Health Savings Accounts: The Missing Ingredient in Millennial Retirement Planning

June 24, 2016

Encouraging millennials to think about retirement may seem like a wasted effort. After all, this is a generation that’s just entered the workforce – surely the last thing Gen Y-ers are thinking about is life off the clock. Paying off debt, maybe. But, retirement? If it can’t be Instagrammed, they’re not interested. At least, that’s the oft-painted picture of today’s working millennial – but it’s not an accurate one.

In reality, a retirement survey from GOBankingRates debunked the myth of the short-sighted millennial, reporting that 3 in 5 millennials have begun saving for retirement. So, our work here is done, right?


While many millennials are being proactive by starting their retirement planning, their balances are still quite low. That’s because many are missing out on a key part of the retirement puzzle – the Health Savings Account (HSA). The reason? It’s not that these accounts don’t offer great benefits for millennials – it’s that many in Gen Y don’t understand the benefits offered by an HSA.

The True Benefits of an HSA

Skipping out on such a robust benefit would seem to be unprecedented behavior for millennials, who are known for endlessly researching options before making a decision. But because this population doesn’t often think of healthcare as something you consume, they don’t often think of themselves as healthcare consumers.

A health savings account is a consumer-directed health benefit that places healthcare decisions into the hands of the account-holder and offers a trifecta of tax advantages. Not only can account-holders make pre-tax contributions and withdraw tax-free money from HSAs for medical expenses at any age, but enrollees also earn tax-free interest on their account balances. As an added bonus, account-holders can invest their dollars in mutual fund options to grow their investment just like a 401(k). And for an HSA after age 65, funds can be tapped into for any expense without penalty.

This health savings benefit is a benefit-now, benefit-later option, which should be especially appealing to a group commonly stereotyped as the WIIFM (what’s in it for me?) generation. Yet, despite the benefits, HSA adoption rates remain relatively low among millennials. For those who do have an account, many deplete their balances on current out-of-pocket expenses instead of taking advantage of the benefit as an investment tool for the future.

For a generation plagued with debt, it can be difficult to even begin thinking about saving for later. But since 70% of millennials are already planning for retirement – and health expenses are one of the biggest burdens faced by retirees – Gen Y simply cannot afford to overlook the health savings account as a retirement tool.

HSA for Millennials

A Recipe for Success

In just a few simple steps, millennial consumers can take healthcare matters and finances into their own hands, saving money now and also stashing cash for the future.

  • Step 1: Millennials should enroll in a high-deductible health plan (HDHP). These plans are becoming more and more common, and if there’s any time to take advantage of a low-premium, high-deductible plan, it’s at an age when medical costs are at their lowest.
  • Step 2: More importantly than just enrolling in an HDHP is pairing the plan with an HSA. In 2016 and 2017, anyone enrolled in a single coverage plan with at least a $1,300 deductible or a family plan with a minimum deductible of $2,600 is eligible to participate in an HSA. The pre-tax benefit will help offset out-of-pocket expenses incurred as a result of the higher deductible plan.
  • Step 3: The final and most important step is for millennials to use an account for health savings as it was intended – as a savings, not a spending, account. An HSA won’t help much in retirement if it’s depleted each year. When there’s an out-of-pocket cost that’s affordable to pay out-of-pocket, millennials should opt for that and let the money in their account earn interest. When it finally does come time for retirement and medical expenses have increased but the paychecks have stopped coming in, that safety net will make a big difference.

Despite the sometimes frustrating stereotype, millennials shouldn’t be afraid to ask what’s in it for them. The answer, when it comes to HSAs, is a better retirement. To learn more about why millennials should start participating in an HSA now, take a look at this video.

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