An HSA May Help Women Overcome Retirement Savings Obstacles
Throughout the ages, women have grown adept at doing more with less. Saving for retirement is no exception. Compared with men, women generally earn less, take more career breaks, and live longer, so it stands to reason that they need more income—not only to pay for general living expenses, but to pay for additional healthcare associated with aging. According to the Social Security Administration, women who reached age 65 in 2016 are expected to live almost three years longer than men. What’s more, a recent study claims that, by age 65, a woman will need to have saved $161,000 (compared to a man’s $148,000) to cover healthcare costs in retirement.
It all adds up to an inescapable, if frustrating, conclusion: If women want to sustain a secure lifestyle during their retirement years, they’ve got to save more.
The good news is that there are ways for your women clients to boost their retirement readiness. One method that’s often overlooked is incorporating a health savings account (HSA) into their savings strategy early on. An HSA’s unique features can help women supplement traditional retirement income (employer-sponsored retirement plans, IRAs, Social Security) and can help to overcome some of their savings obstacles.
Earning Less May Lead to Saving Less
According to a recent Bureau of Labor Statistics report, women’s salaries, on average, are 82 percent of men’s—and this 18 percent gap may mean less money available to put toward retirement each year. While an HSA might not close the pay gap, it can help a woman’s money go further. An HSA offers unparalleled tax benefits, known as the “triple tax advantage”: tax-deductible contributions, tax-deferred earnings, and tax-free distributions for qualified medical expenses. (See IRS Publication 502, Medical and Dental Expenses, for a partial list of qualified medical expenses.) These tax savings can free up money to save or spend elsewhere, while the unused contributions can be saved for retirement. HSA assets can pay for current qualified medical expenses, but they don’t have to be used at all. Unlike a health flexible spending arrangement (FSA), an HSA is not subject to a “use-it-or-lose-it” rule; balances are carried forward from year to year—even into retirement.
Career Breaks May Turn Into Savings Breaks
Women tend to take breaks from their careers more often than men, often during a period of time when they are raising a family. Most workplace retirement plans require ongoing employment in order to save, which can mean interruptions in opportunities for women to save. But with an HSA, women can remain eligible to contribute to an HSA even while they are not working. For example, if a woman is covered by her spouse’s HSA-eligible high deductible health plan, she may continue to put money into her HSA (up to the annual limit). This means that the HSA can keep growing even during her career break.
Could an HSA Really Pay Off?
An HSA can lessen the burden of higher healthcare costs, and can be used as supplemental income. While women cannot contribute to an HSA once they are enrolled in Medicare, they can still keep using HSA assets during retirement.
Sure, HSA assets can be used to pay for qualified medical expenses—including Medicare premiums and certain qualified long-term care expenses—instead of dipping into retirement plans or IRAs. But once a woman reaches age 65, she can take HSA distributions for any reason without penalty (although she will pay taxes on those distributions that are not qualified medical expenses).
With so many savings obstacles lined up against women, it is crucial that your female clients have a plan to meet their retirement savings goals. While every individual’s strategy will be different, one thing is certain: for women in the workforce, making HSA savings a priority now could pay off in the future.
