When employees ponder their lives in retirement, hobbies, travel, and mid-afternoon naps are likely more top-of-mind than paying for healthcare.

Even with Medicare picking up the majority of healthcare expenses for post-65 retirees, the average couple will still need $390,000* to cover medical expenses during retirement. And that doesn’t even include long-term care. The problem today is that the average retirement savings for a couple in their 60s is only $152,000**.

So, what can you do to help your employees bridge this gap? A lot of people aren’t thrilled about the prevalence of high-deductible health plans, but the fact that they are often paired with a health savings account (HSA) can be a silver lining. While many employees still think of an HSA as little more than an FSA with a rolling balance, its value as a retirement savings vehicle has been largely under-appreciated.

In fact, some retirement experts are even going as far as to advise employees to max out their HSA contributions before maxing out what they’re kicking in to their 401(k). That may sound a bit absurd, but consider the following comparison:


Contributions free from Medicare and Social Security taxes?



Tax-free distribution for medical expenses? No Yes
Tax-free payment of Medicare Premiums in Retirement? No Yes
May receive employer contribution? Yes Yes
Contributions free from state and federal taxes? Yes Yes
Ability to invest your funds? Yes Yes
Tax-free earnings? Yes


Portable? (Account belongs to you, not to your employer) Yes, but you must rollover account to new custodian to avoid 20% income tax and possible early withdrawal penalty Yes
Pay penalties or taxes for withdrawing funds before age 59.5? Yes No. If funds are used to cover eligible medical expenses
Required to take minimum distributions at age 70.5? Yes No
Maximum deferral in 2020? $19,500 $8,100

While it’s clear an HSA can only be used for eligible healthcare expenses before age 65 (without penalty), that’s no longer the case once an employee turns 65. After that, they can spend the money on virtually anything ― subject to normal taxes ― just like with their 401(k).

We certainly don’t suggest employees discontinue 401(k) contributions, but we do believe plan sponsors can do a much better job of communicating the long-term value of fully leveraging the triple-tax-advantaged HSA for retirement. In tandem with a 401(k), an HSA can go a long way toward covering healthcare expenses, and maybe even paying for a new hammock for those afternoon naps.

* HealthView Service Data Report, July 2019
** TransAmerica Center for Retirement Studies, April 2019