It’s no secret that health care will likely be one of your larger expenses once your career ends and your retirement plan kicks in. The average cost of health care begins to rise around age 55. Those expenses add up over time; a 65-year-old who retired in 2025 will spend an average of $172,500 on health care throughout retirement, according to Fidelity.
Unsurprisingly, many people worry about paying for future health care needs. In a recent Nationwide survey, 64% of Americans said they’re terrified of what health care costs might do to their retirement plans.
That’s why it’s crucial to read up on health care costs ahead of retirement and plan and save for them. And you could go about that in a number of ways.
Of course, one option is to boost your cash savings before retirement so you can cover health care expenses as they arise. Another option is to pad your IRA or 401(k).
But there’s another account worth maxing out if you’re worried about future health care costs. And it’s an account that may prove to be more flexible than you’d expect.
Why everyone with HSA access should participate
What makes a health savings account (HSA) unique is its combination of tax benefits and flexibility. It pays to have a strategy for using your HSA in retirement.
Triple tax benefits: HSAs combine the benefits of traditional and Roth retirement plans for the ultimate tax reprieve. Contributions to HSAs are tax-free, and the funds invested in an HSA grow tax-free. Withdrawals are also tax-free, provided they’re used for qualifying medical expenses.
Long-lasting advantages: What makes HSAs equally valuable is that you can use your money whenever you want, and on almost anything you want, after a certain age.
HSA funds don’t have an expiration date, so while you can take withdrawals during your working years to cover near-term medical expenses, a better bet is to reserve your HSA for retirement. And the reason is twofold.
First, you may have an easier time covering health care costs while you’re working and collecting a paycheck than once you’re retired. And you may find that your costs are lower during your working years when you’re younger than during retirement, when age-related issues might arise.
Also, HSA balances get to grow on a tax-free basis, similar to Roth IRAs. So the longer you let your balance grow, the more benefit you get, and the more wealth in that account you stand to accumulate.
"The real benefit comes if you can pay some costs out of pocket and let your HSA balance stay invested and grow for future health care needs," says Amy Ray, Director, Advice and Wellness Products at Transamerica.
Plus, Ray says, “One of the most overlooked features of an HSA is its flexibility. If you pay a qualified medical expense out of pocket and keep good records, you can reimburse yourself later. For example, if you pay for a $20 prescription now, you can choose to leave that $20 in your HSA today, knowing you can take it out later if needed."
Just as the IRS imposes penalties on certain early IRA and 401(k) withdrawals, it also penalizes HSA participants who withdraw funds for non-medical reasons. In that case, you’re typically looking at a 20% penalty, double the 10% penalty that applies to early IRA and 401(k) withdrawals.
Big benefits when you turn 65: However, once you turn 65, the penalty for non-medical HSA withdrawals is waived. At that point, you can tap your HSA for any purpose whatsoever. You can even use your HSA to pay for Medicare premiums.
Non-medical HSA withdrawals will count as taxable income, though. Only withdrawals for qualifying medical expenses are tax-free.
This means that once you turn 65, your HSA can double as a traditional retirement savings plan. So if you end up with a large sum of money in that account, you can rest assured that it won’t go to waste, even if your health care needs end up costing a lot less money than expected.
If you are 64, tread carefully. You should not contribute to an HSA in the six-months before you turn 65, and you should stop contributing when you're enrolled in Medicare.
Are you eligible for an HSA?
It’s not a given that you’ll be able to participate in an HSA. To be eligible to contribute, your health insurance plan must meet annual guidelines (PDF).
In 2026, your health insurance plan needs to have a minimum $1,700 deductible for self-only coverage, or a minimum $3,400 deductible for family coverage, to be HSA-compatible. Your plan’s out-of-pocket maximum also can’t exceed $8,500 for self-only coverage or $17,000 for family coverage.
You should also know that once you’re enrolled in Medicare, you’re no longer allowed to contribute money to an HSA, even if you’re still working. Rest assured, you can still use your HSA funds as a Medicare enrollee.
If your health insurance plan meets these requirements, you’re able to contribute up to $4,400 in 2026 if you have self-only coverage, or up to $8,750 with family coverage. There’s also a $1,000 catch-up contribution available for workers 55 and older.
Plus, some employers that offer HSAs contribute funds to these accounts on workers’ behalf. But even if your workplace doesn’t have an HSA, you can open an HSA independently as long as your health insurance plan meets the requirements.
There’s really no other savings vehicle that offers the same tax breaks as an HSA. So it pays to not only contribute to one if you’re able, but also make a point to reserve those funds for retirement. You may find that having an HSA balance to tap alleviates a good amount of financial stress later in life, no matter what health care expenses you end up facing.
