The Benefits of HSAs: Can a High-Deductible Health Plan (HDHP) Be Right for You?
October 18, 2024
Choosing the right health insurance plan for yourself or your family is one of your most important financial decisions.
With a range of plans available through your employer (or the
Marketplace), navigating the complexities of healthcare coverage can feel overwhelming. Each plan comes with its trade-offs, and comparing premiums, co-pays, coinsurance, deductibles, and out-of-pocket expenses to determine what’s best for you and your family is no easy feat.
One health insurance option to consider is a high-deductible health plan (HDHP), especially when it’s paired with a health savings account (HSA). These plans have become more common as health insurance costs continue to rise, and they can be a great fit if you’re seeking both flexibility and financial savings in your healthcare coverage.
What is a High-Deductible Health Plan (HDHP)?
High-deductible health plans (HDHPs) are defined by their higher deductibles compared to traditional health plans — you pay more out-of-pocket for healthcare services before your insurance covers the costs. HDHPs have higher allowable deductibles and out-of-pocket maximums than traditional plans, and the IRS sets the guidelines for these amounts.
For 2024, the HDHP minimum deductible is $1,600 for an individual and $3,200 for a family; these amounts increase to $1,650 for individuals and $3,300 for families in 2025. The 2024 maximum out-of-pocket limit is $8,050 for individual coverage, and $16,100 for family coverage (increasing to $8,300 and $16,600 in 2025).
One of the biggest draws of HDHPs is their lower premium payments: while you’ll pay more upfront for healthcare costs, the reduced monthly premium can help offset some of that expense. An HDHP shifts the financial burden from the plan’s monthly cost of coverage to its deductible. So if you don’t anticipate significant healthcare needs for yourself or your family, this can potentially lead to sizable savings over time.
When considering an HDHP, it’s important to weigh the financial trade-offs; yes, you’ll pay less in premiums, but you’ll have to be prepared to handle higher out-of-pocket expenses if you need medical care. Can you pay these higher costs, or would a more predictable, lower-deductible traditional plan better fit your financial situation?
When Is an HDHP a Good Choice?
Here are key situations where an HDHP might be the best option:
- Low Medical Utilization: If you and your family are generally healthy and rarely use medical services aside from the occasional check-up and preventative care, an HDHP can significantly lower your healthcare costs. You won’t be paying higher premiums every month for services you don’t use, and you’ll have extra savings for future healthcare expenses or medical needs.
- Financial Stability: If you can comfortably afford to pay the higher deductible and you have a financial cushion for unexpected medical expenses, then the lower premiums of an HDHP can offer you substantial savings in the long run. HDHPs work best if you have financial flexibility.
- Long-term Saver: By saving the difference between premiums and contributing it to a health savings account (HSA), you can accumulate a tax-advantaged nest egg for future healthcare expenses (or even retirement). Effectively managing your healthcare spending and contributing consistently to an HSA can help you build savings.
- Younger Populations: Younger individuals are less likely to require significant medical care, and can take full advantage of the lower premiums without worrying about meeting the high deductibles. If you’re young and healthy, an HDHP with an HSA can be a smart way to save on healthcare costs while still being covered for medical emergencies.
Health Savings Accounts (HSAs) and HDHPs
Health savings accounts (HSAs) are a key component to HDHPs — they not only offer you tax advantages but also the ability to save for future health care expenses. HSAs are available only if you’re enrolled in an HDHP, as they’re designed to help offset the higher out-of-pocket costs of these plans.
An HSA allows you to save pre-tax money, which grows tax-free over time. When you withdraw funds to pay for qualified medical expenses (including deductibles, co-pays, and coinsurance), your withdrawals are tax-free. After the age of 65, HSA withdrawals can be used for any purpose, but non-qualified withdrawals will be taxed as income.
