- Recent research found 60% of workers contribute to both a health savings account (HSA) and a 401(k).
- Workers enrolled in both an HSA and a 401(k) tend to contribute more to their 401(k) than workers who are saving only for retirement.
- Only 3% of savers used an HSA to invest in assets outside of cash (EBRI, 2017).
Workers saving in both health savings accounts (HSA) and 401(k) plans tend to save more – in their 401(k).
A recent study of more than one million participants in employer-sponsored defined contribution plans found that, on average, workers who contribute to both an HSA and a 401(k) saved 8.9% in the 401(k) and an additional 2.9% in the HSA. For workers who only save in a 401(k), the average contribution rate was 6.8% (Alight Solutions).
Income plays a nuanced role
The savings pattern remained the same even when controlling for different factors such as income, the report stated.
While just over 60% of workers use both HSA and retirement benefits, about 10% of workers were not enrolled in either plan.
The study found, however, that income level has an impact on enrollment. Workers earning $40,000 or more are more likely both to elect health coverage and to save in a 401(k) plan than workers who earn less. This is perhaps because low-income earners are unable to divert earnings for savings.
Also, high earners were more likely to enroll in a plan with an HSA. Among those earning $60,000 a year or more, 53% were enrolled in a medical plan with an HSA, compared with 44% of workers earning less
Accounts are on the rise, but usage varies
While the number of health savings accounts has increased in the past 10 years — to 20 million in 2016 — not all savers use the accounts in the same way.
At the end of 2016, the average balance in HSAs was $2,532, according to the Employee Benefit Research Institute.
Still only 3% of savers had used the account’s flexibility to invest assets outside of cash instruments. And only 13% had contributed the maximum allowable amount.
Those who invested beyond cash had higher account balances than non-investors.
The possibilities for building up higher asset balances in HSAs and the investment options that the accounts permit are two areas in which plan providers have an opportunity to educate workers about the potential of health savings accounts.
311009
For informational purposes only. Not an investment recommendation.
This material is provided for limited purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or any Putnam product or strategy. References to specific asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations or investment advice. The opinions expressed in this article represent the current, good-faith views of the author(s) at the time of publication. The views are provided for informational purposes only and are subject to change. This material does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Investors should consult a financial advisor for advice suited to their individual financial needs. Putnam Investments cannot guarantee the accuracy or completeness of any statements or data contained in the article. Predictions, opinions, and other information contained in this article are subject to change. Any forward-looking statements speak only as of the date they are made, and Putnam assumes no duty to update them. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Actual results could differ materially from those anticipated. Past performance is not a guarantee of future results. As with any investment, there is a potential for profit as well as the possibility of loss.
Diversification does not guarantee a profit or ensure against loss. It is possible to lose money in a diversified portfolio.
Consider these risks before investing: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Bond investments are subject to interest-rate risk, which means the prices of the fund’s bond investments are likely to fall if interest rates rise. Bond investments also are subject to credit risk, which is the risk that the issuer of the bond may default on payment of interest or principal. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds, which may be considered speculative. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. Commodities involve the risks of changes in market, political, regulatory, and natural conditions. You can lose money by investing in a mutual fund.
Putnam Retail Management.