Retirement/Insurance Thread

[idhawkman]

Good idea making a separate thread on this River.

I think you meant to say that regardless of whether your new employer has a 401k or not, you can roll over into a self directed 401k. I did that a few times through my career. The biggest reason I didn't like the "Offered" investments in some 401ks is because they were loaded too heavily in the company's stock. E.g. at AT&T they mainly had AT&T heavy funds you could choose from. My thought was, I've heavily invested in this company already why would I double down and put most of my eggs in one basket.

I remember when congress approved the IBM buy out and allowed the acquiring party to raid the pension fund to help finance the buy out. That told me right there to never let my money stay in any major corporation but to put it under my control. Then everytime I moved from one company to another I'd roll what I had built up in that company's 401k into my self directed 401k and started over with the next company.

That's what I did - not sure what other people do though.

[RiverDog]

Good idea making a separate thread on this River.

I think you meant to say that regardless of whether your new employer has a 401k or not, you can roll over into a self directed 401k. I did that a few times through my career. The biggest reason I didn't like the "Offered" investments in some 401ks is because they were loaded too heavily in the company's stock. E.g. at AT&T they mainly had AT&T heavy funds you could choose from. My thought was, I've heavily invested in this company already why would I double down and put most of my eggs in one basket.

I remember when congress approved the IBM buy out and allowed the acquiring party to raid the pension fund to help finance the buy out. That told me right there to never let my money stay in any major corporation but to put it under my control. Then everytime I moved from one company to another I'd roll what I had built up in that company's 401k into my self directed 401k and started over with the next company.

That's what I did - not sure what other people do though.

LOL! Thanks for starting it. Now all we have to do is self police the thread and keep politics out of it.

None of the 3 companies I worked for had stock options as part of their 401K's. My last two employers had stock options, but it was a separate program not associated with their 401K. I was unaware that it was legal to tie a stock option to a 401K. Most companies that I know of hire a professional investment firm, like Prudential, Fidelity, etc, to manage the fund for them and the company's participation is limited to their voluntary contribution.

If your 401K has a Roth option, ie post tax, my advice is to put all of your own contributions into that side of the 401K. You'll have to pay tax on your contributions up front vs. deferring them like you do with the pre-tax conventional side, but the advantage is that the earnings are not taxed like they are in the conventional account, and once your fund climbs beyond 6 digits, earnings will on many occasions will exceed your contributions. 100% of a conventional 401K, ie your contributions, your employers, and your earnings, are subject to tax. My problem is that only about 10% of my former 401K funds were in the Roth because it wasn't available until the last 6-8 years of my employment, so I'm going to end up with a huge tax bill once I hit 70 1/2 years old.

On both occasions where I changed employers (one was a buyout), I did just what you did, and rolled my 401K over into a self directed IRA rather than with my new employer simply because it gave me more flexibility as to who to invest with. Eventually, I ended up with 3 financial advisors of whom I didn't have to pay a dime for their advice as I was their client. I still have two advisors, both here locally, that I can talk to free of charge.

Good topic.

[Aseahawkfan]

I maintain all my money in a personal investment account. I don't like 401Ks or any kind of account that makes me pay a penalty to access my money unless they are providing a ROI that matches what I could make myself, which most companies are not even close to in the modern day. There was a time when company 401Ks were a good investment. That time has passed.

I still recall growing up being taught money was mostly used to purchase items you need or want. Frivolous entertainment use items and all the basic needs. I still see the vast majority thinking of money this way. It wasn't until I started learning about finance and economics that I learned you should be purchasing productive assets as much as possible. I was surprised how little they teach you about purchasing appreciating assets in any kind of schooling. High School certainly doesn't teach about purchasing productive assets that grow your money rather than diminish it. Changed my whole mindset once I learned you could buy assets that make your money grow with little to no work, just upfront research time.

I've tried to teach all the young folks in my family about productive assets. I'm absolutely astounded by the complete lack of interest by the vast majority of people. They think savings is all they need along with social security.

The key to a sound retirement is learning how to spend cash on productive assets that produce a passive income over time. If you can do this when you're young, you'll see the cash pile up at an increasing rate through compounding. You want to make sure you don't get into any of the get rich quick thinking that causes people to purchase overly risky assets attempting to win the lotto. Wealth building is a skill that is not taught, but should be. Financial literacy is a necessary skill for survival.

[idhawkman]

They need to raise the work age on SS and medicare. This whole retire and relax for 20 years while others pay you is trash. It's trash when it's called welfare. It's trash as SS. SS should be for people that are mostly infirmed and can't work. And more kids means more people to take care of, more crowded streets, more mouths to feed, and the like. Building tax systems based on population expansion is a recipe for disaster. I don't want to end up like China. Crack the whip on the human herd and get them working. They can't keep looking at the government for their well being like sheep looking to to the shepherd unless they're willing to keep putting out the wool, milk, and meat to pay for it all.

There's this idea humans are some kind of special creature. They aren't. They will be as lazy as a crocodile sitting in the shallows of the river letting the sun warm him if they can be meaning they'll golf all day or play video games if you don't get them working. Social security needs to be built with the idea of sustaining only the infirmed, not some kind of national vacation policy, which is what it is now. I plan to work until I can't, hopefully until I drop dead. I can't even imagine sitting at home doing nothing but piddling around.