HSA contribution limits are also set by the IRS: for 2024, individuals can contribute up to $4,150 to an HSA, while families can contribute up to $8,300. In 2025, those amounts increase to $4,300 for individuals and $8,550 for families. If you’re age 55 and over, you can contribute an additional $1,000 annually. With these limits, you can establish a substantial healthcare safety net.
What Are the Benefits of HSAs?
HSAs can benefit you beyond just helping you pay for healthcare costs; they can also be a powerful tool for building long-term savings and planning for retirement:
- Triple Tax Advantage: Your contributions to your HSA are tax-deductible, they grow tax-free, and your withdrawals for qualified expenses are tax-free. These tax advantages make an HSA one of the most effective financial tools for managing medical costs.
- Long-Term Savings Potential: Unlike flexible spending accounts (FSAs) that have a “use it or lose it” policy, your unused HSA funds roll over year after year, which enables you to accumulate savings. Over time, your HSA can help you save long-term for healthcare costs and retirement.
- Preparation for Healthcare Needs: Medical care is one of the biggest expenses in retirement, and an HSA can help you plan for your future healthcare needs. By consistently funding your HSA account, you can create a financial buffer for medical expenses when you’re retired.
Can a HDHP Be Right for You?
Deciding whether an HDHP is right for you or your family depends on your healthcare needs, financial situation, and long-term savings goals. Take the time to assess your needs carefully and review your healthcare plan options.
Are you young and healthy, with minimal healthcare needs? An HDHP with an HSA can be perfect for building savings while maintaining affordable coverage. But if you or your family have frequent medical visits, a traditional plan may be a better fit with its lower deductibles, despite the higher premiums.
At
Five Pine Wealth Management, we have the knowledge and experience to help you evaluate your healthcare needs, risk tolerance, and financial situation to see if an HDHP is right for you and if an HSA can fit into your long-term financial plan. With our holistic approach, we can help you decide what’s best for both your health and your finances.
To see how we can help you,
email us or give us a call at 877.333.1015 today.
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We’re all feeling it these days: the underlying feeling of uncertainty about what lies ahead. Each day, we see headlines about inflation, Social Security’s future, or market swings. Unsurprisingly, Gallup tells us that the top three American fears have to do with money: the economy, availability/affordability of healthcare, and inflation. If you’re in your 50s and 60s, these concerns probably hit even closer to home. You’re not just thinking about the economy in general terms. You’re wondering how it will affect your specific retirement plans. Your mind likely turns to: Increasing healthcare costs – can you absorb unexpected costs on a fixed income? Inflation and market volatility – will the value of the dollar diminish your retirement savings? Social Security uncertainty – will it exist when you retire? Having enough saved – will your retirement budget hold up when the time comes? About 1 in 4 Americans over 50 are delaying retirement , and it’s not hard to understand why. With thoughtful planning and the right strategies, you can build confidence in your ability to maintain your lifestyle on a fixed income, regardless of what economic curveballs come your way. 5 Key Strategies to Prepare for Living on a Fixed Income Uncertainty doesn’t have to derail your retirement plans. By addressing these five critical areas, you can build a foundation that allows you to enjoy the retirement you’ve worked toward. 1. Review (And Potentially Adjust) Your Retirement Timeline One of the most powerful tools you have is flexibility with your retirement timeline. While certain ages qualify you for benefits or withdrawals from certain accounts, there’s no concrete age you have to retire at. Traditional retirement at 62 or 65 might not make sense for your unique situation; you should feel free to alter your timeline to make sense for you and your family. Consider Your Social Security Strategy Your Social Security benefits increase each year you delay claiming them beyond your full retirement age, up until age 70. For many people, this creates a meaningful boost to their guaranteed monthly income. If you can afford to wait, this strategy alone can significantly strengthen your fixed-income foundation. Explore Phased Retirement Options Rather than going from full-time work to complete retirement overnight, consider a gradual or phased transition. Many of our clients find success with: Part-time consulting in their field of expertise Freelance work that leverages their skills Small business ventures they've always wanted to try Investment properties that generate passive income This approach not only eases the financial transition but often provides a sense of purpose and engagement during early retirement. 