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So your new employer auto-enrolled you into a health savings account (HSA), and you heard through the grapevine that HSAs are even better than a 401(k).
I learned the hard way. Because I kept cash funds in my HSA and did nothing.
Yes, an HSA lets you pay for health expenses, save for retirement after age 65. But it’s more complicated than that.
Now I know, HSAs are a viable retirement vehicle only when you change that HSA cash into HSA investments inside your HSA account on your phone or computer.
If you have an HSA, and you only keep cash in there, please consider using your HSA account’s investment features.
Yep, they call it H for Health, but money grubbers like me use their HSA like R for Rich in Retirement.
Graycare is NOT a financial advisor.
It makes sense. When 70 million Americans are covered by 35 million HSA accounts and half of them are automatically enrolled by their employer. Then you’re going to have millions of Americans who don’t know much about HSAs.
This is my dumb dumb story. A story to which low-income, financially illiterate people like me should listen.
I built up $10,000 cash into my HSA before I started wondering, why isn’t my HSA money making me money like a retirement account should?
Silly goose! Keeping HSA funds in cash is the wrong way. Instead, use your HSA account to invest in stocks and bonds. Don’t just let it sit there! Utilize your HSA cash to make HSA investments inside your HSA.
Failing to invest will leave you earning tiny interest.
To use an HSA to save for retirement, investment is the way to multiply your returns.
Me? I let my HSA cash sit there, earning tiny interest, because I didn’t make the switch. After I switched from HSA cash to HSA investments, I started earning big interest.
When you do a good job allocating HSA investments (think stocks, bonds, and index funds), then the money inside your HSA account grows faster.
Here’s how it works - more or less - but hopefully more, more, MORE! How? Turn your HSA tax-free contributions into HSA tax-free compounding interest.
Once you turn 65, you can withdraw HSA funds for any expense still tax free.
(1) Log in to your HSA account on a phone or computer. You’ll see your cash balance and your investment balance inside your HSA account.
(2) Change your investments. If you have a cash balance of SOME, and an investment balance of ZERO, then you need to “switch” the cash into investments. Choose your funds wisely.
(3) Now that you have switched some or all of your HSA cash into HSA investments, you will start to see investment activity. You should monitor investments every once in a while to make sure they are earning big interest.
When scrupulous financial advisors tell you “HSA is a better investment vehicle than 401(k)”, that’s because HSA it’s healthy and wealthy AFTER you choose invest wisely and wait a long time.
Before retirement, people can use their HSA to pay less at doctor’s offices, pharmacies, vision providers and thousands of other payments, such as prescriptions (like medical, dental, or vision), plus consumer health items (like toilet paper, skin cream, first aid kits, and over-the-counter pills).
But when you use your HSA to pay, then that cash ain’t going towards HSA investment.
What might retirement look like? Having little to no income and hundreds of thousands of dollars on medical expenses.
Using HSA as an investment vehicle? Don’t forget to switch cash to investments.
I learned the hard way by HSA cash hoarding, when I should have been HSA investment hoarding all along.
After 65, you can spend your HSA cash on anything.
I was a dumb dumb because it only took logging into my HSA account and finding where to switch that cash into investments in order to start compounding interest tax-free.
All of a sudden, THIS tax-free contribution from my paycheck and THAT tax-free contribution from my employer where SWITCHED from cash to investment funds and crashed together with lumps of stocks and bonds getting tax-free interest fast.
If you have an HSA, you don’t need HSA cash for health costs, and you don’t have HSA investments… What are you waiting for?
People like me (egging towards filthy rich) choose to lock up HSA deposits in there forever. That’s because if I’m alive at 65 or something, then I can withdraw the HSA cash tax free for non-medical purchases.
If you’re healthy and investing, then an HSA might save more for retirement than a 401(k).