I have a slight problem with your characterization of "Retire and relax for 20 years while others pay you". REmember, it was a contract between us and the government that we have paid our end of the bargain for. Other's paying me? NOPE! I paid that in adavance over decades. Unfortunately, the democrats voted down self directed SS where I could have managed my own investments and if I so happen to have died, could have willed the remainder to my kids. INstead the government squandered my money on senseless wars, studies on how long it takes a letter to travel from one place to another, shrimp on a treadmill and crucifixes in jars of piss. ...And people wonder why I'm so outraged at the status quo and being "presidential". All I want is for them to be good stewards of my money and freedoms.

[idhawkman]

Sorry River, that didn't take long did it?

[Aseahawkfan]

I have a slight problem with your characterization of "Retire and relax for 20 years while others pay you". REmember, it was a contract between us and the government that we have paid our end of the bargain for. Other's paying me? NOPE! I paid that in adavance over decades. Unfortunately, the democrats voted down self directed SS where I could have managed my own investments and if I so happen to have died, could have willed the remainder to my kids. INstead the government squandered my money on senseless wars, studies on how long it takes a letter to travel from one place to another, shrimp on a treadmill and crucifixes in jars of piss. ...And people wonder why I'm so outraged at the status quo and being "presidential". All I want is for them to be good stewards of my money and freedoms.

I think people paid for a fund that would support them when the life expectancy was lower. If life expectancy rises, so should the retirement age. It hasn't risen high enough. Should be 70 for retirement age, maybe 71. Closer to the average age of death. Social security intent should be to cover you in your years until death give or take some.

What I see now is lots of people that can still work retiring because they want to, not because they have to. Then they just dink around their house not doing much taking vacations and getting surgeries to further extend their life further. I don't believe that is what the contract intended while young folks continue working paying into a fund that seems on its way to bankruptcy. That means a bunch of hard folks in government need to push the change. I doubt that happens since older folks are a huge voting block that want their early retirement with money and benefits to continue. Until SS is brought in line to what it was intended to be when created as far as age of retirement, it's going to be a huge problem.

It's a fund to make the years until death easier, not a vacation fund for people retiring still capable of working to screw around. As far as the rest of what you posted, big surprise the government planned something poorly that they can't undo because once you give the handout guarantee you can't take it back without pissing your voter base off badly.

[RiverDog]

I maintain all my money in a personal investment account. I don't like 401Ks or any kind of account that makes me pay a penalty to access my money unless they are providing a ROI that matches what I could make myself, which most companies are not even close to in the modern day. There was a time when company 401Ks were a good investment. That time has passed. [/quote]

It depends on your company. My former employer would match a maximum of 4% if I contributed a minimum of 6%. Once they stopped admitting new participants to their pension plan, they upped that amount by 3%, and kicked in an extra 2% after we were split off from our parent company, making the maximum Co. contribution 9%. You'd be a fool not to take advantage of that. The other advantage is the tax benefits as I mentioned above. Good 401K plans offer a wide variety of investments. All of my financial advisors love 401K's. They are a great vehicle for accumulating a retirement fund.

I've tried to teach all the young folks in my family about productive assets. I'm absolutely astounded by the complete lack of interest by the vast majority of people. They think savings is all they need along with social security.

You're preaching to the choir. My favorite example is a young guy, married, and no kids. When I asked him how much he was contributing to his 401K he said "2%", meaning he was forgoing 3% of 'free money.' At his age and family situation, the two of them should have been packing away the money early before they got kids, house payments, and so on. My biggest complaint about my employer is that they do not provide any kind of financial counseling to their employees, most of whom are immigrants and don't have a clue as to how our system works. I was constantly bombarded with requests for advice that I did not feel comfortable giving yet embarrassed to say no.

The key to a sound retirement is learning how to spend cash on productive assets that produce a passive income over time. If you can do this when you're young, you'll see the cash pile up at an increasing rate through compounding. You want to make sure you don't get into any of the get rich quick thinking that causes people to purchase overly risky assets attempting to win the lotto. Wealth building is a skill that is not taught, but should be. Financial literacy is a necessary skill for survival.

That's one of the keys. The other is getting all your debts paid off. My wife and I paid off our house, bought brand new cars a few years before we retired and paid them off, replaced our heat pump, wood stove with a pellet stove, replaced our roof, water softener, etc.

Another good tool often overlooked is a Health Savings Account. Contributions are tax deductible and your earnings are tax free. The only problem is that you have to spend it on IRS approved medical expenses, so it's not a great option for younger folks with negligible medical expenses. I would recommend anyone over 55 to start a HSA and contribute to the max as once you go on Medicare, you can no longer make tax free contributions.

[Aseahawkfan]

It depends on your company. My former employer would match a maximum of 4% if I contributed a minimum of 6%. Once they stopped admitting new participants to their pension plan, they upped that amount by 3%, and kicked in an extra 2% after we were split off from our parent company, making the maximum Co. contribution 9%. You'd be a fool not to take advantage of that. The other advantage is the tax benefits as I mentioned above. Good 401K plans offer a wide variety of investments. All of my financial advisors love 401K's. They are a great vehicle for accumulating a retirement fund.

