HSAs for Retirement
Medical care may be one of a retiree's biggest expenses and budget busters. How can you plan to cover the costs now? Consider a health savings account (HSA). With triple-tax savings, HSAs can be good for health care and other retirement expenses.
Key Takeaways
Health care is expensive now and it will likely be even more so in retirement. There are ways to plan now to cover those costs, including with an HSA.
Understanding what an HSA is and how you can use the funds will be important as you plan for your future and potentially use it as another retirement investment account.
HSAs have many benefits now and before you retire, but they also can come with some challenges. Understanding the pros and cons may help you make better decisions for your future.
Medical care in America isn't cheap, especially in retirement. Costs continue to rise every year. For about one-third of Americans, access to health care is a major factor for a happy retirement, and building a health care fund before retirement is an important goal for 31%.1
One way to help cover costs is to use a health savings account. An HSA not only helps you cover medical costs now and in retirement, but it can also be used for other retirement expenses after age 65. Let’s explore some important topics about health care, HSAs and your retirement.
How Much Does Health Care Cost Now?
The average person with an employer health care plan can expect to pay about $3,300 in premiums and $1,200 in out-of-pocket costs annually, with employers kicking in roughly $4,500.2 For those using the Affordable Care Act (ACA), average premium costs are about $7,5002 a year for a middle-of-the-road plan (silver), which costs more based on your age. Out-of-pocket deductibles depend on your income but are capped at $9,320 for 2025.3
Average Annual Health Care Costs in America
- $3,300 for premiums
- $1,200 out-of-pocket
Employers typically pay 58% of premium costs, and employees pay $27%, plus an additional 15% for out-of-pocket expenses.
Source: Milliman Index 2025, August 2025.
- $7,500 for age 40 premiums
- $17,500 for age 64 premiums
Premium costs vary by state, age and the number in your household. Out-of-pocket maximums range from $3030 to $9,320, depending on your income.
Source: ValuePenguin, August 2025.
How Much Is Health Care in Retirement?
Fast forward to retirement, and you are likely to pay much more. The average healthy 65-year-old couple can expect to spend up to $395,000 on health care costs in retirement with Medicare.1 Factors such as where you live, which Medicare coverage plan you choose, and your age will impact your total premiums and out-of-pocket expenses.
Average Medicare Costs in 2025
Part A (Hospital)
Premiums: $0
Deductible: $1,676
Coinsurance: $419/day after 60 days
Coinsurance skilled nursing stay: $209.50/day after day 20
Part B (Medical)
Premiums: $2,200
Deductible: $257
Coinsurance: 20% of approved services
Part C (Medicare Advantage)
Premiums: $204
Coinsurance: varies by plan
Out-of-pocket max: $9,350
Part D (Prescriptions)
Premiums: $558
Deductible: capped at $590
Max out of pocket: $2,000
Source: How Much Does Medicare Cost? What You’ll Pay in 2025, December 2024.
What About Long-Term Care Costs?
Long-term care in your home or at a facility can take a big cut of your retirement savings, so planning is important. Here are median annual costs for 2025.4
Home health aide (44 hours a week) - $80,000
Assisted living facility - $73,000
Semiprivate nursing home - $115,000
Private room in nursing home - $132,000
Costs vary by region and the length of your long-term care needs. Note that you can use funds from an HSA for certain long-term care expenses, including premiums for long-term care insurance and medically necessary services provided by the facility. However, you cannot use it for room and board.
How Can You Pay for Health Care Costs in Retirement?
An HSA may be a good addition to your retirement planning toolbox. You probably already know the familiar vehicles for savings—like a traditional IRA, Roth IRA or 401(k)—can help you with that big bill in your golden years. But an HSA might get you to that target even faster. These one-of-a-kind accounts are often overlooked for retirement savings. But they offer some advantages you won't find anywhere else.
How Does an HSA Work?
If you're covered by a high-deductible health plan that satisfies certain IRS requirements, you may qualify for an HSA.
As an HSA owner, you contribute money to a specialized savings account, typically funded through pretax deductions from your paycheck. The funds may be kept in an FDIC-insured bank.
When you incur qualified medical expenses , you simply withdraw funds from your HSA to cover the cost. You can pay a provider directly with HSA funds or reimburse yourself after paying out of pocket. You can use your HSA to cover your health insurance deductible, prescription medications, hospital visits, appointments with your doctor, mental health services and more.
So how does this relate to your retirement? Unlike a Flexible Spending Account (FSA) , your HSA balance rolls over from year to year. So, the money you contribute now may be used today, next year or 30 years down the road.
What Can I Use an HSA for?
“Qualified” medical expenses don’t tell you a lot about what can be paid for. However, those typically include common medical expenses such as treatments, emergency room visits and prescriptions. HSAs can be used to pay for things you might not think about. Here’s a broad list of what HSA funds can be used for and some not-so-common ones.
Medical Expenses, including ambulance services, bandages, blood-sugar tests, crutches, hearing aids and batteries, hospital care, insulin, laboratory fees, surgery, vaccinations and x-rays.
Dental Expenses, including non-cosmetic crowns and bridges, dental co-pays, dental reconstruction and sealants.
Vision Expenses, including prescription contact lenses and solution, eye drops, optometrist services, prescription sunglasses, vision plan coinsurance, vision plan deductibles.
