I think there is some bad info popping up on here. I don't know a whole bunch about this subject, so please correct me if I'm wrong.
HSA's are not intended to be retirement accounts, but they do act like Traditional IRAs in a lot of senses. The biggest issue, though, is that the only way to get money out of them penalty free and tax free before you are 65 is to get reimbursed for prior medical expenses. You cannot roll them over to a Roth without paying a 10% penalty AND income tax on the conversion. You cannot take a non-qualified (i.e. not medical) distribution prior to 65 without paying a 20% penalty AND income tax on the distribution. It's not just a 20% penalty, it's 20% + marginal tax rate.
http://www.irs.gov/publications/p969/ar02.html#en_US_2013_publink1000204081I think that the best progression for saving for (early) retirement is 401k match, Traditional IRA, max 401k, HSA, then standard taxable account. I've been reading that there are a lot of benefits to HSA's, but I'm not comfortable with their limitations to say that's where my first retirement savings dollars should go.
Mad Fientist loves the HSA, but he starts by assuming you can max all tax-advantaged accounts anyway. If you are in full-MMM saving mode that is a good assumption, too. But when you are trying to decide which type of accounts you should save in while you are ramping up savings, I think the progression above is the way to go.
There are ways to get access to Traditional IRA money in early retirement without paying any penalties. It's called a Roth IRA conversion ladder. This does not work for an HSA, though.
And to address another point that you asked earlier: "living off the interest" is just a phrase that means you have enough savings that the returns generated by those savings are enough to cover your expenses. Typically this is simplified into a 4% safe withdrawal rate (SWR), which is determined by a 7% growth assumption minus a 3% inflation assumption. So most folks' goals around here are to accumulate at least 25x expenses in their savings accounts so that when you take 4% of that number you end up with enough to cover your expenses.
These questions are all necessary for a proper understanding of what you're up against, but they end up wide ranging and don't necessary match the topic of the post. You won't get all of the experts in here answering SWR questions if they think the post is just about HSAs, so it's probably best to do some more research and post those questions separately so you can get better feedback.
Anybody else have any thoughts or ways around the HSA penalties for early retirement usage? In his "Ultimate Retirement Account" post, MF doesn't have any other way of getting money out of the account than to use un-reimbursed expenses or turning 65. The IRS link above seems to say all penalties are in addition to income tax. I've answered to the best of my ability, but I don't know if I've made any bad assumptions above.