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Your mission: To build a nest egg of $175,000 for healthcare costs in retirement. How are you going to get there? Great question. It鈥檚 a big goal! But it鈥檚 achievable. We wanted to show you how you can get to that number exclusively by using your health savings account (HSA) as the savings tool it鈥檚 intended to be.

Why $175,000? 

A recent study by Milliman found that the average healthy 65-year-old couple retiring in 2020 鈥渋s projected to spend in today鈥檚 dollars ($535,000 in future dollars) on healthcare鈥� in their lives. If a couple needs about $350,000, then an individual can expect to need half that 鈥� $175,000 鈥� in retirement. 

Why an HSA?

HSAs are booming in popularity, with total assets . That鈥檚 nearly triple from just five years earlier. 

Unfortunately, many HSA participants use their HSAs exclusively as short-term savings vehicles. of HSA participants save money in an HSA to prepare for retirement, while just their HSA funds. That鈥檚 despite HSAs having comparable 鈥� or better 鈥� retirement-planning perks than 401(k) or IRA, including: 

• HSA earnings through investment accumulate tax-free.
• All HSA funds carry over from year to year.聽
• Flexibility to withdraw funds for eligible expenses when needs emerge.
• Contribution amounts can be changed at any time.聽

Our HSA retirement model

We鈥檝e developed a model to help you see how you can reach your retirement goals with an HSA. The model is based on the following: 

• You invest your HSA funds, and the return-on-investment is 5 percent annually.
• Your combined federal and state tax rate is 25 percent.

Scenario #1: You鈥檙e 25 and are 40 years from retirement

As with any retirement planning, the earlier you start, the better. That will become very clear as you progress through these scenarios. 

Based on our model, if you wanted to get to $175,000 in your HSA for retirement, you would only need to set aside about $18 per week. That鈥檚 well short of an HSA鈥檚 contribution limit (in 2021, it was $3,600 per year for individuals). To put it in perspective, $18 per week might be less than what .

Scenario #2: You鈥檙e 35 and are 30 years from retirement

Thirty years still leaves you with a lot of time and wiggle room. By contributing just $33 per week to an HSA, you鈥檒l be on the path to $175,000. That鈥檚 on gas, motor oil, and other fuels in an average year. 

Scenario #3: You鈥檙e 45 and are 20 years from retirement

Even at 20 years until retirement, $175,000 is still achievable within an HSA鈥檚 contribution limits. Within our model, you would need to contribute $65 per week to reach $175,000 by retirement. That鈥檚 less than , and the return is a lifetime of healthcare coverage after age 65.

Scenario #4: You鈥檙e less than 20 years from retirement

The good news is it鈥檚 not too late to get to $175,000! It will be a little more challenging to achieve this goal if you鈥檙e confined to self-only HSA contributions due to the IRS鈥� self-only limits. However, you have options: 

• If you鈥檙e married and the HSA-eligible high-deductible health plan you鈥檙e enrolled in also covers your spouse, then you can contribute the HSA鈥檚 family contribution limit. That allows you to more aggressively pursue $175,000 with just an HSA.
• If you鈥檙e single and are confined to an HSA鈥檚 self-only limit, you can still max out your HSA. You鈥檒l also want to turn to another retirement account to help you get to that number. But you should start with an HSA first, since there are tax advantages to using an HSA for healthcare costs that a 401(k) or IRA don鈥檛 have.

Watch the video below to hear from our own Jason Cook about the retirement-planning potential of an HSA.