Consumers are greatly underestimating how much money they will need to cover health care costs in retirement, according to a survey by HSA Bank. Sixty-seven percent think they will need less than $100,000.
Only 29% plan to use a health savings account (HSA) to cover medical costs in retirement. Forty-two percent do not know that they can invest the funds in their HSA.
Forty-six percent are not aware of the tax benefits of an HSA. Forty-two percent are not sure what health care expenses an HSA will cover. HSA Bank notes that HSA funds can be used for a wide range of health care expenses. Furthermore, 41% are not sure if HSA funds expire each year; the truth is that they never expire.
Instead of relying on HSAs, 50% of Americans are using savings accounts to save for health care expenses in retirement. Forty-seven percent plan to rely on their 401(k) plan. Thirty-two percent are investing in mutual funds or stocks, 28% are relying on a traditional investment retirement account (IRA), and 24% are turning to a Roth IRA.
“Today’s consumer still requires guidance when it comes to their approach to their health and financial wellness,” says Chad Wilkins, president of HSA Bank. “Many consumers don’t understand the benefits of an HSA and how this triple tax-advantaged account can help prepare them for the significant expenses they will incur during their retirement years.”
HSA Bank notes that contributions made to an HSA are tax deductible or pretax if they are handled through a payroll deduction. Account growth is tax free, and withdrawals are also tax free if they are used for medical expenses qualified by the IRS.
HSA Bank’s findings can be downloaded here.