Can HSAs Save Millennials from Financial Devastation?


By MotivHealth

Why Millennials are Turning Toward HSAs

A world with ever-growing obesity rates and a skyrocketing cost of living has millennials hyper focused on both their long-term health and their finances. And where do health and finances meet? A health savings account. In fact, 76% of eligible millennials have enrolled in HSA plans. As saving for retirement proves to be a tougher feat than ever before, millennials are drawn to the triple-tax advantage, lower insurance premiums, and complete ownership offered by HSA plans.

Millennials are Drowning

Millennials currently face financial challenges that their parents did not. There has been a 67% rise in salaries since 1970, but even the increased wages can’t keep up with the current cost of living. Student loan debt is higher than ever as college tuition has more than doubled since the 1980s. Housing costs have skyrocketed to the point that millennials are paying 39% more for their starter homes than the baby boomers did. Because of their inability to qualify for mortgages, most millennials must rent. But guess what? Even after inflation is accounted for, rent costs have risen by 46% since the 1960s. In the face of these financial grievances, millennials are unable to set aside their own emergency funds, let alone save for retirement. An unexpected medical expense could leave a millennial in financial ruin. That’s why so many millennials are starting HSAs. Because of their triple tax advantage and investment capabilities, HSAs double as both an excellent retirement vehicle and an emergency fund.

Using HSAs to Combat the Rising Cost of Living

Only a mere 13% of HSA holders maximize their HSA’s benefits. However, by maximizing their annual contributions, a 30-year-old could accumulate over $500,000 in their HSA by age 65, assuming a 6% rate of return. And did you know that after the age of 65, HSA funds can be used on non-medical expenses?* HSA funds are capable of such impressive growth because of their triple-tax advantage: tax-free contributions (including employer contributions), tax-free growth, and tax-free withdrawals. So why don’t HSA holders always maximize their contributions? Many millennials confuse HSAs with flexible spending accounts (FSAs) which causes them to worry about “use-it-or-lose-it” policies. On the contrary, HSA funds roll over from year–to–year and grant complete ownership—they stay in place amidst any employment changes. Another common misconception is that HSAs can only be used for hospital and doctor visits. In reality, HSA funds can be spent on a variety of medical expenses, including eye exams, dental care, and even band-aids and baby monitors. (Hot tip: type “HSA” into your Amazon search box and you’ll be surprised at the vast array of products you can spend HSA funds on.) That being said, those who save HSA funds for emergencies only will experience faster growth. It is also important to remember that HSA funds can be invested. Research shows that only 3% of HSA holders invest their assets in something other than cash. MotivHealth conveniently offers in-house investing so that members can easily make the most of their HSAs.

In short, HSAs provide a beam of hope to millennials as they struggle to grasp financial stability. Nowadays, it is vital to start saving for retirement between the ages of 20 and 30, and HSAs are an excellent way to begin. Millennials who start HSAs and then maximize their annual contributions are making one of the smartest financial moves possible.

*After the age of 65, HSA funds can be used on non-medical expenses but are subject to income tax.

Sources

“7 of the Biggest Financial Problems Millennials Face that Their Parents Didn’t”
Hillary Hoffower

“Health Savings Accounts: The Right Choice for Millennials”
Tom Torre

“Millennials: Here’s What to Consider Before You Dive into a Health Savings Account”
Kelli B. Grant

“Why Millennials are Turning to HSAs for their Future”
Healthy Money

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