Retirement investing...
- Thread starter Ws6
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Hermann
Site Donor 2023
As a senior widower with no debt except the monthly stuff, the above advice is real. After 5 years of retirement I have still not touched a cent of my retirement funds. The no debt heading into retirement is probably the best thing you can do for your ability to enjoy retirement.
Max the 401k at $23,500
Max the HSA at $4,300
Max the Roth IRA at $7,000 (if your income is within the limits)
Pay off all your debt quickly so you can save more outside of the first 3. If the stars align, maybe you get to $1M by 50.
Max the HSA at $4,300
Max the Roth IRA at $7,000 (if your income is within the limits)
Pay off all your debt quickly so you can save more outside of the first 3. If the stars align, maybe you get to $1M by 50.
Paying off my mortgage is not one of my goals. It's 2.5%. I hope to have it as long as possible. I actually wish I did a cash-out refi, up to the no-PMI limit. The money I didn't cash out is not working for me. My home's value will go up or down in value regardless of my LTV, so it should have been used elsewhere.
For sure. I view school as a ponzi scheme. It's a disgusting place where you pay to be treated like trash long enough to have invested enough to be considered hazed and inducted into your chosen field. THEN you get to actually learn how to perform the job, once you're on the job. I do not believe I could live with myself paying those prices currently commanded by colleges. This makes college a no-go for me.
My dislike is for my field in general. My employer is pretty average in it, if we are being unbiased. That said, I do get paid decent. Not great, but I'm not mad at it. I make very low 6 figures in exchange for working a few days per week. It sounds pretty Gucci until you actually get to watch kids die in front of their parents and clean up a boatload of blood all over your ERs floor and help take the employees with broken bones to imaging after they've been attacked on the job (after, of course, first dealing with the attacker, this may be verbal, or may go hands on, and then you need to be extra sure it looks very good on camera, as your actions will determine your legal status and future and present employment). Day. After day. After day. It gets old at any price. Then you try to balance profits (to keep your job) with performance and humanistic values (to keep your employees from quitting and people from dying), and that's fun, too.
I'll punch out at 50 if I'm lucky, 60 if I'm not. 60 is the hard stop though. I'm done after that. $1, or $1B in retirement, I don't care.
That's absolute value talking. Once I retire, I'm more interested in functional impact. My home loan is only $1750/mo. This includes my solar array. It will be paid off by age 50. The house, I can clean it up with a lump payment later in life if it's prudent. Solar and a well are part of it. They go a long way towards fixing costs. Same with driving and EV. Fuel is now tied to my solar....
For those that want to be aggressive (and can do it), worth checking if your 401k allows contributions up to the max combined employee and employer contribution limit (google 415(c) limit). My current employer does but it is buried in the ~100 page booklet and not advertised. May be helpful, particularly for those under 50 that aren't eligible for catch up contributions yet.
https://www.fidelity.com/learning-center/smart-money/401k-contribution-limits
My goal is also 6% per year which is conservative.
The crazy run up after trillions of Covid stimulus pumped into economy and AI boom won’t last forever.
I’m near all time highs and feel the house of cards will come crashing down on current administration.
Even if I could get into a "partial retirement" and go do something like auto sales, etc. to supplement it, that would be so awesome.
Not sure the $500K is achieved yet
It's not. I stacked life for the "now", and I could take a round between the headlights tomorrow for all I know, so 0 regerts, as they say.
The real advantage to an HSA (vs just looking at it like another type of pre-tax retirement account) is that paycheck deductions are taken BEFORE SS and medicare taxes, not just before income taxes (Like 401k, 403b, trad-IRA, etc.) So that's another ~6% advantage that no other form of savings can realize.
"Growth is tax free" is such a marketing ploy to those who are bad at math. Growth is taxed on the back end.
The financial community wants to talk about leaving the HSA untouched and then saving your receipts for later reimbursement, but it's a wash if you're doing that in-lieu of some other type of savings in your 401k, IRAs, brokerage accounts, etc. Sometimes it's nice to bring the HSA "up to date" to keep the bookkeeping manageable.
Better yet, max that won't push you into a higher tax bracket (now) than the bracket you are modeling as your marginal bracket in retirement.
Good call out on the SS and Medicare taxes! I did not know that.
