Are millennials with HSAs thinking about retirement?

Mike Dullaghan

Mike Dullaghan
DC Investment Specialist , 11/08/17


  • Among health savings account (HSA) owners, Baby Boomers have the highest balances and the fastest account growth (BofA, 2016)
  • Millennials represent 33% of overall enrollment in HSAs, up from 9% in 2010 (BofA, 2016)
  • One-third of millennials expect health-care costs to be their largest expense during retirement, ahead of housing and utilities (27%) and travel/leisure (18%) (Insured Retirement Institute, 2017)
The millennial workforce may be embracing HSAs in larger numbers these days, but they may not be aware of the potential use of HSAs to save for retirement.

HSAs are available for participants in high-deductible health insurance plans. With more companies offering these plans, enrollment in HSAs grew by 42% in 2016, compared with a year earlier, Bank of America reported. Many millennials are choosing this insurance option and funding an HSA.

Triple tax benefit

HSAs offer a “triple tax benefit” for savers. Contributions are made with pretax dollars, assets grow without incurring a tax on the interest, and money withdrawn is tax free, as long as it is used for qualified medical expenses.

HSAs are receiving more attention among investors as a way to manage near-term health costs and as a strategy to save for retirement. Because there is no time limit for distribution of the funds and the accounts are portable, account owners retain the assets when they change jobs or retire. The HSA may be an additional option for covering health-care costs in retirement. As long as the distribution is for a qualified medical expense, the money may be used tax free.

All generations are aware of rising costs

Health-care costs have outpaced earnings and inflation over the past 15 years and are expected to continue to climb. The number of savers using HSAs for future health expenses is rising, but in a recent survey 46% of workers with an HSA said they are using the account primarily for immediate- or near-term costs.

Younger workers could be using HSAs as a way to save for the future. One study found that millennials are investing 20% more of their salaries in HSAs compared with other age groups (Source: Benefitfocus). With less demand for health-care expenses at younger ages, it may be easier to set aside funds for the future with an HSA.

Millennials are saving — in 401(k) plans, personal savings accounts, and health savings accounts. But most are not planning, the IRI study found. In addition to concerns about health-care costs, only 25% of millennials believe they will receive any meaningful income from Social Security in retirement. About half — 53% — believe their workplace retirement account will provide sufficient income. And while millennials clearly identified areas where they need help — calculating savings goals, paying off debt, and crafting a plan —only 34% have sought advice from a professional advisor (Source: IRI).

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