Many seniors are surprised to learn that retirement is a more expensive period of life than expected. That's because things like home repairs, healthcare expenses, and everyday bills can become even more of a financial strain over time.

Now you'll often hear that it's best not to rely solely on Social Security for retirement income. Rather, it's important to save independently.

To this end, there are different savings plans you can choose from. You can sock money away in an IRA, or sign up to participate in your company's 401(k) plan. But here's another long-term savings plan it pays to use for your retirement -- a health savings account (HSA).

Doctor putting hand on shoulder of person in gown

Image source: Getty Images.

Why HSAs are so valuable

The reason so many people use IRAs and 401(k)s for retirement savings is that these plans offer tax breaks. Well, so do HSAs -- except HSAs actually offer more of them than other plans, including:

  • Tax-free contributions
  • Tax-free gains on investments made in your account
  • Tax-free withdrawals when that money is taken out to pay for qualified medical expenses

Let's compare that to traditional IRAs and 401(k)s. Both offer tax-free contributions, but investment gains are tax-deferred and withdrawals are taxable.

Meanwhile, Roth IRAs and 401(k)s offer tax-free investment gains and withdrawals. But there's no up-front tax break on contributions like there is for an HSA.

Here's another lesser-known perk of saving in an HSA. Once you turn 65, that plan effectively converts itself to a traditional retirement savings plan. That's because at that point, you can take a withdrawal for any reason and avoid penalties on it. All you'll need to do is pay taxes on your distribution, which is no different than the taxes you pay when you remove money from a traditional IRA or 401(k).

What can an HSA be used for?

To be clear, you don't have to reserve the money in your HSA for retirement. You can take withdrawals as needed to cover medical expenses during your working years. But it's best to leave your HSA alone until retirement so you can invest your money over a long period of time, all the while enjoying the tax-free growth we just talked about.

Meanwhile, once you get to retirement, you can use your HSA to cover expenses like:

  • Medicare premiums
  • Medicare copays
  • Medicare deductibles
  • Non-covered Medicare services, like dental exams and eyeglasses
  • Long-term care costs
  • Long-term care insurance premiums

Having access to HSA funds during retirement could actually spare you a world of financial stress, especially if you encounter health issues that make medical care more expensive than anticipated.

Don't pass up a prime opportunity

The only drawback of HSAs is that not everyone is allowed to participate. Eligibility hinges on being enrolled in a high-deductible health insurance plan. But if you do qualify to fund an HSA, it pays to sign up as early as possible and treat that account as a retirement savings plan. Reserving healthcare funds for retirement could end up being one of the smartest moves you'll ever make.