So a 9% rate of return on all contributions? That would be a good rate matching what an index fund might provide. Never worked for a company paying 9%. Tax benefits are neutralized for those that like access to their money. If you don't require access to you money, then 401K can be very good. If you want to access large sums, not so good. I never want to worry about the penalty if I have to take a huge sum out for something. I imagine for standard retirement it's good advice. If your money is moving a lot, it's better to maintain an account that won't charge a penalty if you want to make a big purchase.

That's one of the keys. The other is getting all your debts paid off. My wife and I paid off our house, bought brand new cars a few years before we retired and paid them off, replaced our heat pump, wood stove with a pellet stove, replaced our roof, water softener, etc.

I stay debt free. Don't like debt at all. That is definitely good advice. Car payments are one of the worst investments. Even a house can be a bad long-term investment in the current market. A house or dwelling can be a productive asset if you buy a house or property that can be used as a rental property.

Another good tool often overlooked is a Health Savings Account. Contributions are tax deductible and your earnings are tax free. The only problem is that you have to spend it on IRS approved medical expenses, so it's not a great option for younger folks with negligible medical expenses. I would recommend anyone over 55 to start a HSA and contribute to the max as once you go on Medicare, you can no longer make tax free contributions.

Investments in health are good advice too. Keep in shape. Keep your weight down. Maintain your leg, grip, and body strength and mass. Eat right. Make sure you move around and maintain some cardiovascular fitness. Nothing kills you faster making all your retirement savings worthless than letting your health deteriorate. If you move less after you stop working, you're going to feel it. All cause mortality rates are higher for those that don't maintain a healthy bodyweight (don't get too fat, but don't get too small as you get older), leg strength, and grip strength. The likely reason is leg strength helps you move around. Grip strength is primarily what you use the upper body for if your grip strength is weak it means your body is likely weak. A healthy weight means you aren't wasting away or are too fat.

Folks definitely need to invest in their health. Good health as long as you can is worth more than money. I work to maintain good strength into my senior years.

[idhawkman]

I have a slight problem with your characterization of "Retire and relax for 20 years while others pay you". REmember, it was a contract between us and the government that we have paid our end of the bargain for. Other's paying me? NOPE! I paid that in adavance over decades. Unfortunately, the democrats voted down self directed SS where I could have managed my own investments and if I so happen to have died, could have willed the remainder to my kids. INstead the government squandered my money on senseless wars, studies on how long it takes a letter to travel from one place to another, shrimp on a treadmill and crucifixes in jars of piss. ...And people wonder why I'm so outraged at the status quo and being "presidential". All I want is for them to be good stewards of my money and freedoms.

I think people paid for a fund that would support them when the life expectancy was lower. If life expectancy rises, so should the retirement age. It hasn't risen high enough. Should be 70 for retirement age, maybe 71. Closer to the average age of death. Social security intent should be to cover you in your years until death give or take some.

Ahhhh, you may be right on this but then you'd have to deal with the problem that raises. E.g. if you don't give an option for people to retire they stay in their current jobs which by the time they are that age is the highest positions in the company. So the lingering effect is no movement or at least much slower progression in the company for lower level folks. That's the first problem you come to.

The second problem is what could I have accumulated with my SS investments on my own? Over 5 decades with dollar cost averaging and compounding interest what would my account be at if you figure a modest total contribution over that time of $250k? Even in a conservative investment vehicle you'd be looking at somewhere around $2.5 to $3M. Even if I withdraw $50,000 a year to live on in retirement (Much more than SS provides) how long would it take to drain that account. Remember, there's accrued interest along the way as you are withdrawing the money so its not simple math of $2.5 divided by 50k. AND THAT IS IF I LIVED TO RETIREMENT AGE. Think about the inheritance for those who don't quite make it that far.

What I see now is lots of people that can still work retiring because they want to, not because they have to. Then they just dink around their house not doing much taking vacations and getting surgeries to further extend their life further. I don't believe that is what the contract intended while young folks continue working paying into a fund that seems on its way to bankruptcy. That means a bunch of hard folks in government need to push the change. I doubt that happens since older folks are a huge voting block that want their early retirement with money and benefits to continue. Until SS is brought in line to what it was intended to be when created as far as age of retirement, it's going to be a huge problem.

That may be what you see but it is not my experience. My dad has 3 retirements. The first is from him being a military careerist. The second from his job in a sugar factory after he retired from the military. The third is SS. He turns 85 this year. The reason I point this out is that his biggest complaint is that all of his relatives, friends and people he's known over the years have died. My belief is that they die because they do what you say above, e.g. sit around and don't do much. My dad can tell you what is happening for retirees every night of the week. Dance tonight at the Elks lodge, tomorrow at the community center, etc. What I think is that people who lose the reason to live soon die.

It's a fund to make the years until death easier, not a vacation fund for people retiring still capable of working to screw around. As far as the rest of what you posted, big surprise the government planned something poorly that they can't undo because once you give the handout guarantee you can't take it back without pissing your voter base off badly.

You have to look at what the SS admin was created for. back in the depression older folks were dying because no one would take care of them. The govt thought that it would be a good idea to have 100 people chip in to give those older folks a way to survive. But did it stop there? NOPE!!!! Its congress and there was a whole new pool of money to be had. They keep raising the amount everyone puts into the system but the system is too big to let fail now. Kids won't take care of their parents when they are feeble and can't work, etc. BUT THAT DOESN'T EXCUSE THE GOVT. TO RENEG ON THEIR END OF THE CONTRACT ESPECIALLY AFTER WE HAVE FULFILLED OUR END. I didn't authorize them to raid my SS fund, congress did that.

