How HSAs may help women clear retirement savings obstacles

Throughout the ages, women have grown adept at doing more with less. It’s a skill that will stand many of today’s women in good stead when it comes to retirement savings.

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 for general living expenses, but to pay for additional healthcare associated with aging. Women who reached age 65 in 2016 are expected to live almost three years longer than men, according to the Social Security Administration. 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 them to boost their retirement readiness through a number of methods. One that’s often overlooked is incorporating a health savings account into their savings strategy early on. HSAs’ unique features can help women supplement traditional retirement income via employer-sponsored retirement plans, IRAs and Social Security, and can help to overcome some of their savings obstacles, too.

Bridging the 18% gap

Women’s salaries, on average, are 82% of men’s, according to a recent Bureau of Labor Statistics report, and this 18% 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. HSAs offer unparalleled tax benefits. The “triple tax advantage,” as it is known, allows 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 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.

Turning career breaks into savings breaks

Most workplace retirement plans require ongoing employment in order to save, which can mean fewer opportunities for women, who tend to take career breaks more often than men. 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 her HSA can keep growing even during a career break.

HSAs in retirement

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 them, women in the workforce need to have a plan to meet their retirement savings goals. While every individual’s strategy will be different, one thing is certain: for women, making HSA savings a priority now could pay off in the future.