Average HSA Account Balance, Contributions, and Distributions by Age
The average HSA balance ranges from $716 for someone in their mid-20s to $6,959 for those 65 and older. Overall, HSAs are vastly underutilized and offer huge investment potential for those who have access to them.
First available in 2004, Health Savings Accounts have gradually become a financial planning mainstay in the United States.
Providing the flexibility and tax incentives to save for both retirement and medical expenses, their popularity is understandable.
By the end of 2022, some 35.5 million HSA accounts held a cumulative balance of over $104 billion. That’s an overall average balance of $2,929.
We started this post to provide some insight into the average account balance of HSAs by age, but quickly found that such information is only the tip of the metaphorical iceberg.
Certainly, we will provide average account information by age, but I’m not sure that’s where you should stop your research.
The reason is that there are two distinct ways Americans seem to be using HSAs.
First, the vast majority of Americans use HSAs as an annual clearing account for medical expenses, meaning they spend most of what they contribute.
The second group uses HSAs as an investment account for both medical and retirement expenses.
The reason we’re making this distinction will become strikingly evident as you read through the post. It has everything to do with the enormous disparity in account balances.
Let’s start with the HSA balance by age.
Average HSA Account Balance by Age
The graph below summarizes the average account balance of HSAs by age range at the end of 2020.
The trend of this bar graph probably won’t shock many of you. Like most measures of financial health, with age comes more money.
However, the shape of the trend line was a little surprising to me. It’s about as linear as it can be.
Normally, other retirement or investment accounts will grow more exponentially as their owners age because of compounding interest.
Since HSAs have only been around since 2004 and they are continuing to grow in popularity, I suspect the line to curve more steeply as people age.
That also assumes more people will be using HSAs for investing, which remains to be seen.
I was also a bit surprised at the relative size of the accounts. I expected the account balances to be larger, especially for those aged 30 and older.
Both the relatively linear path of the trendline and the small balances seem to indicate that most accounts are not being used for investing, are being nearly emptied each year, or both.
That’s not a judgment. People should use them in whatever method best suits their needs.
Nevertheless, given the triple tax advantage that HSAs offer, I find it somewhat surprising.
The Great Divide
One of my favorite financial podcasters is fond of pointing out the underutilization of HSA accounts.
That is, he believes more people should utilize the investing features of HSAs instead of only taking advantage of the tax savings for medical expenses.
He is fond of providing a statistic that some 96% of HSA account owners do not invest their contributions.
While I agree that more people should take advantage of the investing aspects of HSAs, I always found that stat a bit difficult to swallow.
Well, my research for this post didn’t exactly confirm the stat this person regularly quotes, but it was close.
Out of the 35.5 million HSA accounts in the United States, only 2.6 million contain any invested assets. The remainder is completely in cash.
That’s 7.3% who invest their HSA contributions and 92.7% who don’t.
Now, you might wonder what difference it makes. After all, one can only receive the triple tax break if they use the money for qualified medical expenses.
That’s true enough, but my counterpoint would be that you really only receive one tax break if you don’t invest HSA contributions.
You see, HSAs are tax free for contributions, earnings, and withdrawals.
If you only make a contribution, leave it in cash, then withdraw it for a medical expense you haven’t really taken advantage of the earnings portion of the tax savings.
And, if there are no earnings then what value is the tax-free distribution since you are simply withdrawing your basis?
And, who says you won’t eventually use the money saved and invested for a qualified medical expense?
- According to the Boston College Center for Retirement Research, Americans 65 and older will spend an average of $310,000 on medical expenses before they die.
- HSA funds can be used to pay MediCare premiums.
- People typically spend 65% of their lifetime medical costs after they turn 65.
The truth is, there is quite a bit of financial wisdom in using an HSA to build a medical nest egg. And those who invest their contributions are building a much bigger egg.
The 7.3% of Americans who invest their HSAs hold 44% of all HSA assets.
The average balance of those who invest is 7.3 times higher than those who don’t.
That’s what some might call “disproportionate”.
But don’t get mad, get E-Trade, right? Or how about you invest those funds?
Here is a pretty bar chart in case you digest data better that way, as I do.
This data is based on HSA plans that are set up as part of an employee benefits package. Most, but not all, HSAs are used this way.
Right out of the gate, it’s difficult to ignore the skyscraper that illustrates how balances of invested HSAs completely dwarf non-invested accounts.
Before looking at the other data, some might assume that large HSA balances are the product of better employer benefits or healthier people who are lucky they don’t have to withdraw as much.
But that’s not what the data shows.
The two strongest influencers on the total account balance appear to be employee contributions and balance growth, which is a combination of earnings and contributions that aren’t spent.
Granted, employee contributions are double the amount of those contributions given by non-investors, but clearly the drastic discrepancy in total account balance is driven by earnings.
The discrepancies between employer contributions and withdrawals (which would largely indicate how much people are actually spending on medical expenses) are somewhat significant, but not enough to account for the difference in average balance.
In summary, if you want a large HSA balance, invest.
How Most People Use an HSA (Clearing Account)
I didn’t write the previous paragraph to shame anyone. There is absolutely nothing wrong with taking advantage of the tax break HSAs offer and contributing nothing further.
In fact, depending on the investment options and fees associated with your HSA, it may make a lot of sense to invest using other options like 401(k)s or IRAs before coming back to HSAs to fill up your tax-advantaged spaces.
As we’ve already pointed out, almost 93% of Americans do just that.
In 2022, $47B was contributed to HSAs, and $34B was withdrawn. That means 72% of every dollar put into an HSA comes back out in the same year.
Here’s the data for 2020.
Looking at the graph, it appears most people contribute a little more than they expect to spend each year (34% on average) and leave any leftover amounts in the account.
Again, there’s nothing wrong with this approach, but hopefully, you’ll aspire to use the HSA to its full potential eventually.
How Much Do Employers Contribute to HSAs?
When I started researching this topic I didn’t set out to identify how much employers contribute on average, but I did find that information and it is interesting to note.
In 2021, employers were responsible for 26% of all HSA contributions with an average annual employer contribution value of $867. The vast majority of that came in January of each calendar year.
If you are enrolled in a high deductible health plan and your employer does provide some sort of contribution incentive, you should take it.
When prioritizing the value of investment accounts, we always give accounts with employer contributions priority because it’s an opportunity to obtain free money.
But when your employer offers a contribution to both a 401(k) and an HSA, we recommend taking the available employer match through the HSA first.
That’s because even 401(k)s don’t have the triple-tax advantaged treatment that HSAs enjoy.
Conclusion
I’m glad to see that more and more people are using HSAs, but there is still so much potential for them.
Simply put, HSAs are the single most powerful tax-advantaged savings vehicle and every effort should be made to take advantage of everything they have to offer.
For more about HSAs, check out our post that explains what an HSA is including the tax features, rules for withdrawals, and other strategies to optimize their use.