[RiverDog]

So a 9% rate of return on all contributions?

No, a 9% contribution. The rate of return is totally up to the individual in how they invest their funds and how those funds perform.

That would be a good rate matching what an index fund might provide. Never worked for a company paying 9%. Tax benefits are neutralized for those that like access to their money. If you don't require access to you money, then 401K can be very good. If you want to access large sums, not so good. I never want to worry about the penalty if I have to take a huge sum out for something. I imagine for standard retirement it's good advice. If your money is moving a lot, it's better to maintain an account that won't charge a penalty if you want to make a big purchase.

Yes, a 9% match is really good nowadays. But when I first entered the work force in 1978 in the days before 401K's, I got a 15% contribution to what was then called profit sharing with no contributions of my own. The kicker was that you had to work there for 5 years to get any vesting rights and 15 years for full vesting. However, when someone quit before they were fully vested, the balance of their account was distributed amongst the rest of the participants so I'd pick up an additional 2-4% in forfeitures. Those days are long gone.

You can access all of your 401K w/o penalty after 55 1/2 years old, but if you withdraw funds from the conventional side, you'll have to declare it as income and pay the tax. My recommendation for people under 55 is to maintain two separate funds, one for retirement, either a 401K if available with an employer or an IRA if your employer does not participate in a 401K. You don't want to miss out on the tax advantages a 401K/IRA provides. You can borrow from a 401K and pay yourself back, but I don't recommend that as your earnings will drop, but a lot of people do it.

That's one of the keys. The other is getting all your debts paid off. My wife and I paid off our house, bought brand new cars a few years before we retired and paid them off, replaced our heat pump, wood stove with a pellet stove, replaced our roof, water softener, etc.

I stay debt free. Don't like debt at all. That is definitely good advice. Car payments are one of the worst investments. Even a house can be a bad long-term investment in the current market. A house or dwelling can be a productive asset if you buy a house or property that can be used as a rental property.

If you can get a loan at a very low percentage, then so long as you're disciplined and don't buy a $50,000 car and have a stable income, I see no problem borrowing. The two cars my wife and I purchased we bought on a 0% interest loan even though we had the money to pay cash. You can use the money you would have used to buy the car to work for you in some other way. But you definitely don't want to get into debt prior to retirement, prior to having a kid, etc.

Another good tool often overlooked is a Health Savings Account. Contributions are tax deductible and your earnings are tax free. The only problem is that you have to spend it on IRS approved medical expenses, so it's not a great option for younger folks with negligible medical expenses. I would recommend anyone over 55 to start a HSA and contribute to the max as once you go on Medicare, you can no longer make tax free contributions.

Investments in health are good advice too. Keep in shape. Keep your weight down. Maintain your leg, grip, and body strength and mass. Eat right. Make sure you move around and maintain some cardiovascular fitness. Nothing kills you faster making all your retirement savings worthless than letting your health deteriorate. If you move less after you stop working, you're going to feel it. All cause mortality rates are higher for those that don't maintain a healthy bodyweight (don't get too fat, but don't get too small as you get older), leg strength, and grip strength. The likely reason is leg strength helps you move around. Grip strength is primarily what you use the upper body for if your grip strength is weak it means your body is likely weak. A healthy weight means you aren't wasting away or are too fat.

Folks definitely need to invest in their health. Good health as long as you can is worth more than money. I work to maintain good strength into my senior years.

You're confusing health with finances. Of course, what you say is true, but it's true no matter what your age is. My point was that HSA is a good way to lower your tax bill, especially as you get older and start having health issues...and even a healthy lifestyle and good physical fitness isn't necessarily going to prevent you from having age-related health issues.

[idhawkman]

I was thinking that 9% match is a 150% ROI on your 6% contribution. Then whatever is earned in ROI On the fund is added to that. Very good deal especially since it is tax deferred.

[RiverDog]

I was thinking that 9% match is a 150% ROI on your 6% contribution. Then whatever is earned in ROI On the fund is added to that. Very good deal especially since it is tax deferred.

It is not necessarily tax deferred. As a matter of fact, I chose not to defer my taxes on my contributions and put them in the Roth side of the plan. As I said above, if you defer your taxes in a 401K, you will pay taxes on the entire fund, ie contributions and earnings. In a Roth, you only pay tax on your contributions. The earnings are tax free.

As I mentioned in my comments to ASF, I was invested in a different plan ("profit sharing") when Congress created 401K's back in the late 80's. The selling point for them was that you would defer your taxes until you retired, and the assumption was that your income would be lower retired than working and thus you'd be in a lower tax bracket meaning you'd pay fewer taxes.

But in my case, my retirement income isn't low enough to put me in the next lowest tax bracket than I was in when I was working, so there was no advantage at all for me to defer the taxes, plus I have to pay taxes on the earnings.

Edit: The company contribution has to be on the conventional or pre tax side, and I believe that's due to how the law is written. Also, not all 401K's have a Roth (post tax) option. Mine did, but the hourly employees I managed did not have that option.

[Aseahawkfan]

No, a 9% contribution. The rate of return is totally up to the individual in how they invest their funds and how those funds perform.

