HSA as part of Cash portion

[foglifter]

I have a Health Savings Account which I try to max out annually. My medical expenses are pretty low, so my annual contribution into HSA for the most part is saved. The account earns 5% APY in an FDIC-insured bank savings account.

After the age 65 HSA funds can be spent on anything without the IRS penalty, i.e. HSA basically becomes a traditional IRA.
Do you think it's sensible to consider HSA a part of the cash portion in my PP?

[MediumTex]

The only reason I would say no is that prior to age 65 you can't use this money to rebalance the overall PP if you hit a rebalancing band.

[foglifter]

The only reason I would say no is that prior to age 65 you can't use this money to rebalance the overall PP if you hit a rebalancing band.

This is a valid point, so that's why I stated I would consider is as only a part, not the whole cash portion. The contributions are limited to ~6K annually anyways, so the idea is I could use the HSA balance as a "core cash position" and would use for re-balancing a different part, that could reside in a more flexible account (IRA, brokerage, bank).

[MediumTex]

The only reason I would say no is that prior to age 65 you can't use this money to rebalance the overall PP if you hit a rebalancing band.

This is a valid point, so that's why I stated I would consider is as only a part, not the whole cash portion. The contributions are limited to ~6K annually anyways, so the idea is I could use the HSA balance as a "core cash position" and would use for re-balancing a different part, that could reside in a more flexible account (IRA, brokerage, bank).

That sounds reasonable to me, though it obviously deviates somewhat from the basic PP recipe.

[dualstow]

I'm glad you brought up HSAs. Although I would probably use it for variable portfolio holdings, I have heard that HSAs have become far less complicated to set up.

[LifestyleFreedom]

Conceptually, I consider my HSA to be my "long-term care insurance plan" in case I need long-term care when I become an octogenarian (I've read where half the population will need some type of long-term care at some point).  As such, I consider my HSA to be part of my long-term cash reserves that I set aside for this purpose.

Operationally, my HSA is invested in equities (in mutual funds now, but I could change custodians if I wanted to do my own self-directed investing in stocks, bonds, cash, or whatever).  I'm not worried about how the value of my HSA changes from year to year because I believe equities appreciate over the long term (even if they go on a bumpy ride between now and the long term).

I pay my medical bills without tapping into my HSA and keep my high-deductible health insurance plan deductible in a high-yield savings account, so the deductible money is always there in case I need it (I also try to stay healthy so that I don't incur medical expenses to begin with).  I will move my HSA from all equities to a mixture of asset classes as I get nearer to the octogenarian age.

I'm not sure if my approach complies strictly with the Permanent Portfolio concept, but I don't care if it does or not.  My approach makes sense to me and lets me sleep well at night because I have confidence it will work for me.

[murphy_p_t]

"I pay my medical bills without tapping into my HSA and keep my high-deductible health insurance plan deductible in a high-yield savings account, so the deductible money is always there in case I need it"

very interesting concept...treat the HSA as simply more IRA space!

what institutions allow self-direction so you can invest as you choose? vanguard?

are there any ways the IRS tries to punish this (clever) behavior?

[foglifter]

"I pay my medical bills without tapping into my HSA and keep my high-deductible health insurance plan deductible in a high-yield savings account, so the deductible money is always there in case I need it"

very interesting concept...treat the HSA as simply more IRA space!

what institutions allow self-direction so you can invest as you choose? vanguard?

are there any ways the IRS tries to punish this (clever) behavior?

I wholeheartedly agree - HSA can be considered a part of a cash portion of PP. What's interesting, after the age 70 the funds in the account can be used for ANY purpose (not only to pay for the medical expenses), i.e. HSA practically turns into a traditional IRA. I max out my HSA every year and pay my modest medical expenses out of pocket.

BH wiki has an excellent page about HSAs. The HSA custodians and options section lists some of the providers that offer investment options.