2. Fine-Tune Your Investment Mix and Retirement Income Strategy Adjusting your portfolio is an ongoing responsibility, not a one-time task before retirement. Continue to revisit and rebalance as a proactive part of your retirement plan. Equally important is creating multiple income streams to reduce your reliance on any single source. Diversify Your Retirement Income Sources Think of building several income bridges instead of relying on one massive one. Your retirement income might come from Social Security, traditional retirement accounts (401(k), IRA), Roth accounts for tax-free withdrawals, and taxable investment accounts for flexibility. Each serves a different purpose in your overall strategy. Is Your Portfolio Inflation-Resistant? Cash can feel safe, but inflation quietly erodes its purchasing power over time. If you want an honest look at the hard numbers of inflation, see the Bureau of Labor Statistics CPI Inflation Calculator . For example, we see that $1,000,000 in 2015 has the buying power of $1,380,194 in 2025. You would need an extra (almost) $380,000 to make up for inflation. Inflation is a reality of the economy that everyone deals with, but your investment strategies can mitigate its impact on your net worth. Consider allocating a portion of your portfolio to assets that historically perform well during inflationary periods. Don’t Abandon Growth Too Soon If you're retiring in your early 60s, you could have 20-30 years ahead of you. Being overly conservative with your investments might feel safer in the short term, but it could leave you struggling to maintain your lifestyle later. A balanced approach that includes growth-oriented investments can help ensure your money lasts as long as you do. 3. Reduce Outstanding Debts The Federal Reserve’s most recent Survey of Consumer Finances reports that the average older adult (ages 65 and up) carries between $95,000 and $172,000 in debt. The bulk of those debts is from outstanding mortgage balances, but credit card and medical debts contribute significantly. Prioritize Your Debt Payoff Strategy High-interest debts from credit cards and personal loans can take up a lot of room on a fixed income. Consider whether it makes sense to use some of your current higher income to aggressively pay down these balances before you retire. There are two primary ways of tackling multiple debts: Avalanche: Pay off your balances starting with the highest interest rates. Snowball: Pay off your balances from smallest to largest. Entering retirement debt-free can be a very freeing experience. Consider Your Mortgage Your mortgage situation is more nuanced. Some retirees find comfort in owning their home outright, while others benefit from maintaining their mortgage if it's at a low interest rate, and money can be invested for higher returns. The right choice depends on your specific situation and comfort level. 4. Plan for Healthcare Costs and Insurance Transitions Healthcare expenses are frequently retirees' most underestimated cost. Add in Medicare's maze of coverage options, and it's no wonder many retirees feel unprepared. Planning for these expenses and understanding your options before you need them can prevent costly surprises that strain your fixed income. 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Build a Healthcare Reserve According to the 2025 Fidelity Retiree Health Care Cost Estimate , a 65-year-old individual may require approximately $172,500 in after-tax savings to cover health care expenses in retirement. Consider establishing a separate savings account specifically for medical expenses. Health Savings Accounts (HSAs), if you're eligible, offer triple tax advantages and can be particularly valuable for retirement healthcare planning. 5. Create a Flexible Retirement Budget It’s wise to reevaluate where your money is going every month so you can enjoy once-in-a-lifetime retirement opportunities fully. This, combined with an emergency fund, helps avoid lifestyle creep and the stress of unexpected expenses. Plan for the “Retirement Smile” Retirement spending tends to move in a “U” shape: higher spending in early retirement, less in the middle, and back up again towards the end. While your bucket list trips and experiences are significant expenses, they’re often one-and-done. Most people do these things early on in retirement and slow down into a more predictable financial rhythm. Towards the end of retirement, costs often increase again to cover long-term care needs. Organize Your Budget Into Categories Consider dividing your retirement expenses into essential costs (housing, utilities, healthcare), lifestyle expenses (travel, dining, hobbies), and discretionary