If the company is giving you a 9% contribution, that is a 9% ROI. Any additional ROI from investments adds to that. That is how you rate if the monetary savings is worth it. Contribution and ROI in this instance mean the same thing.

You can access all of your 401K w/o penalty after 55 1/2 years old, but if you withdraw funds from the conventional side, you'll have to declare it as income and pay the tax. My recommendation for people under 55 is to maintain two separate funds, one for retirement, either a 401K if available with an employer or an IRA if your employer does not participate in a 401K. You don't want to miss out on the tax advantages a 401K/IRA provides. You can borrow from a 401K and pay yourself back, but I don't recommend that as your earnings will drop, but a lot of people do it.

You have to avoid access up to 55 for this to be relevant. I want access to my money all the time. This is likely good advice for those with no real need for that type of access. For average joe worker, likely good advice.

If you can get a loan at a very low percentage, then so long as you're disciplined and don't buy a $50,000 car and have a stable income, I see no problem borrowing. The two cars my wife and I purchased we bought on a 0% interest loan even though we had the money to pay cash. You can use the money you would have used to buy the car to work for you in some other way. But you definitely don't want to get into debt prior to retirement, prior to having a kid, etc.

Only good time to borrow is if the ROI is higher of the money you use elsewhere including being able to upgrade your job with better transportation. Car purchases are not a great investment. I usually buy a fuel efficient, low maintenance car and keep it for 20 plus years. That's about as good as it gets absent quality public transportation or a job that requires a vehicle that earns income like Uber or Landscaping.

You're confusing health with finances. Of course, what you say is true, but it's true no matter what your age is. My point was that HSA is a good way to lower your tax bill, especially as you get older and start having health issues...and even a healthy lifestyle and good physical fitness isn't necessarily going to prevent you from having age-related health issues.

HSA is another good way to not have access to your money. Tax savings for placing money in a fund you don't want to use. I want access to my money at all times. I recommend the same thing to those that keep their money moving in the markets.

Not confusing anything. I'm stating that taking the time to exercise and stay in good shape will save you way more money in health finances than anything else you do. You want to not have big medical bills as you get older, take care of your body. There is literally nothing you can do to better manage your health finances than staying in very good shape as long as you can. All the pills, surgeries, and health problems experienced by older folks nearly always directly relate to how they have lived their lives whether drinking, smoking, being fat, or not keeping up any kind of fitness. As is usual, people are lazy. They don't want to lift weights, run, or engage in physical fitness. Same reason most people don't manage their finances very well. Taking control of your health and not letting doctors stick on you 20 pills to fix the problems from the earlier pills is not the best way to manage your health.

I studied HSAs. They seem like a way to deprive yourself of money you could be investing for what amounts to a tax deduction that reduces your pre-tax taxable income. This is an extremely minor amount for investors earning a market rate ROI.

[idhawkman]

It is not necessarily tax deferred. As a matter of fact, I chose not to defer my taxes on my contributions and put them in the Roth side of the plan. As I said above, if you defer your taxes in a 401K, you will pay taxes on the entire fund, ie contributions and earnings. In a Roth, you only pay tax on your contributions. The earnings are tax free.

That's how Roth's work. Two rules which you've most certainly passed though on the Roth. Rule 1. Must leave the deposit in the account for a minimum of 5 years. Rule 2. Must be 59 and a half before withdrawing. Otherwise the earnings can be taxed.

As I mentioned in my comments to ASF, I was invested in a different plan ("profit sharing") when Congress created 401K's back in the late 80's. The selling point for them was that you would defer your taxes until you retired, and the assumption was that your income would be lower retired than working and thus you'd be in a lower tax bracket meaning you'd pay fewer taxes.

But in my case, my retirement income isn't low enough to put me in the next lowest tax bracket than I was in when I was working, so there was no advantage at all for me to defer the taxes, plus I have to pay taxes on the earnings.

Edit: The company contribution has to be on the conventional or pre tax side, and I believe that's due to how the law is written. Also, not all 401K's have a Roth (post tax) option. Mine did, but the hourly employees I managed did not have that option.

The idea is to max out the match on the pretax 401k side and then do the roth with what is left over that you want to save. Sounds like your plan had that kind of built in whereas most people have to start their own Roth and do that part on their own.

[idhawkman]

If the company is giving you a 9% contribution, that is a 9% ROI. Any additional ROI from investments adds to that. That is how you rate if the monetary savings is worth it. Contribution and ROI in this instance mean the same thing.

I don't think you are seeing it the right way Asea or maybe we have a communication error. "IF" River puts 6% of his pay for the pay period into the 401k his company will put in 9% of his pay for that pay period for a total of 15% of his gross pay. "IF" River only put in 6% to achieve 15% increase then his 6% is getting a 150% return right out of the gate.

You have to avoid access up to 55 for this to be relevant. I want access to my money all the time. This is likely good advice for those with no real need for that type of access. For average joe worker, likely good advice.

Couple of questions I don't really expect you to answer here but its something that comes to my mind whenever I hear people talking like you about having access to their money all the time and consider any investment of their capital as a potential separation from it.

At what point do you enjoy the fruits of your labor? I've known lots of misers (Not necessarily calling you one at this point) who died with huge wealth and they never enjoyed any of their wealth.

