging talent to advance within the organization, which could lead to them searching elsewhere for advancement. In fact, 60% of employers are concerned about the effects of delayed retirements on the career paths of younger workers.6

The long-term HSA strategy can help close the savings gap

For employees to retire on time and with dignity, it’s vital employers help them close the retirement savings gap. Similar to planning for retirement with an employer-sponsored defined contribution plan, HSAs can be used to help workers save for healthcare expenses in retirement. However, there must be a shift in the perception of HSAs from “spending” accounts to “savings” accounts.

Instead of contributing to an HSA but spending the money in the same year for current medical expenses, employees could consider paying today’s expenses out of pocket and allowing HSA contributions to accumulate in their accounts. This way, the employee will have a designated, tax-advantaged nest egg earmarked specifically for healthcare expenses in retirement. And after the age of 65, they can use the HSA funds for non-medical expenses without penalty —paying only normal income taxes.

Getting employees engaged in the long-term solution

For the long-term HSA savings strategy to work, employers should work toward getting their employees engaged in the solution — or increase HSA engagement. While the popularity of HSAs is growing, they can still be misunderstood and underutilized:

  • There are an estimated 26 million HSAs7 compared to more than 100 million 401(k) participants.8
  • The average account balance in 2017 was less than $3,0009  and only 4% of accountholders invest within the HSAs.10

Fortunately, there are several ways employers can increase HSA engagement. And the latest Voya Perspectives piece outlines five actionable ways employers can help improve HSA engagement to help close the retirement savings gap.

Download the Voya Perspectives piece to learn how you can help your employees retire on time and with dignity.

Improving HSA engagement – How a leading health savings program can be used to improve financial wellness and help your employees retire on time


HSA taxation compared to qualified retirement plans and IRAs

Savings vehicle

Taxation of contributions

Taxation upon withdrawal


 No income tax

 No FICA tax (if made via payroll deduction)

 Not taxed upon distribution, provided withdrawals are used for qualified medical expenses

Traditional (non-Roth) IRA and qualified retirement plans

 No income tax

 FICA tax is imposed

 Money is taxed upon distribution

ROTH IRA and qualified retirement plans

 Contributions are subject to income and FICA taxes

 Money is not taxed upon distribution**

* Certain states may apply a state tax on HSAs.

** If qualified distribution criteria is met. 

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This material is provided for educational purposes only.  Neither Voya® nor its affiliated companies or representatives provide tax or legal advice. Please consult a tax adviser or attorney before making a tax-related investment/insurance decision.

1 2018 Employee Benefits Research Institute survey

2 EBRI Issue Brief, no. 460 (Employee Benefit Research Institute), October 8, 2018

3 Employee Benefit Research Institute, Issue Brief, 2018

5 LIMRA Secure Retirement Institute

6 LIMRA Secure Retirement Institute

7 2019 Mid-Year HSA Market Statistics and Trends, Devenir Research

8 American Benefits Council, 401(k) Fast Facts, January 2019

9 Employee Benefit Research Institute, Issue Brief, 2018

10 2019 Mid-Year HSA Market Statistics and Trends, Devenir Research