spending (gifts, major purchases). Cover your essentials with your most reliable income sources like Social Security, while funding lifestyle expenses through portfolio withdrawals that can adjust during market downturns. How Can You Reduce Your Future Cost-of-Living? Consider ways you can capitalize on your existing assets to better position yourself for the future. If you’ve built significant home equity, downsizing or moving to a more affordable city may be a great option, as you’ll benefit from liquidity and reduced costs. Rely on A Trusted Fiduciary Financial Planner If you’re feeling anxious about the future, know this: you’re not stuck doing it on your own. With the help of a fiduciary financial planner, you can not only see if your plan holds up against inflation and economic uncertainties, but they will: Prioritize tax-efficient retirement withdrawal strategies Strategize Required Minimum Distributions (RMDs) Create a sustainable withdrawal strategy The best thing you can do for a healthy retirement is to leverage the experts. At Five Pine Wealth Management , we create comprehensive financial plans that align with your financial goals and personal values. If you'd like to discuss how these strategies might apply to your specific situation, we're here to help. Email us at info@fivepinewealth.com or call 877.333.1015 to schedule a conversation about your retirement planning needs.
Your 40s arrive with a unique mix of clarity and urgency. You've likely figured out what you want from life, but suddenly retirement no longer feels like a distant concept. If you're looking at your financial situation and feeling behind, you're not alone. Many people in their 40s experience this same wake-up call. The good news is that this decade offers some of the most powerful opportunities to accelerate your wealth-building journey. Think of your 40s as your financial prime time. You're earning more than you ever have, you understand money better than in your 20s and 30s, and you still have 20-25 years to let compound growth work its magic. Instead of dwelling on what you should have done differently, let's focus on what you can do right now to make this decade count. The Reality Check: Where You Stand vs. Where You Want to Be Before exploring strategies, let's acknowledge the elephant in the room. Many financial experts recommend saving three times your annual salary by age 40. If you're reading this and thinking, "I'm nowhere near that," take a deep breath. Life happens. Maybe you started your career later, switched fields, dealt with medical expenses, helped family members, or simply prioritized other goals during your 30s. The key is to start from where you are today, not where you think you should be. Your 40s bring unique advantages: higher earning potential, greater financial discipline, and often more stable life circumstances. Many successful investors didn't hit their stride until their 40s or later. You're not behind; you're just getting started on a more intentional path. Retirement Savings Strategies That Work in Your 40s Your retirement savings strategy in your 40s should differ from someone in their 20s or 30s. You have less time but more resources, which means you need to be both aggressive and smart about your approach. First, maximize your employer's 401(k) match if you haven't already. This is free money, and missing out on it is like leaving cash on the table. Additionally, consider increasing your contribution rate by 1-2% each year, or whenever you receive a raise. This gradual approach makes the adjustment less painful while significantly boosting your long-term savings. Roth conversions become particularly powerful in your 40s. If you expect to be in a higher tax bracket in retirement or if you want to leave tax-free money to heirs, converting some traditional IRA or 401(k) funds to Roth accounts can be a smart move. The key is to do this strategically, perhaps in years when your income is temporarily lower or when you can manage the tax impact. Don't overlook the power of diversification beyond your 401(k). A taxable investment account gives you flexibility and access to your money before age 59½ without penalties. This can be crucial for achieving early retirement goals or covering major expenses that may arise before the traditional retirement age. Catch-Up Retirement Contributions: Start the Habit Now Once you reach 50, you can make catch-up contributions to your retirement accounts, which significantly increases your savings potential. For 2025, this means an additional $7,500 in 401(k) contributions (bringing your total to $31,000). However, you don't have to wait until 50 to think like someone making catch-up contributions. Start now by treating your savings rate as if you're already eligible for these higher limits. If you can save an extra $600 per month ($7,200 annually) starting at 45, you'll have built the habit by the time you're