[RiverDog]

I studied HSAs. They seem like a way to deprive yourself of money you could be investing for what amounts to a tax deduction that reduces your pre-tax taxable income. This is an extremely minor amount for investors earning a market rate ROI.

Not really. You can still access your money in an HSA any time and for any purpose with no additional penalty. The only difference would be that you'd have to declare anything you withdraw for a non medical purpose as income, which you would have had to anyway had you put it in some other vehicle.

If you or a dependent have medical costs..and by that, it means almost anything except insurance premiums, like vision, dental, prescription drugs, a trip to the clinic for a cold, etc, you're a fool if you don't at least put what you expect to pay in a year into an HSA and pay your medical expenses via that account and take advantage of the tax break, which can be significant. I saved over $1.5K in taxes last year by contributing the max (for me and my wife around $7700) to my HSA.

[RiverDog]

Two rules which you've most certainly passed though on the Roth. Rule 1. Must leave the deposit in the account for a minimum of 5 years.

I don't think so. You are always entitled to 100% of your contributions, subject to the 10% early withdrawal penalty at 59.5 years or roll it over into another qualified plan.

Rule 2. Must be 59 and a half before withdrawing. Otherwise the earnings can be taxed.

The 59.5 applies to the early withdrawal penalty, which is 10% for anything you withdraw. If your money is in the conventional side of the 401K, you will have to pay tax on it at the time you withdraw it no matter how old you are, and at 70.5, you will be subject to a required minimum withdrawal on any conventional (pre tax) funds you hold. The government is going to want their taxes at some point, ie 70.5.

The idea is to max out the match on the pretax 401k side and then do the roth with what is left over that you want to save. Sounds like your plan had that kind of built in whereas most people have to start their own Roth and do that part on their own.

In my plan, I could put my contributions in either fund and the company would match it at the same given rate. For the last 10+ years of my employment, I was contributing more than 15% to my 401K, and once they gave us the Roth option, started putting all of my contributions on that side. I also had a private Roth 401K that I was contributing $200/month to for 10 years. The company's contribution always went into the conventional or pre tax account.

[Aseahawkfan]

I don't think you are seeing it the right way Asea or maybe we have a communication error. "IF" River puts 6% of his pay for the pay period into the 401k his company will put in 9% of his pay for that pay period for a total of 15% of his gross pay. "IF" River only put in 6% to achieve 15% increase then his 6% is getting a 150% return right out of the gate.

Let me get this straight. For every 6 dollars River puts in, the company puts in 9 dollars? That is a much higher ROI and much better. Totally worth it. That kind of matching is way old school. You rarely see that any longer. If I had that program, I'd be shoving money into hand over fist.

I thought they were paying 9 cents on every dollar River contributed up to 6% of his gross pay.

Couple of questions I don't really expect you to answer here but its something that comes to my mind whenever I hear people talking like you about having access to their money all the time and consider any investment of their capital as a potential separation from it.

At what point do you enjoy the fruits of your labor? I've known lots of misers (Not necessarily calling you one at this point) who died with huge wealth and they never enjoyed any of their wealth.

Hmm. I find investing enjoyable. I see investing as enjoying the fruits of my labor. You work to earn money, so seeing that money grow is enjoyable.

I get what you're saying. I splurge here or there on a computer or a TV. I do like my quality electronics. I imagine it depends on what you enjoy. I truly enjoy investing. Finding a new company to invest in might be the equivalent of someone else buying a sports car or a nice house. I don't much enjoy traveling or vacationing. Sporty cars don't appeal to me. I would rather purchase a functional house than an aesthetic one. I do like a good piece of gym equipment or cardio machine. I enjoy an occasional nice meal.

I don't know what to tell you. I'm not the best person to ask about "enjoying life." The way I enjoy life tends to bore the living crap out of other folks.

[Aseahawkfan]

Not really. You can still access your money in an HSA any time and for any purpose with no additional penalty. The only difference would be that you'd have to declare anything you withdraw for a non medical purpose as income, which you would have had to anyway had you put it in some other vehicle.

If you or a dependent have medical costs..and by that, it means almost anything except insurance premiums, like vision, dental, prescription drugs, a trip to the clinic for a cold, etc, you're a fool if you don't at least put what you expect to pay in a year into an HSA and pay your medical expenses via that account and take advantage of the tax break, which can be significant. I saved over $1.5K in taxes last year by contributing the max (for me and my wife around $7700) to my HSA.

Sounds like a good idea if you know you have certain medical expenses each year. So the 10% plus tax penalty for withdrawing for non-medical expenses has been removed prior to the age 65? When last I looked at HSAs, they had a penalty for withdrawing the money for non-medical expenses.

Could you not have written the medical expenses off at the end of the year obtaining the same tax savings? Usually medical expenses are deductible.

[RiverDog]

Let me get this straight. For every 6 dollars River puts in, the company puts in 9 dollars? That is a much higher ROI and much better. Totally worth it. Most companies. That kind of matching is way old school. You rarely see that any longer.

That's not quite right. It's a long story, but my company ended up with three separate company contribution funds. The first one was a matching fund. The maximum they would contribute in that fund was 4% providing I put in a minimum of 6%. The second fund, at 2%, was a replacement fund that they restored after they split off from our parent company, which had cut it some years prior. Then when they split, they decided not to buy out the pension plan and instead, gave an additional 3%, equal to their former pension contribution, to our 401K, no strings attached. So the total maximum company contribution was 9%. Clear as mud?

