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There was a time when many American workers could expect to retire with profit sharing and investments, a pension, Social Security benefits, and Medicare coverage. They felt sure that their golden years would be filled with rest, peace of mind, and little worry about medical bills.

The times have changed. Today, only 15% of American workers in the private sector have access to a retirement plan. Barely a fifth of American companies offer a incentive plan. In the first four months of 2022, the Dow lost more than 10% of its value. the average 401(k) balance for 64-year-olds is $232,000, with the median balance now below $85,000.

Financial advisors have long recommended diversifying retirement portfolios. With retirement assistance both less available and less reliable than before, having multiple resources to ensure a successful retirement has never been more essential.

Even Medicare is no longer a panacea for retirement health care needs. Fidelity predicts that the average 65-year-old couple will need approximately $300,000 in after-tax savings to manage healthcare costs retired – and that’s assuming they don’t have any chronic illnesses.

Pension plans will…will…disappear

American Express launched the America’s first company pension plan in 1875. After 20 years of service or reaching the age of 60, workers were guaranteed half of their annual salary upon retirement. Retirement plans spread throughout corporate America, and by 1960 half of the private sector workforce could expect to receive one.

However, in the early 1980s, employer-sponsored defined benefit pension plans began to give way to defined contribution plans funded primarily (if not entirely) by employees. Between 1986 and 2016, the number of defined benefit pension plans fall by 73%.

Social Security and Medicare are at risk

Trustees of the Social Security Administration’s Old Age and Survivors’ Insurance (AVS) Trust Fund estimated in 2021 that under current law and their intermediate assumptions, the funds used to pay old age benefits and Social Security Survivor will become impoverished in 2033, and those used to pay disability benefits will run out in 2057. After that date, benefit payments may continue but at only 78% of the scheduled amounts.

Medicare was enacted in 1965 to provide the elderly with health insurance. However, unless Congress raises taxes or cuts benefits, Forbes estimates that Medicare’s main trust fund will be empty by 2026. As with Social Security, benefit payments are expected to continue, but at no more than 91% amounts provided.

HSAs help pick up the slack

Health savings accounts (HSAs) can help pay for healthcare expenses now and for healthcare and other expenses in retirement. Their “triple tax saving”, among other advantages, makes them a very attractive alternative to other investment vehicles.

To open an HSA and make contributions, you must be enrolled in a qualified high-deductible health plan (HDHP). For 2023, HSA qualified HDHPs have minimum deductibles of $1,500/$3,000 for single/family coverage and maximum disbursements of $7,500/$15,000.

Triple tax advantage: Account holders can make pre-tax contributions (Limits 2023 are $3,850 for an individual and $7,750 for a family) which generate interest and non-taxable investment gains. Funds withdrawn to pay eligible medical expenses also remain tax-exempt.

Capital growth: Unused HSA balances can be invested to grow significantly through tax-free earnings and dividends.

Portability and rolling: Unlike other tax benefit accounts, HSAs belong solely to the account holder, regardless of who contributed the balance and where (or if) the account holder is employed. Also, the funds do not disappear if they are not spent within a specific time. The balance is renewed year after year.

Funds remain tax-exempt and available: If the account holder is no longer registered with a qualified HDHP, they can no longer actively contribute to their HSA account but can hold, invest or spend the balance as always.

Submissions: Anyone can contribute to the account (self, employer, family members, etc.) up to the annual limit imposed by the IRS ($3,850 individual / $7,750 family for 2023). People over 55 can contribute an additional $1,000 over the limit.

Extended contribution period: Contributions to the annual limit can be made from January 1 of the tax year until April 15 of the following year (the tax year’s income tax filing deadline).

Tax dependents: HSA funds used to pay for eligible healthcare expenses of the account holder’s dependents also remain tax-exempt.

No penalty after age 65: HSA funds withdrawn before age 65 for purposes other than payment of eligible health care expenses are subject to a 20% penalty tax in addition to ordinary income tax. After age 65, funds spent on health care remain tax-exempt, while funds spent on anything else incur no penalties and are taxed at the account holder’s then-prevailing rate.

Legacy: The surviving spouse of an HSA account holder can use any remaining account balance with all the same benefits. After the surviving spouse dies, the next beneficiary is taxed only on any remaining balance after all outstanding medical bills for the deceased have been paid.

Take away food

The days of guaranteed financial support in retirement are over, with employers no longer offering defined benefit pensions or general profit-sharing plans. Meanwhile, the cost of retirement is steadily rising, especially to pay for health care as we age.

Government programs meant to help cover retiree incomes and health care needs are facing funding shortfalls that are expected to start reducing benefit payments in the near term.

Medicare also faces funding challenges and, even when funded, does not fully cover enrollees’ health expenses. Seniors are responsible for maximum annual out-of-pocket costs, and essentials like dental, vision, and hearing care may not be covered at all, depending on the plan purchased.

To help protect your clients’ income and assets, now and in retirement, HSA accounts offer tax-free contributions and investment gains similar to a 401(k) plan, with the added benefit of healthcare expenses. not taxable.

Rather than relying on Medicare and other assistance programs, your clients can invest in themselves by opening an HSA account now. No age is too early; benefits begin immediately and continue until retirement.

candy darr is a 15-year veteran of the benefits industry and is a past national conference chair for the Employer Council on Flexible Compensation. As Senior Content Marketing and Partner Manager at DataPath, Candy develops educational programs and delivers creative solutions for clients and Data path in its entirety.