How Much Should You Really Save to Your HSA?

According to a 2021 report from Devenir Research, the average health savings account (HSA) saver contributes $2,054 to a HSA annually . Employers are also contributing an average of $870 annually to employee HSAs each year. That equates to total HSA contributions of $2,924. Is that enough?

Since you can use your HSA funds for tax-free medical expenses now and in retirement, the right HSA contribution level depends on multiple factors. Three of those factors are what you spend on medical expenses today, your family medical history, and your expected life span.

You could spend hours crunching numbers to land on the right contribution level — but you probably don’t have to. Here’s a quick-and-dirty framework for estimating an appropriate annual HSA contribution. Use it now and then revisit the numbers annually to make sure you’re on the right track.

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1. Estimate your current-year medical expenses

In a perfect world, your annual HSA contribution would cover your current-year medical expenses plus an additional amount to invest for your healthcare expenses in retirement.

First, estimate your current-year eligible medical expenses. Remember that you can take tax-free HSA distributions to cover more than your annual physical. Services like acupuncture, chiropractic, vision care, physical therapy, and hearing exams are eligible, too.

You can access the full list of qualified HSA expenses in IRS Publication 502.

2. Estimate medical expenses in retirement

Step two is to estimate (or guess at) your medical expenses in retirement. To start, find a recent report that estimates lifetime medical expenses for retirees. Healthcare software provider HealthView Services’ 2021 Retirement Healthcare Costs Data Report is an example.

The report projects that cumulative healthcare costs for couples retiring in 2021 can range from $156,208 to $1,022,997. The average for a healthy 65-year-old couple retiring in 2021 is $662,156. Interestingly, the report also finds that healthier retirees may have higher cumulative medical bills — because they live longer.

Here’s where the guesswork comes in: Think about your medical history and your family’s history of longevity. Use that information to choose an HSA savings goal. The number should be between $150,000 and $1 million if estimating for you and a spouse. Adjust down if you’re estimating for yourself only.

3. Calculate your long-term contribution

Once you have a target HSA balance in mind, use a compound interest calculator to understand the contribution needed to reach your goal.

Here’s an example using the savings goal calculator at Say you decide to save $300,000 for your individual healthcare costs. If you have 20 years until retirement and you expect average annual growth of 7%, the calculator suggests a monthly contribution of $610.

4. Find your total contribution

Finally, add the two pieces together and account for your employer contributions using these steps:

Divide your current-year medical expenses by 12 to get a monthly number.
Add your current monthly expenses to the monthly contribution from the calculator.
Subtract your monthly employer contributions.

Don’t be surprised if the total is higher than the IRS’ maximum allowed HSA contribution. As a reminder, in 2022, you can contribute up to $3,650 if you have individual HDHP health insurance. If you have family HDHP coverage, you can contribute up to $7,300.

Here’s where you have a choice to make. You could:

Contribute the max and minimize current-year withdrawals. This strategy forgoes tax-free withdrawals now but should leave you with a larger healthcare fund at retirement.
Contribute the max and withdraw whatever you need to cover your current healthcare bills. Do this if you’d rather use your HSA tax-free withdrawals now versus saving them for an uncertain future. This route can be risky unless you’re already saving aggressively for retirement in another account.

Save the max if you can

The HSA is versatile. You get the tax-free withdrawals for medical costs, of course. But you can also take taxable nonmedical withdrawals without penalty after the age of 65. Thanks to that second feature, there’s little risk of overcontributing to your HSA. If your balance is more than you’ll ever use, you could take a taxable withdrawal after 65 to fund retirement bucket list activities.

For that reason, it’s wise to max out your HSA contributions and invest a good portion of your balance if you can. That’ll provide some current-year savings and help you build funding for medical costs in retirement.

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