Couple of questions I don't really expect you to answer here but its something that comes to my mind whenever I hear people talking like you about having access to their money all the time and consider any investment of their capital as a potential separation from it.

At what point do you enjoy the fruits of your labor? I've known lots of misers (Not necessarily calling you one at this point) who died with huge wealth and they never enjoyed any of their wealth.

Hmm. I find investing enjoyable. I see investing as enjoying the fruits of my labor. You work to earn money, so seeing that money grow is enjoyable.

I get what you're saying. I splurge here or there on a computer or a TV. I do like my quality electronics. I imagine it depends on what you enjoy. I truly enjoy investing. Finding a new company to invest in might be the equivalent of someone else buying a sports car or a nice house. I don't much enjoy traveling or vacationing. Sporty cars don't appeal to me. I would rather purchase a functional house than an aesthetic one. I do like a good piece of gym equipment or cardio machine. I enjoy an occasional nice meal.

I don't know what to tell you. I'm not the best person to ask about "enjoying life." The way I enjoy life tends to bore the living crap out of other folks.

I hear ya about enjoying watching money grow. It's one of those things that you have to divorce yourself from after you retire and start drawing on your nest egg.

[RiverDog]

Sounds like a good idea if you know you have certain medical expenses each year. So the 10% plus tax penalty for withdrawing for non-medical expenses has been removed prior to the age 65? When last I looked at HSAs, they had a penalty for withdrawing the money for non-medical expenses.

No. You have to declare as income anything you withdraw for non medical purposes regardless of your age. But like I said, had you not put that money in an HSA, you'd be paying the same taxes anyway.

Could you not have written the medical expenses off at the end of the year obtaining the same tax savings? Usually medical expenses are deductible.

I think you have to have a certain dollar amount of medical expenses, over $10K if I recall, before it's tax deductible. In any event, since my house is paid off, I do not have enough deductions to itemize so I've been claiming the standard deduction for years. Contributions to an HSA is taken directly off your reportable income so you don't need to itemize your deduction and claim it as an expense.

[idhawkman]

Let me get this straight. For every 6 dollars River puts in, the company puts in 9 dollars? That is a much higher ROI and much better. Totally worth it. That kind of matching is way old school. You rarely see that any longer. If I had that program, I'd be shoving money into hand over fist.

I thought they were paying 9 cents on every dollar River contributed up to 6% of his gross pay.

That's why River had such a great plan. Most plans today max out at 3-4% if you contribute 6%. So your ROI out of the gate is only 50% which is still a great deal and why I advised my employees (when I had them) to contribute the max they could as long as they didn't have any debt.

I don't know what to tell you. I'm not the best person to ask about "enjoying life." The way I enjoy life tends to bore the living crap out of other folks.

I think you and I are a lot alike in regards to fancy cars and show boating money along with how we enjoy life. I like to travel a lot which i didn't see you mention but it might have just been an oversight in your list of what you like to do. One thing I would love to splurge on would be box seats at CLink for the Hawks. The problem I have is setting the wealth level I need to acheive in my mind as to when I would pull the trigger on such a thing.

[idhawkman]

In any event, since my house is paid off, I do not have enough deductions to itemize so I've been claiming the standard deduction for years. Contributions to an HSA is taken directly off your reportable income so you don't need to itemize your deduction and claim it as an expense.

Many people didn't have enough medical expenses to justify deduction as you pointed out River. Even though I itemized my taxes for many years I never got the medical deduction write offs because I didn't meet the threshold. Outside of the occasional cold or flu, my family is pretty healthy (Knock on wood).

Now with the new Tax Cut bill becoming law and the family deductions levels being raised it is going to be harder to justify itemizations.

[RiverDog]

In any event, since my house is paid off, I do not have enough deductions to itemize so I've been claiming the standard deduction for years. Contributions to an HSA is taken directly off your reportable income so you don't need to itemize your deduction and claim it as an expense.

Many people didn't have enough medical expenses to justify deduction as you pointed out River. Even though I itemized my taxes for many years I never got the medical deduction write offs because I didn't meet the threshold. Outside of the occasional cold or flu, my family is pretty healthy (Knock on wood).

Now with the new Tax Cut bill becoming law and the family deductions levels being raised it is going to be harder to justify itemizations.

Unless both you and your wife are freaks of nature, you're going to start having medical expenses by the time you get into your mid 50's. If you don't already have a HSA, I'd recommend opening one, and if you do, I'd recommend contributing as much as you can afford regardless of your expected medical expenses. Also, keep in mind that you can use it for dental, vision, prescription drug, immunizations, as well as any other expense that qualify under IRS regulations such as weight loss and tobacco cessation.

There are some restrictions on who can open a HSA account. If you work for the federal government, are on VA, Medicare, Medicaid, or any other federal insurance program, you are not eligible for a HSA. That's the mistake I made. I did not realize that whey you go on Medicare like my wife did last year, that you can no longer contribute to an HSA. I'll be celebrating my 65th birthday this October, so I can only contribute 5/6th of this year's amount then I can no longer contribute to it. Had I known that beforehand, I would have been contributing the maximum years before I eventually figured it out.

