People Are Treating This Retirement Tool Like an ATM

People Are Treating This Retirement Tool Like an ATM

Fri, September 4, 2026 at 7:03 AM GMT+3 3 min read

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There's a triple tax break in Americans' HSAs, but most are only using a third of it.

More employees are contributing to their HSAs than in previous years, with the ratio now up to 83%, but only 22% are investing those contributions, according to a survey from the Plan Sponsor Council of America. This is a missed opportunity, since healthcare costs usually increase above general inflation and can be a significant drain on retirement savings ($185,000 for a 65-year-old retiring this year, by one estimate).

"Most people are just paying their expenses as they go, building up $100 a month, and then the next time they've got a prescription that's due, they use it as an ATM to pay the prescription," said Andrew Crowell, vice chairman of wealth management at D.A. Davidson. But "the growth you can get on those funds by keeping them there, invested even for one, two, three, four years — that multiplier is so much greater."

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Short-Term Thinking, Long-Term Cost

HSAs have a triple tax benefit: Contributions are tax-deductible, can grow tax-free and then can be withdrawn tax-free when used for qualifying medical expenses. When employees use funds for current expenses, they're only getting one of those benefits. "I think it is shortsighted," Crowell said. "What they're getting wrong is seeing it only as a current tax year benefit, and not seeing the potential for tax-free compound earnings that they can use in the future."

There are a couple of retirement-specific strategies that advisors suggest for HSAs:

• Save your receipts! There's no time limit on withdrawals for qualifying expenses, said Tim Steffen, director of advanced planning at Baird. Clients can pay out of pocket now and then reimburse themselves later, after their contributions have had time to grow.

• HSA funds can also pay for Medicare premiums, said Jonathan Lee, a CFA at U.S. Bank.

• Even people who might not be able to pay all their current expenses out of pocket should still try to leave a portion of their HSA funds invested, Crowell said.

If You're in Line, Stay in Line. Risk-averse clients may be reluctant to invest their HSAs, but they should at least make sure they're maintaining their purchasing power, Lee said. "You're going to have to go out on the risk spectrum a little bit to get the 4% inflation rate that we've seen recently in medical services," he said. "But if nothing else, maintain that purchasing power, because ultimately you want to be able to buy the medical services 10, 20, 30 years from now that you're able to buy today."

This post first appeared on Retirement Upside. To receive actionable insights for financial advisors guiding clients through the strategies, products, and policy shifts shaping retirement outcomes, subscribe to our free Retirement Upside newsletter.