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HSA study examines how much health care costs in retirement | EBA

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2 years ago

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The goal of amassing $1 million in a health savings account by retirement will elude the vast majority of clients, but advisers could still put these optimistic projections to good use.

HSA holders would need to contribute the maximum legal amount each year, including catch-ups, for four decades, avoid any distributions until they’re 65 years old and net a healthy rate of return of 7.5%, according to a study released last month by the Employee Benefit Research Institute, an industry research organization. Those rosy assumptions won’t reflect the reality for most HSA savers. However, advisers can nevertheless nudge clients toward saving in their HSA with a wealth of statistical estimates showing their massive health care needs in retirement and the corresponding potential of the accounts as a savings vehicle, experts said.

To have a “high chance” of covering their medical expenses during their retirement, a 65-year-old couple must plan for $351,000 worth of Medicare premiums, deductibles and prescription drugs, according to the Institute’s calculations. To boost the likelihood above 90%, that savings number grows closer to $400,000, said Jake Spiegel, a research associate with the organization and co-author of a larger report from the institute and health, wealth, retirement and employee benefits firm Inspira Financial last year that crunched the overall figures.

“After 40 years, you can end up with a significant chunk of change,” Spiegel said. “HSAs could actually be pretty well positioned to help people to, one, save for retirement and, two, pay for medical expenditures in retirement which can be pretty significant.”

Read more: How to help clients plan for the high costs of long-term health care

Those expenses can mount well before retirement, too. As advisers encourage clients to set aside the current maximum of $4,300 in 2025, take advantage of any employers’ matching contributions and tap into the pretax savings, untaxed accumulation and tax-free withdrawals for qualifying medical costs, they should also remind them of the potential challenges, said Sarin Barsoumian, founder of Burlington, Massachusetts-based SMB Financial Strategies. Those include a huge potential tax hit to non-spouse heirs receiving any leftover assets after the clients’ deaths and shortcomings in the investment menus and interest yields of many HSAs.

“Many clients use HSA funds for current medical expenses, but if they can afford to pay out-of-pocket, they should let the HSA grow tax-free for retirement. If they have a sufficient emergency fund and can cover medical costs without touching the HSA, they should consider investing the balance in a diversified portfolio,” Barsoumian said in an email. “If clients withdraw funds for non-medical expenses before age 65, they’ll owe income tax plus a 20% penalty — a much harsher penalty than early withdrawals from a traditional IRA or 401(k), which are just subject to income tax plus a 10% penalty. After age 65, non-medical withdrawals are taxed like a traditional IRA, but there’s no penalty — so it’s not as flexible as a Roth IRA for tax-free withdrawals.”

Here are some of the most interesting takeaways from the EBRI research paper:

  • Medicare paid for 61% of health care costs in retirement in 2021, with private insurance covering 18% and consumers paying out of their pocket for 12% of the expenses.
  • A 65-year-old man using a Medigap plan that adds supplemental private health insurance for costs that aren’t paid for by Medicare should expect to pay $184,000 for medical care in retirement, while a woman of the same age needs $217,000 and a couple should anticipate expenses of $351,000.
  • Assuming the clients save the maximum each year in their HSAs and tack on $1,000 more in the permitted “catch-up” contribution years between ages 55 and 64 without withdrawing anything from the accounts, a 7.5% annual return on their assets would yield a nest egg of $78,000 in only 10 years. A 5% rate would add up to $68,000, and a 2.5% return would amass $59,000.
  • With the same assumptions, the HSA balances would reach: 20-year totals of $120,000 (2.5% returns), $157,000 (5%) or $208,000 (7.5%); 30-year totals of $198,000 (2.5%), $303,000 (5%) or $476,000 (7.5%); or 40-year totals of $298,000 (2.5%), $540,000 (5%) or $1,029,000 (7.5%).
  • Under less optimistic calculations that still incorporate a 7.5% return but assume the client withdraws half of the deductible amount from their HSA each year, the account would still have $56,000 after 10 years, $139,000 after 20 years, $311,000 after 30 years and $665,000 after 40.
  • In terms of tax savings on their contribution, higher income HSA holders net $13,000 in lower payments to Uncle Sam over a decade, $24,000 over two decades, $34,000 over three and $45,000 over four. In terms of their savings on yields of 7.5%, they would avoid another $7,000 in taxes during the first 10 years, $29,000 over 20, $87,000 over 30 and $217,000 over 40.

The numbers shift significantly based on any number of factors, such as when a client opens an HSA and how long they are contributing to it, their tax bracket and the extent that they do spend the money on health costs before retirement.
“Past EBRI research has found that the longer someone has owned their HSA, the larger their balance tends to be, because the higher their contributions tend to be, and the more likely they are to invest their HSA in assets other than cash,” Spiegel and the co-author, Paul Fronstin, wrote in the report. “These strategies better position accountholders to withdraw larger sums when unexpected major health expenses occur and can leave accountholders more prepared to cover their sizable health care expenses in retirement.”

Read more: How HSAs pay off in retirement — with caveats

For advisers and their clients, the problem is “that does not appear to be a strategy that is widely deployed right now,” Spiegel noted, citing another finding from the institute’s research that only 13% of HSAs have invested assets in something other than cash.

“That number has been trending up every year that we’ve done our analyses,” he said. “It’s still nowhere near what you might expect it to be, given the enormous tax advantages that HSAs offer and the really unique position they offer as a triple-tax-advantaged vehicle.”

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AI-Driven Automation and Continuous Accounting Frameworks

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1 week ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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2 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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3 weeks ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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