We’ve covered Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) in this space before, including the pros and cons of each and the key differences between the two. And with Open Enrollment season on the horizon yet again, we thought it would be a good idea to zero in on HSAs – specifically as it pertains to one mistake that some 91 percent of Americans are making. Simply put, financial experts say that consumers should be investing parts of their HSAs – yet only about 9 percent of all HSA account owners do so.
We’ve covered the high cost of healthcare as Americans age. In fact, according to a report by Fidelity, an average retired couple is expected to need about $300,000 saved to cover their healthcare expenses in their golden years. Needless to say, but that’s a lot of scratch – and it’s not even considering healthcare inflation costs that are likely to come.
And one of the nice things about HSA accounts is that any money still in them at the end of the year will carry over. In other words, unlike with an FSA account, you won’t lose what you don’t use at year’s end with an HSA.
Interestingly, many HSA account owners have the option of investing some of that money in mutual funds to make it work harder for them over the long term. Now, we say “many HSA owners” because this benefit isn’t available to everyone with an HSA – but you might be surprised that some 91 percent of HSA owners aren’t even exploring this as a potential option. And those who do are seeing their money allocated for healthcare spending work a lot harder for them. What’s more is that they’ll continue to see their money work harder for them than if it were just in a static cash mode.
There is one key disadvantage to going the HSA investment route worth mentioning, however, and that’s the fact that you can’t use what you invest for healthcare spending purposes. Noting this, you might have to pay for some expenses out of pocket – and we’re certainly not naive enough to realize that not everyone has the means to do that. One strategy – for those who can manage it – is to keep enough money in your HSA to cover your medical plan’s annual deductible and then invest the rest.
With Open Enrollment coming up at firms throughout the country and workers assessing what they want to contribute to their HSA accounts, now is a good time to see if investment is an option and if you can make it work. If you can, you’re likely to reap the long-term rewards of more money for healthcare spending when you likely need it most.