The benefits of saving money in your Health Savings Account
(HSA) go beyond health savings and can also help you be prepared for life at
retirement. Not only can you use your health savings on health related
expenses, but you can also use your investments similar to the way you would
use a retirement plan.
Consider This Scenario:
The average healthy couple at age 65 today will incur over $200,000 in out-of-pocket medical expenses not covered by Medicare during their retirement years. A HSA is the best place to save for those expenses because it can be truly tax-free. At retirement HSA dollars can be used for non-medical expenses too. HSA dollars will simply be taxed just like a 401(k). As you can see, investing now will be a win-win down the road.
The average healthy couple at age 65 today will incur over $200,000 in out-of-pocket medical expenses not covered by Medicare during their retirement years. A HSA is the best place to save for those expenses because it can be truly tax-free. At retirement HSA dollars can be used for non-medical expenses too. HSA dollars will simply be taxed just like a 401(k). As you can see, investing now will be a win-win down the road.
Investing Your HSA
The primary use of an HSA is always to pay for current out-of-pocket expenses and deductibles related to a high-deductible health insurance plan. It’s important to reserve enough cash in the account to cover the maximum out-of-pocket deductible for two consecutive years before any excess money is actually invested. Remember, investments available in the HSA are not guaranteed and can experience losses when the markets are not favorable.
The primary use of an HSA is always to pay for current out-of-pocket expenses and deductibles related to a high-deductible health insurance plan. It’s important to reserve enough cash in the account to cover the maximum out-of-pocket deductible for two consecutive years before any excess money is actually invested. Remember, investments available in the HSA are not guaranteed and can experience losses when the markets are not favorable.
Investment Options
The investment menu is very similar to that of a typical 401(k) plan. There are many different mutual fund investment options available representing the three primary asset classes: Cash, Bonds, and Stock. The Cash (Money Market) Fund pays a stated interest rate, similar to a savings account at a bank. Several different Bond Fund options seek to provide a higher fixed-income rate-of-return than a simple savings account, but can lose money in certain circumstances noting that bonds are typically much less risky than stock investments. Most of the mutual fund investment options available in the HSA are Stock (Equity) Funds, and each represents a different type of stock market investment or philosophy to allow for broad diversification.
The investment menu is very similar to that of a typical 401(k) plan. There are many different mutual fund investment options available representing the three primary asset classes: Cash, Bonds, and Stock. The Cash (Money Market) Fund pays a stated interest rate, similar to a savings account at a bank. Several different Bond Fund options seek to provide a higher fixed-income rate-of-return than a simple savings account, but can lose money in certain circumstances noting that bonds are typically much less risky than stock investments. Most of the mutual fund investment options available in the HSA are Stock (Equity) Funds, and each represents a different type of stock market investment or philosophy to allow for broad diversification.
Choosing Your Lineup
Other
than the Cash (Money Market) Fund option, the mutual fund investment options in
the HSA are not intended to be used individually. The recommended method is to
maintain broad diversification by taking advantage of all of the investment
options available according to a strategy that makes sense.
If all of the mutual fund investment options available in the
HSA are the building blocks, the following example “Asset Allocation
Strategies” are the blueprints that you can use as a basis for your own
personal investment strategy based your own individual risk-tolerance and
time-horizon.
Remember, your own personal risk-tolerance and time-horizon will
be different for HSA investments than for other retirement investments because
you may need to spend your HSA dollars for health-related expenses before you
retire.
Think About It
Hopefully this overview has you thinking about investing your HSA. The
information is very basic, so if you’d like more detailed information on HSA
investing follow this link to Frequently Asked Questions for HSA Investing or contact your retirement advisor.
Participants can manage their investment options within the participant website. This
helpful guide to ManagingYour HSA Investment Account will help make the most of the online tools available.
Thanks to Nick Austin for the educational investment
information.
The Author:
Cole Thompson with Nick Austin
Marketing Specialist
Disclaimer:
This blog is of an informative nature and should not be taken as advice. Please
work with the appropriate parties for those services.
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