Skip to main content

Content is loading...



Posted July 17, 2019

WEX How to Help Employees Save for Healthcare Expenses in Retirement


While most Americans are concerned about setting aside savings and investments for the period of their lives when they no longer work, they often fail to plan specifically for healthcare costs in retirement, or to calculate the costs of the longer life spans we now enjoy. However, the numbers are sobering: The average 65-year-old couple retiring this year will need $285,000 to cover healthcare and medical costs in retirement. Contrast that with the fact that a third of Baby Boomers currently in, or approaching, retirement age have between nothing and $25,000 set aside. It is a recipe for disaster that many households don’t anticipate.

However, one of the best retirement savings tools is readily available—a health savings account (HSA)—but too seldom utilized. A recent survey indicates that employees’ lack of awareness about HSAs may well originate from the top, as many U.S. business owners admit that they don’t understand how the accounts work or their benefits. Just one in five fully understand important elements of HSAs, including that it’s necessary to provide a high-deductible health plan (HDHP) when offering an HSA, that employers can contribute to employee plans and that balances carry over year-to-year. WEX’s own consumer research corroborates that financial literacy around HSAs is particularly lacking—and that misconceptions about the accounts are rampant.

Once we inspire people to recognize that HSAs are remarkable tools for both saving money now and investing in a secure future, they will be much more likely to understand how to take full advantage of their benefits.


Breaking through the barriers to using an HSA to save for retirement

To help employees leverage HSAs to prepare for healthcare expenses in retirement, benefits administrators and employers must first educate themselves about the benefits of HSAs for both their employees and their business—namely, that contributions to HSAs are not subject to federal income taxes; earnings from interest and investments are tax-free; and distributions from an HSA to pay for qualified medical expenses are tax-free, both now and during retirement.

Employers also need to help their employees see beyond the short-term horizon when thinking about health expenses. WEX found that consumers’ short-term concerns, such as student loans, college tuition for children and home loans, take a higher priority, often at the expense of preparing for the future. The shift in perspective requires employees to gain a better understanding of the living reality of retirement rather than an anecdotal assumption of what it will be like. Most people today are only vaguely aware of the actual costs of retirement—and even when they are aware, they’re basing their plans on today’s costs, not tomorrow’s. By striving to help people become better informed about their approaching realities, we can have a more substantive conversation about how HSAs can bring them closer to aligning the future they plan for with the future they will experience.

Further, many consumers think of an HSA as a healthcare spending account only, not as a savings account for the future, and thus they cap their contributions lower than the need to be, gauging their contributions based on the actual deductibles of the plan they have at the moment, or on the current level of employer contributions. To highlight the HSA’s value as a retirement savings tool and investment, it can be helpful to compare and contrast the benefits of an HSA with those of a 401(k). The fact that funds withdrawn from an HSA to pay for medical expenses in retirement are not taxed is a significant advantage. Regardless of employees’ current perceptions, it is easy for them to imagine substantial post-retirement healthcare costs, which makes the HSA/401(k) comparison a great opportunity to help employees see how easy it is to proactively add this tool to a retirement strategy.

With that perspective, contributing to an HSA becomes exciting rather than stressful, and it empowers people to take a 360-degree view of how to maximize that savings. But none of this can happen if consumers, balancing household budgets amidst rising costs and daily struggles, are not encouraged to understand and best use the resources they have to more efficiently build the future of their dreams.

Get more insights about how to talk to employees about HSAs so that they feel empowered to use these accounts to fuel their financial wellness.


WEX Health

WEX Health