Over the past month, we’ve been looking back on posts from 2018 and 2019 that have given you advice on how to think of your benefits, what criteria matters most when comparing your options, and much, much more. The main focus has been those among us that work for—and get our benefits from—others. THE MAN, if you will. In this installment, we’re talking about those who are on their own for benefits, whether self-employed, over 65 or FIRE. Here are some deets on what do get or not get when you’re out there hunting and gathering in the benefits wilderness!(more…)
In spite of being the fabled “triple-tax advantage” and therefore an ideal account for investing for your retirement, only a fraction of those with HSA’s actually invest the money.
Having worked on the business side of HSAs for a good number of years, I can tell you that there are three main reasons for these low investment rates:
- People are actively spending their HSA funds. They have medical expenses, or think they might, and are using their HSA debit card as the name would imply — to pay those expenses if and when they arise.
- People think they’ll need to actively spend their HSA funds. They don’t have medical expenses but think there might be a need to have the funds close at hand, just in case.
- People have no idea how to invest their HSA funds, or if they even can.
No. 1 is understandable. If you’re sick and/or you’re living paycheck to paycheck, that tax-preferred account will stretch your health care dollar.
No. 2 also makes sense to a point. It’s good to have an “emergency HSA fund” available on demand, in case you need it quickly. But in most cases, you can access invested HSA funds before you have to pay your medical bill(s), so maybe keep a smaller emergency fund than you need in order to maximize your investing potential.
No. 3 is sad but true. In some cases, your HSA trustee or custodian (just fancy words for the company that manages your HSA) hasn’t made it easy for you to invest your funds, or they haven’t given you options at all.
In this case, here’s all you need to know: Your HSA funds follow almost identical investing rules to traditional IRAs. You can invest funds from your HSA into an investment account that handles “normal” investments, like stocks, bonds, annuities, etc. You can’t invest in real property, like real estate or cars and boats. If you have returns on your investments and simply reinvest them, like an IRA, then you don’t pay taxes. Plus, if you do need to withdraw the funds from your HSA to pay for qualifying medical expenses, you don’t pay taxes then, either.
That’s about it. We’ll give you more investing tips but just wanted to put that one, simple piece of knowledge in your brain: yes, you can invest your HSA funds even if your current HSA provider has made it less than easy…just think about how you do it with your IRA. In fact, if you want to invest it the same place you currently have your IRA, go for it!
Here are The Benefits of FI, we talk about HSAs as a savings vehicle for retirement in the same vein as a 401(k) or IRA. That’s because it has the same basic features of enabling pre-tax savings to be invested and thereby grow at a significantly higher rate than post-tax dollars in a standard checking or savings account.
What some of you, especially those who have just started you FI journey and have neither started a family of your own nor seen your own parents get to standard retirement age, may be thinking is that since you’re saving the money for retirement, it’s retirement income that you’ll get to spend on fun stuff. Hopefully that will be true (although you’ll get taxed on it), but odds are that you’ll use it for medical expenses, which are never as fun but almost always a factor.
Research by Fidelity Investments, reported by Money, shows that the average couple currently reaching retirement age will incur $280,000 in medical-related expenses in retirement. As homer Simpson would say:
Whether you have regular health insurance or you are of the age/eligibility to receive Medicare coverage, one of the trickiest things to have to deal with is whether the service you need is covered. I have heard many stories about people who have gone into a doctor’s appointment thinking that Medicare will cover their needs and found out later, via a huge bill, that they did not. My mother spent more than a year reconciling a bill that my stepdad received and she would have loved to have easy access to coverage information on her smartphone while the doctors appointment was happening.(more…)
Two studies came out last week, one by LendingTree on the best cities to pay down debt and one by WalletHub on the best and worst states to retire. I found the study on paying down debt particularly interesting for what it cites as the main indicator that you’re in a good place for working on becoming debt-free: the rent-to-income ratio in every city in the top 10 was less than 20 percent, meaning you’re paying less than 20 percent of your income toward your rent or mortgage on a monthly basis. Other cost-of-living factors also have an influence but since housing is the largest component of most budgets, it’s a no-brainer that what you pay to have a roof over your head will impact how much you can pay down student loan debt and pay up on your retirement savings.
How does this relate to the benefits you receive? Well, more companies are offering benefits in lieu of higher salaries. As such, when you look at your “total compensation” that a company is willing to pay you, pay close attention to the value of the benefits. Are they offering student loan paydown? What kind of 401(k) match do they give? If they’re offering you an HDHP, are they also giving you an HSA contribution and, if so, how much? All of these “benefits” amount to added income for you and should be figured into your budgeting and calculations of rent-to-income ratios, which could make even cities that didn’t make the list look even better — or could make cities that are on the list look worse if your income and benefits aren’t on par with cost of living.
On the flip side, this list focuses on cities. If you are able to work from home or otherwise telecommute, and you’re willing to live further from a city center or in the country altogether, you’re likely going to get your ratio way down, which will greatly boost your savings potential, which will in turn compound itself over time.
Regarding where to retire, again, your combination of income and benefits are important, but then you also add in factors like cost of health care, income tax, property tax, etc. All in all, there are some great places on the list where you can live…and there are some places that you may personally love but they’re not going to do you any favors in making your dollars or health go further in retirement.
One more thing to consider above all else: What makes you happy? I live in Charleston, which is not the most expensive city in the country but also not the one with the lowest rent-to-income ratio. But it’s a beautiful place and I love raising my family here, so I’ve done and will continue to do what makes the most of our place in the here and now and in the future. Love the place you choose and be sure you’re not giving away too much in the present for a greater future — but also know that the right sacrifices will lead you to your right path to happiness.
Here are links to the studies: