FIRE & HSA: Can an HSA Help You Retire Early?

by | Sep 30, 2022

Retiring early seems like a dream come true. Why wait until your golden years to enjoy a life of leisure and travel? More and more people are thinking differently about retirement and going against the typical model of contributing to your retirement accounts to retire by 65. A growing movement called FIRE (Financial Independence, Retire Early) is helping people achieve their goal of early retirement by using different methods of living frugally and saving for retirement. A Health Savings Account (HSA) is known to help you save for your retirement goals, including medical expenses, but can it help you achieve goals for F.I.R.E.?

What is the F.I.R.E. Movement?

The F.I.R.E. movement is a way of life that aims to retire decades before the customary retirement age.  The goal with F.I.R.E. is to save aggressively–somewhere between 50%-70% of your income to retire in your 30s-50s. Typically, FIRE proponents aim to withdraw 3%-4% of their annual income in retirement.  FIRE can look different for individuals because everyone has different goals and lifestyles. However, one thing is for sure; FIRE requires diligence and planning. It’s essential to actively manage your finances, invest wisely, and utilize various tax-advantaged accounts. 

Some Common FIRE strategies: 

Lean FIRE: A strategy that involves living and maintaining a modest lifestyle now and during retirement. 

Barista FIRE: This FIRE strategy allows you to save enough to cover your living expenses, but you will require a low-stress, part-time job to pay for health expenses. 

Fat FIRE: A strategy that involves maintaining a higher standard of living and gives you greater financial flexibility. 

How An HSA Can Help Reach F.I.R.E. Faster 

An HSA account is the perfect early retirement tool for F.I.R.E.  Since every dollar counts; there are several ways an HSA can help you save money for early retirement:

  1. Take Advantage of Tax Savings on Qualified Medical Expenses

 You might have qualified medical expenses like doctor visits or prescriptions every year. Since every dollar counts, get some extra savings with your medical expenses. Also, save on necessities such as bandaids, feminine hygiene products, and sunscreen. Those tax savings on yearly medical costs will add up when you live the F.I.R.E. lifestyle.  

2. Use That Triple Tax Advantage

You’ll need to utilize tax-advantaged accounts for early retirement.  An HSA is one of the most tax-advantaged accounts you can own. Your contributions are either pre-tax (if made through your employer) or tax-deductible (if self-initiated). Your money grows tax-free, and any money you take out for qualified medical expenses won’t be taxed. 

3. Invest for Early Retirement

It’s no secret that we’re big fans of investing your HSA money at SavingsOak. With an HSA, you can grow your balance through investing and have an incredible nest egg for medical expenses in retirement that you can withdraw from tax-free. 

FIRE requires a lot of financial discipline and may not be for everyone. However, an HSA can be invaluable in your early retirement toolbox and help you reach your FIRE goals faster!

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