EBRI’s Retirement Security Projection Model® simulates the percentage of the population at risk of not having enough retirement income to cover average expenses and out-of-pocket health care costs throughout retirement. This Fast Fact reviews the results of a recent EBRI report that found health savings accounts can have a substantial impact on retirement income adequacy.
The model tested five scenarios across working career factors of HSA investor prevalence, enrollment, contributions, and distributions. The behavioral scenarios tested were status quo (continuation of the historical trend, or baseline with HSA), moderate improvement in behavior, strong improvement in behavior, maximum use December 14, 2023, #489 of HSAs, and worsening of behavior. These HSA behaviors consisted of enrollment, investing, contributions, and distributions. • A moderate improvement in HSA behavior increases the baseline Retirement Readiness Rating with The Impact of HSAs on Retirement Income Adequacy HSAs by 2.5 percent to 61.7 percent and reduces the aggregate deficit by 4.0 percent. • A strong improvement in HSA behavior increases retirement readiness by 7.4 percent to 64.7 percent EBRI’s Retirement Security Projection Model® (RSPM) simulates the percentage of the population at risk of not from the baseline with HSAs and reduces the aggregate deficit by 15.0 percent. having enough retirement income to cover average expenses and out-of-pocket health care costs (including long- • The maxing out of the four HSA behavioral factors simultaneously increases the retirement readiness term-care costs) throughout retirement. RSPM looks at specific income groupings and simulates the present value rating by 36.0 percent to 81.9 percent from the HSA baseline and reduces the aggregate deficit by 74.5 of the deficits for those who do run short of money in retirement. A household is considered to run short of money percent. in RSPM if aggregate resources in retirement are not sufficient to meet average retirement expenditures for the household’s income. EBRI’s RSPM has determined that the aggregate retirement savings shortfall for all U.S. Figure 2 households ages 35–64 as of December 31, 2020, was $3.66 trillion. EBRI’s proprietary Retirement Readiness Reduction of Baseline With HSA Cumulative Retirement Rating (RRR) generated by the model is the probability that a household will not run short of money in Savings Shortfall (RSS) by Scenario retirement. EBRI’s baseline (what is considered most likely to occur with individuals’ behavior and economic (percentage change from baseline with HSA) 1 outco 10 m 0% es) RRR is 59 percent. A recent report found that health savings accounts (HSAs) can have a substantial impact on retirement income 80% adequacy. The report found that the cumulative baseline deficit decreases by 6.2 percent to $3.44 trillion when 74.5% status quo HSA utilization is considered. Similarly, the RRR increased from 59.0 percent to 60.2 percent. 60% Figure 1 Cumulative Retirement Savings Shortfall (RSS): Impact of HSAs ($T in 2020 dollars) 40% $4.50 $4.00 20% $3.66 15.0% $3.44 $3.50 4.0% 0% $3.00 -1.1% $2.50 -20% Max/Upper Bounds Modest Improvement in HSA Strong Improvement in HSA Worsening of HSA Behavior Behavior Behavior $2.00 HSAs have the potential to play an important role in determining retirement income adequacy for future retirees. $1.50 Maximizing HSA enrollment and HSA investing accounts for most of the improvement in retirement income adequacy. Increasing access to HSAs and encouraging investment among HSA accountholders may significantly $1.00 reduce the cumulative retirement savings shortfall and be more impactful for demographic cohorts who are currently projected to face the largest deficits. $0.50 About EBRI: The Employee Benefit Research Institute is a private, nonpartisan, and nonprofit research institute $- Baseline Without HSA Baseline With HSA based in Washington, D.C., that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which include a broad range of public and private organizations. For more information, visit www.ebri.org. 1 See https://www.ebri.org/publications/research-publications/issue-briefs/content/retirement-savings-shortfalls-evidence- from-ebri-s-2019-retirement-security-projection-model for more information. A Thank You to Our Funder: This study was supported by a grant from the TIAA Institute. EBRI on Twitter @EBRI or twitter.com/EBRI LinkedIn: linkedin.com/company/employee-benefit-research-institute EBRI on Twitter: @EBRI or twitter.com/EBRI LinkedIn: linkedin.com/company/employee-benefit-research-institute © 2023, Employee Benefit Research Institute, 901 D St. SW, Suite 802, Washington, DC 20024, 202/659-0670 | ebri.org 2 $ Trillions