Some employees have access to an HSA today and are unaware of it. Unlike an FSA which requires that money in the account be spent by the end of the calendar year, an HSA carries over from one year to the next. An HSA is a health savings account that can be paired with a HDHP (high deductible health plan). For those who don’t spend much on healthcare from one year to the next, you can invest the money in an HSA to continue to grow just like your 401K.
The money can be pulled out to pay for qualifying health expenses at any time even if the expense occurred years before. These accounts also are tax deductible going in, grow tax free, and aren’t tax when used so they are more efficient then your 401K or 403b when paying expenses in retirement. If you have a HSA option and you have low relative health costs, now is probably a good time to consider using this to further lower your tax liability.
This is really a question that deals with taxation. As you may know, the Tax Cut & Jobs Act of 2017 temporarily lowered tax rates for many Americans. Those cuts are set to expire in 2025 without further Congressional action. Typically the lower your income, the lower your federal income tax liability. As you move up the income scale, your tax liability grows.
Regardless of whether you choose to defer into the Roth portion of your plan or the pre-tax piece or both, you must defer at a high enough rate to insure retirement success. Keep in mind as well that your employer’s contribution will always be on a pre-tax basis so regardless of what you do you will likely have some tax liability in retirement.
While reading my Sunday paper, I read a good editorial on the perils of over-promising and under-delivering. Chicago unfortunately was the guilty culprit. For decades, city employees have been promised healthy pensions yet their employer has not funded those liabilities. What can you learn from this as a retirement saver?
We talk to employees all the time about budgeting, saving, rebalancing, and increasing deferrals with pay increases (both at work and in the home budget). Unfortunately, employees frequently are worried about the here and now (as are most politicians) more than the future. We are asked about the “best” investment option or inverted yield curves but many fail to realize that those aren’t going to have a big impact on their small savings rate and retirement will remain illusive. As employees keep kicking the can down the road, many wake up only to realize they are in their late 50’s and have to save a considerable sum of their income to catch up. This is frequently in conjunction with a realization that retirement at 67 isn’t going to happen.
Chicago is going to be forced into this realization unfortunately it will be paid for by their tax payers and beneficiaries. As an individual, you don’t have a back stop. The same boring stuff still applies. Save early, save often, and increase as you move through your working years.
When talking around the watercooler at work, we frequently hear a lot of tips about life. One that is probably wrong is how much to save in your firms retirement plan? Is the answer up to the employer match? That was what we heard when we started by in ’97. Unfortunately the follow up questions that an expert could help you with on your 403b, 457 or 401K involve a deeper look.
When did you start saving? When do you plan on retiring? Are you paying off student loans? Are you saving for the purchase of a home? What other savings do you have for retirement? Do you have an emergency fund? Are you paying off any other debts like credit card debt?
Those are just a few of the considerations that would lead you to the correct savings rate. Fortunately if you are a participant in a QP Consulting advised retirement plan, we have the tools and resources to help you with this.
We were recently featured in NAPA Net regarding our independent approach to retirement plan advisory services. That article can be viewed here: https://issuu.com/usaretirement/docs/nntm_sum19_complete_rs/48?fr=xKAE9_zU1NQ
The real answer is it depends. Are you going to own your home outright by that point? Will you continue to work part time? Are you going to down size or move to a lower cost of living area? Are your dependents off the payroll? Do you put a large portion of your paycheck towards savings currently?
These are all factors in the magic number. Despite that, the news will always try to pinpoint a number so here is one article that gives it a shot: https://www.cnbc.com/2019/08/11/what-is-the-magic-retirement-number-try-1point7-million.html
QP Consulting LLC will be participating in Next Step Fitness “ride for paralysis”. This cross country wheelchair ride will raise funds & awareness for the critical need for wellness services for those living with paralysis. Our firm President Mark Ivcevich will be joining Janne Kouri for the Amarillo, TX to Oklahoma City, OK portion of the ride as well as the final leg from Manassas, VA to DC. Please follow us on the road: https://www.classy.org/campaign/la-to-dc-ride-for-paralysis/c218449
2018 was another one of those years where an investment in big US companies was better than being invested in diversified international or emerging markets. It is at times like these that employees frequently ask the age old question about diversification. While we quickly forget about the lost decade (..00’s), they weren’t really lost with a globally diversified portfolio.
For another take on this, look at the post from DFA on the benefits of diversification in your portfolio: https://us.dimensional.com/perspectives/why-should-you-diversify
There has been a lot of talk about yield curves recently and what they mean for retirement investors. For a really nerdy read on what it all could mean, take a look at this piece from DFA: https://us.dimensional.com/perspectives/the-flat-out-truth
This is obviously a rhetorical question. One of the things we frequently see discussed in the financial news is the discussion of exhorbitant fees in retirement plans. While there are some truly awful retirement plan set-ups that charge significant fees to employees, there are roughly half of Americans that don’t have the benefit of a retirement plan at work. While everyone with earned income can contribute to an IRA (individual retirement account), few have the discipline to do this after that income is in hand.
Fees are very important when saving for retirement but only if you are saving at an appropriate rate. We frequently have employees ask us after a down turn (and frequently a negative quarterly statement) if they should get conservative until things blow over. The solution is frequently for them to save at a higher rate. Yes, we absolutely want low fees and we work daily to achieve efficiencies within a plan. But, if you aren’t contributing, what is 1% of nothing?