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Health care is one of the largest expenses for retirees, trailing only housing and maybe transportation. Health problems generally increase with age, and doctor visits become regular for preventative and treatment-related reasons.

As you plan your retirement finances, it's important to keep in mind the high cost of health care. A single person aged 65 in 2023 will need around $157,500 saved (after tax) to cover health-care expenses in retirement, according to Fidelity. An average retired couple age 65 will need roughly $315,000 saved.

That's where a health savings account (HSA) and its benefits come in handy. An HSA is an account available to people enrolled in a high-deductible health plan that allows you to contribute pre-tax money and take tax-free withdrawals for qualified medical expenses.

Here are three HSA benefits you don't want to miss in retirement.

1. It can be an additional 'retirement account'

The primary purpose of an HSA is to save for medical expenses, but it can also be another means to save and invest for retirement in general. Once you turn 65, you can withdraw money from your HSA for any reason without facing the typical 20% early withdrawal penalty.

You'll owe income taxes on money not used for medical expenses (like a 401(k) or traditional IRA), but having access to those funds penalty-free gives you additional breathing room in retirement.

This flexibility makes it a good choice for people who may have also maxed out their other retirement accounts. Imagine you're 60 years old and have already maxed out your 401(k) and IRA for the year. If you still have extra income to spare, you could contribute it to your HSA and invest it.

The HSA contribution limit in 2023 is $3,850 if you have single-person coverage and $7,750 if you have family coverage. People 55 and older can add an additional $1,000 catch-up contribution.

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2. Using your HSA if you retire abroad

Many people choose to retire abroad, and considering how many countries offer top-notch health care for significantly less than the cost in the U.S., it's not a bad financial decision. Another plus is that you may be able to pay for medical expenses abroad using your HSA.

An HSA is a supplement to your health insurance, so the ability to use it abroad doesn't depend on your resident country accepting it. There are a few limitations when you use it outside of the U.S., but for the most part, you can use it for qualified expenses anywhere.

One limitation is that you can't use your HSA to buy prescriptions in another country and bring them back to the U.S. You'll have to use the full prescription in the country where you bought it. This may not be that big an issue for people retiring abroad, since you'll live there.

3. Letting your HSA compound if you don't need it

Accounts like a 401(k) and traditional IRA have required minimum distributions (RMDs) that require you to withdraw money from those accounts once you hit a certain age (currently 73). This is mainly because you get a tax break upfront, so Uncle Sam wants to make sure he gets his cut in retirement. 

Thankfully, RMDs don't apply to HSAs, allowing you to let your money continue growing and compounding for as long as you like.

Suppose your HSA balance is $100,000 when you turn 73. By averaging 8% annual returns until you turn 80, you could increase your HSA by over $70,000 in that span. Of course, you can't predict exactly how your investments will perform, but that shows how a little time in your latter years can make a tangible difference.

If you're fortunate enough not to need to use your HSA, you can always leave it for a beneficiary. If the beneficiary is your spouse, they can continue using the HSA like it's their personal account. If it's anybody other than your spouse, like your children, they have to take a taxable distribution from the account. Still, that could end up being a nice chunk of change.

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