Not-So-Common Expenses: These include over-the-counter medications, postpartum care, such as breastfeeding supplies, health-care-related travel, family planning and wellness, and substance abuse treatments.
Keep in mind, HSAs will not cover everything. Those expenses include childcare, dance or swim lessons, cosmetic procedures, exercise balls, hair transplants and removal, funeral costs, household help (even if recommended by a doctor), personal care items and teeth whitening medications.
Why Should I Consider an HSA?
HSAs offer several distinct advantages to people who own them. You may be able to shift some or all of your balance into investments of your choice directly in your HSA based on your HSA trustee's requirements and available investment options. This means you can play the long game—investing and watching your money potentially grow until retirement.* So, when you withdraw money later in life, you may have more cash available to cover medical costs than you originally put into your account.
Once you retire and as your medical needs increase, you may spend a good chunk of your nest egg on medical expenses. HSAs can help you meet those needs. Plus, after age 65, you can use the money on anything, whether it’s a qualified medical expense or not, without penalty.
3 Benefits of Using an HSA for Retirement Investing
HSAs offer several advantages over other retirement investment vehicles.
1. Triple tax break.
You can take a tax deduction for contributions to your HSA or contribute to your HSA on a pretax basis through your employer. You pay zero in taxes on any interest and dividends you earn. And you can make withdrawals tax-free, so long as you use the funds for qualified medical expenses. Those on Medicare can't contribute to an HSA but can use previous savings for the same costs. At death, a spouse may continue receiving the preferred tax treatment with a spousal rollover.
2. Move your HSA.
You may need to switch insurance providers when you move from job to job, but your HSA is portable and travels with you. The funds remain, and you can keep contributing so long as you're participating in a high-deductible health plan and aren't entitled to Medicare or other disqualifying coverage.
3. Employer contributions.
Many businesses incentivize their employees to participate in high-deductible health plans by contributing directly to employees' HSAs. If you opt for an HSA-qualifying high-deductible health plan, you might receive hundreds or even a thousand dollars in free cash from your employer. You're still capped at the annual contribution max, but more of the money you save will have come from your employer.
HSA Pros and Cons for Retirement
HSAs have many features for medical expenses and your retirement, but they can also pose a few challenges. Here’s a list of the benefits and challenges.
Benefits | Challenges |
Flexible Contributions Employers, relatives or anyone else may contribute to your HSA. Contributions are not counted against 401(k)s, IRAs or other retirement account limits. At age 55 you can make catch-up contributions. | Complex Financial Decisions Participants find it difficult to decide between investing in a 401(k) pretax, 401(k) Roth, IRA or HSAs for retirement. It can also be hard to project current versus future tax rates and medical expenses to know how much to save now. |
Investment Variety Options may include stocks, bonds, mutual funds, money markets, CDs, bank accounts and others. Some plans offer self-directed brokerage windows. | Too Few or Too Many Investments Depending on the provider, investment choices may be limited or unlimited. Too few can hinder diversification needs. Too many can overwhelm and lead to inertia. |
Less Constrained Withdrawals There are no time limits for using the money and no required distributions at age 73. After age 65, you can use the funds for any retirement expense—not just medical. | Cost Constraints Investment prices and options tend to cost more than 401(k) plans. Administrative fees can also be high. |
Tax-Deductible Limits Contributions can be made up to April 15 of the following year. 2025 contribution limits: 2026 contribution limits: Ages 55+ are allowed an extra $1,000 in catch-up contributions each year. | Investment Hurdles Typically, you must meet minimum thresholds before you can invest HSA money. Investment decisions require you to consider when the funds will be used: in the short- and medium-term, in retirement, or both. |
Can you contribute more money annually to your HSA than the actual qualified medical expenses you might incur? Yes, the amount of your actual medical expenses does not impact how much you can contribute, which means you can save more for your future retirement years in a tax-favored account.
And unlike traditional IRAs or 401(k)s, you won't pay taxes on the earnings when you withdraw the money. Likewise, they differ from Roth IRAs and Roth 401(k)s in that you don't pay upfront taxes when you contribute the money to an HSA.
Understanding Taxes When Using Your HSA for Retirement Savings
Starting at age 65, you can withdraw funds penalty-free from an HSA for any expenses. Like an IRA, the withdrawals will be taxed as income.
However, when you save for future medical costs in your HSA, you get the most bang for your buck—with no federal tax bill at any point when withdrawals are used to pay for qualified medical expenses.
Instead, you get to keep that money, watching it potentially grow and enjoying the full benefit of that cash down the road.
Retirement Planning and Your HSA
Don't let future medical costs keep you up at night. While the amount you need for health care in retirement might far exceed what you had in mind, using your HSA for retirement savings can be a big help and should be an important part of your complete retirement plan. If you start planning now, you may feel more confident about retirement.
You can certainly plan on your own. We have lots of tips to help if you’re nearing retirement, about five to 10 years away. Our advice services are also available, from a one-time consultation, two or three appointments with a financial consultant, or ongoing in-depth advice are available to you. We’d love to help.
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Understanding the Costs of a Healthy Retirement, Empower, August 2025.
2025 Milliman Medical Index, milliman.com, August 2025.
Average Health Insurance Cost in 2025, ValuePenquin, August 2025.
Your Home + Your IRA = Your Long-Term Care Solution, Kiplinger's, June 2025.
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