actually eligible for catch-up contributions. Retirement Milestones by Age 40: A New Perspective Traditional retirement milestones can be discouraging if you're starting later or if life hasn’t gone as planned. Instead of focusing on arbitrary multiples of your salary, consider these more practical benchmarks for your 40s: The Emergency Fund Foundation : Before aggressively pursuing retirement savings, ensure you have a solid emergency fund in place. This prevents you from having to tap retirement accounts during tough times. Aim for 3-6 months of expenses, adjusted for your specific situation. The Debt Freedom Focus : High-interest debt can quickly derail retirement plans. If you're carrying credit card debt or other high-interest obligations, addressing these might be more valuable than maximizing retirement contributions beyond your employer match. The Income Replacement Goal : Rather than focusing on net worth multiples, think about what percentage of your current income you're on track to replace in retirement. A good target is 70-80% of your pre-retirement income, but this depends on your lifestyle and retirement plans. The Flexibility Buffer : Your 40s are a great time to build financial flexibility. This means having investments outside of retirement accounts that you can access without penalties, creating multiple income streams, and maintaining career skills that keep you marketable. Insurance: Life and disability insurance coverage should reflect your current income and family needs. Estate Planning : A basic will, power of attorney, and healthcare directive should be in place. Making Your Peak Earning Years Count Your 40s often represent your peak earning years, and how you manage this increased income will significantly impact your financial future. The temptation to inflate your lifestyle with every raise is real, but this decade calls for more strategic thinking. Consider implementing a "pay yourself first" approach where you immediately redirect any income increases to savings and investments. If you get a $5,000 raise, automatically increase your 401(k) contribution by $3,000 and your taxable investment account by $2,000. You'll barely notice the difference in your take-home pay, but you will thank yourself in the future. This is also the time to think seriously about additional income streams. Whether it's consulting in your field, starting a side business, or investing in rental real estate, diversifying your income sources provides security and potential for acceleration. Building Wealth Beyond Retirement Accounts While retirement accounts are crucial, they shouldn't be your only wealth-building tool. Your 40s are an excellent time to diversify your investment approach and build wealth that's accessible before traditional retirement age. Consider opening a taxable investment account if you haven't already done so. This provides flexibility and liquidity while still offering growth potential. Focus on tax-efficient investments, such as index funds, and consider holding dividend-paying stocks or REITs for their income potential. Real estate can be particularly powerful in your 40s. Whether it's paying off your primary residence early, investing in rental properties, or exploring REITs, real estate adds diversification and potential inflation protection to your portfolio. Don’t Forget the “You” Factor We’d be remiss not to mention this: life in your 40s is busy. You might be managing aging parents, teenagers, or a toddler (or all three). You may be helping your partner through a career change or navigating one yourself. It’s a lot. Which is precisely why intentional financial planning matters now more than ever. You don’t need to do it perfectly. You just need a plan that’s rooted in your real life — your values, your vision, and your goals. A good financial advisor can help you prioritize, simplify, and clarify the next best steps, even if you feel like you’ve fallen behind. Ready to Create Your Personal Financial Strategy? Feeling overwhelmed by all the options and strategies available? You don't have to navigate this journey alone. At Five Pine Wealth Management , we specialize in helping individuals and families in their 40s and beyond create comprehensive financial plans that align with their goals and circumstances. Whether you're looking to maximize your retirement savings, explore catch-up strategies, or build a diversified investment portfolio, our team can help you develop a personalized approach tailored to your situation. We work with clients at various stages of their financial journey, from those just getting serious about retirement planning to those with substantial assets seeking to optimize their strategies. Don't let another year pass wondering if you're on the right track. Schedule a conversation with our team to discuss your financial goals and explore how we can help you make the most of your financial prime time.
