The retirement savings gap is growing

Projections by the World Economic Forum (WEF) suggest that the US retirement savings gap could reach $137 trillion by 2050. A recent study by the WEF found that most retirees will outlive their savings by a decade.

Women and young Americans especially continue to fall behind. Evidence shows there’s a deeper retirement savings gap for women and more than two thirds of Millennials have nothing saved for retirement.

Interrupted employment from the pandemic will only amplify these challenges.

Healthcare in retirement is expensive

At the same time, healthcare costs are rising with no end in sight. According to recent estimates from Investopedia, the average couple will need $300,000+ to cover out-of-pocket medical expenses in retirement.

That’s how much they will need if they retire today. With inflation, these figures could be even higher in the future.

Consider that Medicare isn’t free. It has premiums just like your health insurance today. Prescriptions tend to cost more in retirement too. The irony is that healthy couples will need to absorb even more costs, as longer life expectancy translates into more healthcare spending.

Bottom line: You can’t plan for retirement without also planning for your healthcare. That’s why more members than ever are investing in their Health Savings Account (HSA) to build long-term retirement and healthcare savings.

Comparing HSA to 401(k)

When it comes to retirement, everyone talks about the 401(k). But your HSA can be one of the best accounts for saving for retirement. Not only can you invest1 your HSA and potentially capitalize on tax-free growth, but your HSA also delivers powerful tax advantages you can’t find anywhere else.2







Not taxed

FICA taxed


Not taxed

Not taxed

Distribution for qualified medical expenses

Not taxed

Taxed (As ordinary income)

Distribution for non-qualified medical expenses

Taxed (As ordinary income
after age 65)

Taxed (As ordinary income
after age 59-1/2)

Required minimum distribution


Yes (age 72)

As you can see from this table, your HSA brings all the tax efficiency of a 401(k) along with additional bonuses. For example, 401(k) contributions are subject to FICA payroll taxes, while HSA contributions are not. So, HSA contributions can go further than 401(k) contributions and can help you save faster.

In addition, HSAs do not have required minimum distributions. Plus, members age 65 and older can take taxable HSA distributions for any expense—just like a 401(k). And, of course, distributions are always tax-free when used for qualified medical expenses.3

Considering how much you’re likely to spend on healthcare in retirement, those advantages can translate into huge savings.

Maximize your spending power in retirement

Because you can take money from your HSA tax-free when you pay for qualified medical expenses, the money in your HSA goes further than the money in your 401(k).

Here’s a comparison for illustration based on a 22 percent effective tax rate.



Balance (at age 60)



Spending power (distributions are not taxed)

$300,000 (distributions are not taxed)

$234,000 (distributions are taxed)

HSA Savings (versus 401k)

An extra $66,000 by the time you retire can go a long way! See all the ways you can spend your HSA at the HSA Store.4

Optimize your retirement savings strategy

Given that a significant portion of retirement spending will go toward healthcare costs, it may not be ideal to use a 401(k) as your sole retirement savings vehicle. An HSA offers much more flexibility and empowers you to pay for qualified medical expenses in retirement—in many instances, tax free. Therefore it could be prudent to use a 401(k) in conjunction with an HSA. For many people, an effective contribution strategy may follow these steps.

#1 Max out your employer’s HSA match

Many organizations may offer an annual seed contribution. Other organizations offer an ongoing HSA contribution match. Usually the match is dollar-for-dollar up to a specified limit. Given the short- and long-term flexibility associated with your HSA, it’s important to capture this match first. Don’t leave free HSA money on the table!

Keep in mind that your employer’s HSA contributions count toward your overall contribution limits. You can always view the latest IRS contribution limits at this page.

#2 Max out your employer’s 401(k) match

Commonly, employers may match fifty cents on the dollar up to six percent of employee income. Other match plans go dollar for dollar up to an established percent of employee income. Regardless of the approach, an employer 401(k) match represents real income that should also be captured if available. Same thing: Don’t leave free money on the table!

#3 Max out your HSA

Do your best to contribute up to the IRS contribution limits. Members 55+ can contribute an additional $1000 beyond these limits. In most cases, it may be advantageous to maximize contributions to your HSA before maxing out your 401(k). FICA savings alone could justify prioritizing the HSA.

#4 Max out your 401(k)

After maxing HSA contributions, then contribute additional money to a 401(k). Maxing contributions to both your HSA and retirement accounts should help you build a nest egg your future self will appreciate.

There are some people, however, for whom this strategy may not be ideal. Consider that HSA dollars cover myriad over-the-counter medicines, including cough suppressant, pain relievers and even menstrual care products. If inclined to regularly use the HSA for such routine purchases, then a unique long-term savings strategy should be considered. Please consult a professional to determine the best strategy for you.

It’s difficult to save for retirement if you’re regularly dipping into your HSA for routine spending. For some people, the 401(k) early distribution penalty serves to create the necessary savings discipline.

Have questions? Visit our Help Center.

Ready to shop? Visit the HSA Store.5