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How auto-investing might help you retire richer

Here’s what you need to know about how auto-investing with your HSA works, and how it might help grow your retirement funds.

If you contribute to an IRA or 401(k) every month, well done! Future you will thank you! Regrettably, most people are struggling to build a large enough nest egg to retire comfortably. Alas, there’s more to be done in preparation for those golden years.

That’s why investors are using creative methods to maximize their retirement contributions. One of the most popular options? To invest using your health savings account (HSA). And what are some investors doing? Auto-investing with their HSA. That’s where Starship comes in.

Why invest with an HSA?

Investing with an HSA offers more tax benefits than investing with an IRA or 401(k). Earnings in an HSA grow tax-free, contributions are tax-deductible, and any money that grows within your account can be withdrawn tax-free if used to pay for qualified medical expenses.

And then after you’ve turned 65, you can withdraw money from your account, pay your taxes and use it for anything you wish without an additional penalty.

By setting up an automated contribution, you eliminate a lot of room for human error; you don't have to worry about accidentally forgetting to contribute for the month or over many months. It’s investing at its most convenient.

Ok, so what is auto-investing and how does it work?

Certified Financial Planner (CFP®) and founder of Beyond Your Hammock Eric Roberge teaches young professionals about money management. He’s learned that automating investments is often a good option for building wealth over the long term.

“By setting up an automated contribution, you eliminate a lot of room for human error; you don’t have to worry about accidentally forgetting to contribute for the month or over many months. It’s investing at its most convenient.”

Brent Perry is also a CFP® who helps professionals set up their financial portfolios and decide how to allocate their money. He’s seen firsthand how automation can have a huge impact on someone’s finances.

The general idea is that people are not good at saving and investing regularly. They either spend or let funds sit in their checking account, gaining nothing. Automation eliminates these problems, and it eliminates the psychological energy needed to do ‘money stuff,’ which can be overwhelming and not very interesting for many folks.”

With Starship’s auto-investing feature, users decide how much money they want to have in their spending account at all times. Starship will then automatically invest every dollar over that minimum in their investing account.

For example, let’s say you set a $1,000 maximum threshold in your spending account. If you have a $1,050 balance, Starship will transfer $50 to your investing account and invest it. If you have $999 in your account, Starship will not transfer any funds to the investing portion.

You can change the automatic investing threshold by opening the Starship app and clicking on the + sign in the bottom center. Then, click on “Invest” and “Automatic.” Move the slider to the dollar amount you want. You can pause the program any time with no fee or penalty by clicking on “Turn off auto-invest.” Follow the steps listed above to restart your contributions.

The makings of your portfolio

Starship’s robo-advisor will recommend a portfolio for you after you complete a brief questionnaire asking about things such as your risk tolerance, age, and current financial situation. Those with a high-risk tolerance will normally have a larger percentage of stock funds and a lower percentage of bond funds in their recommended portfolio, while investors with a low-risk tolerance will normally have a lower percentage of stock funds and a larger percentage of bond funds in their recommended portfolio.

If you still use your HSA to pay for medical bills, you’ll want to keep enough money in your HSA spending account to cover those expenses. To get an estimate on that number, simply add up how much you spent on medical expenses in the past year, then calculate the monthly average. You can use that average amount as your minimum account threshold. If you average $100 a month on medical expenses, set $100 as your minimum amount.

How auto-investing can be used to maximize your money

It’s easy to forget about investing or wrongly assume that you’ll log in every month and manually transfer funds. Using auto-invest helps you can save more money by taking those factors out of the equation.

Roberge said automatic investing also prevents you from spending money that is set aside for investing on your present-day wants.

 “If you automate your investment contributions, then you don’t have to have that internal struggle every time you need to put money away into your investment account,” he said. “This also means you’re less likely to get distracted by short-term wants. If the money has already left your checking account and is in your investment account, the temptation to spend it is reduced because you simply don’t have access to the cash anymore.” 

Plus, Starship makes it simple to decrease or increase your contributions depending on your needs. If you have an upcoming surgery, for example, you can turn off auto-investing to set more aside in your spending account. If you end up spending less on medical expenses, you can increase your auto-investing contributions.