Can you elaborate - what's the tax on the back end? I'm thinking a delineation here between whether or not it is a qualified medical expenses re - federal income taxes? I agree if you are just taking distributions in retirement, but my understanding is no taxes (federal income at least) on distributions made post 65 (regardless of initial contribution or growth) for qualified medical expenses.
You need to do a lot more research, and you need to figure out a lot more components of your plan.
With the income you claim, and this house payment, it really depends on the interest rate whether paying it off is the best use of your money.
If your goal is to retire in 11 years, and that is extraordinarily ambitious, then you really need to be a efficient about the use of your money.
You need to talk to HR figure out what the 401(k) match is, you need to look at a Roth IRA, you need to look at every single investment vehicle option, and figure out the most efficient way to save and plan for the future.
To be blunt, starting this journey at 39 and expecting to complete it at 50, is going to take some extra extraordinary effort. Most people become wealthy through time.
I’ll give you an example:
From 1991 to 1997, I put the maximum allowed by law, $2000 per year, in an IRA. It was not deductible because I was on active duty, so that was after tax money. It totaled $16,000.
Checking the account balance of that IRA this morning, it’s at $547,900.
That, my friend, is what time does for you. I turned $16,000 into over half a million.
That account satisfies your goal stated above, but it took over 30 years of compounding, and reinvesting, to do it.
To get to half a million in 11 years is going to require you to put away somewhere around $35-$40,000 a year.
And you need to do it efficiently, or you will be wasting a significant amount of that money on things like taxes, or missed opportunities for more tax efficient, or better returning, investments.
The 401(k) match, the free money, that you are not taking advantage of, is a prime example of this. If you want to put away more money, then adding some free money to it is the best way to go.
You need to get with HR and figure out every retirement, and investment, benefit that you have available.
You have articulated what you want to do.
But, until you figure out how, you simply will not ever get there.
Time for some research.
If you take distributions (65+) that are not medical expense reimbursements, then they are taxed like ordinary income, just like trad-IRA/401k distributions. There is no distinction between taxes owed on the growth vs the contributions. So view an accumulated HSA surplus just like another trad retirement account, but in this case you get SS/Medicare deduction on the front...and multiplication is commutative. 1.06 on the front is the same as 1.06 on the back.
Be aware, this is only if you have "qualified cafeteria plan" deductions taken from your paycheck to fund the HSA. If you do it by writing a check or making a transfer, those funds don't get the SS/Medicare bonus perk...but they do still get an "above the line" deduction when you file (deduction that reduces your taxable income even if you don't itemize). Also be aware you can make "true up" contributions up until tax filing deadline for the prior year, much like an IRA.
As far as a lifetime of family medical expenses go, it absolutely makes sense to guarantee you can deduct/discount them as much as possible...and get familiar with what is on the qualified list. It expanded greatly during covid.
Will a HSA make you wealthy? Nope. Is it one of many tools to integrate into a maximized financial life? Yes.
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Thanks so basically, growth is indeed tax free, provided its a qualified medical expense when it comes time for withdrawal. Non-qualified medical expense treated the same as any pre-tax account (the ~20% penalty disappears). It's an important distinction for folks - IMHO at least.
Yes.
It's an important distinction for folks - IMHO at least.
But if you're realizing that "tax free growth" within the HSA only because you didn't have that money in your other accounts where it could have also been growing (perhaps tax free) then it could be a wash. I wouldn't prioritize pre-tax growth in an HSA over truly tax-free growth in a roth account.
Absolutely make the max HSA contributions if you can, but MY OPINION, it's not worth doing the delayed reimbursement game if it makes you so cash strapped that you aren't fully contributing to your other accounts. This highly touted HSA game that some financial advisors push adds unnecessary complexity and distraction.
In our system, I'd rather square up the HSA once a year (pull any eligible reimbursements out) and then stuff every spare dollar above our emergency fund into our taxable brokerage account (where the growth is largely qual-divs/LTCG and will be used in early retirement years). Having a ton of reimbursable money in our HSA does no good if I die and my wife can't figure out the system of receipts to get the tax free reimbursements. Similarly, I'd rather pay 15% LTCG (in years of my choosing) to increase my basis in our taxable account or do some low cost roth conversions - because if I die my wife will be impacted by lower bracket thresholds.
It's like churning credit cards for the rewards, motor oil rebates, or gathering coupons for groceries. At what point is the juice not worth the squeeze?
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