Here's a link to the IRS publication that speaks to HSA's:

https://www.irs.gov/pub/irs-pdf/p969.pdf

[Aseahawkfan]

Unless both you and your wife are freaks of nature, you're going to start having medical expenses by the time you get into your mid 50's. If you don't already have a HSA, I'd recommend opening one, and if you do, I'd recommend contributing as much as you can afford regardless of your expected medical expenses. Also, keep in mind that you can use it for dental, vision, prescription drug, immunizations, as well as any other expense that qualify under IRS regulations such as weight loss and tobacco cessation.

You can be an average person that keeps your weight right and maintains an active lifestyle and not have to worry about medical expenses as long as you avoid things like smoking and drinking. My grandmother took no medications and near perfect physical health into her 80s. No doubt most people don't because they're fat, did lots of unhealthy activities when younger, and never bothered to learn their body as well as taking every single pill or medication prescribed by the doctor rather than working with the doctor to understand their health.

If IDhawkman keeps himself in shape with his military background, he can reach near death in a healthy state absent any complications like cancer. People are unhealthy for a reason, not just because they hit their 50s. That's why I tell folks to invest in their health with a good diet, maintain a healthy weight, and do some kind of athletic activity. I prefer weightlifting myself, but some people love cardio or basketball or martial arts. Whatever keeps you active and your body healthy is good. Main thing is the mostly healthy diet. It will save you immense money by avoiding chronic illnesses like diabetes, emphysema, and general weight/diet related sicknesses that you build up to from a young age.

The main unlucky folks are those with diseases that are genetic and nearly unavoidable like Crohn's or Arthritis. Those suck. I think that is more a minority than majority if you take care of yourself.

[Aseahawkfan]

No. You have to declare as income anything you withdraw for non medical purposes regardless of your age. But like I said, had you not put that money in an HSA, you'd be paying the same taxes anyway.

Seems they did remove the penalty. That's not a bad idea for folks with known illnesses. When I was offered HSAs long ago, there was a penalty for withdrawal of funds. I avoid accounts that charge me a penalty as I never know when I'll need to access the funds. I've been mostly healthy as well, so never needed. I work to stay that way.

I think you have to have a certain dollar amount of medical expenses, over $10K if I recall, before it's tax deductible. In any event, since my house is paid off, I do not have enough deductions to itemize so I've been claiming the standard deduction for years. Contributions to an HSA is taken directly off your reportable income so you don't need to itemize your deduction and claim it as an expense.

It's 7.5% of gross or above. HSA good idea for those with known medical expenses. The penalty has been removed. So it's a pre-tax savings account specifically for medical that can be rolled over. Definitely good for those with chronic conditions.

[burrrton]

HSA good idea for those with known medical expenses. The penalty has been removed. So it's a pre-tax savings account specifically for medical that can be rolled over. Definitely good for those with chronic conditions.

Ayup. They're fantastic. And you can negotiate cash payment in many circumstances.

[idhawkman]

Now with the new Tax Cut bill becoming law and the family deductions levels being raised it is going to be harder to justify itemizations.

Unless both you and your wife are freaks of nature, you're going to start having medical expenses by the time you get into your mid 50's. If you don't already have a HSA, I'd recommend opening one, and if you do, I'd recommend contributing as much as you can afford regardless of your expected medical expenses. Also, keep in mind that you can use it for dental, vision, prescription drug, immunizations, as well as any other expense that qualify under IRS regulations such as weight loss and tobacco cessation.[/quote]

Good to know and lord knows I could lose a few pounds but my health is covered at the V.A. from my military service. Got my hernia fixed a year or so ago. I'm already mid 50's but I come from good stock. (on my father's side they lived into their 100s when most people were dying in their 40's and 50s through the depression.) My wife works at St. Lukes hospital and has really good insurance through them but I get what you are saying.

[idhawkman]

Ayup. They're fantastic. And you can negotiate cash payment in many circumstances.

I couldn't believe the difference in what doctors charge when you pay cash and negotiate with them.

[RiverDog]

Good to know and lord knows I could lose a few pounds but my health is covered at the V.A. from my military service. Got my hernia fixed a year or so ago. I'm already mid 50's but I come from good stock. (on my father's side they lived into their 100s when most people were dying in their 40's and 50s through the depression.) My wife works at St. Lukes hospital and has really good insurance through them but I get what you are saying.

If you're covered by the VA, you can't open or make contributions to an HSA. They don't want people "double dipping", ie essentially getting a federal discount on insurance provided by the federal government. That's why I won't be able to make contributions once I go on Medicare.

However, if your wife is covered by private insurance, then you can open/make contributions to an HSA, although it would be at a reduced amount vs. the married rate.

[RiverDog]

No. You have to declare as income anything you withdraw for non medical purposes regardless of your age. But like I said, had you not put that money in an HSA, you'd be paying the same taxes anyway.

Seems they did remove the penalty. That's not a bad idea for folks with known illnesses. When I was offered HSAs long ago, there was a penalty for withdrawal of funds. I avoid accounts that charge me a penalty as I never know when I'll need to access the funds. I've been mostly healthy as well, so never needed. I work to stay that way.

There are other things besides just medical procedures that you can use HSA funds for, including such things as COBRA and long term care insurance premiums. If you're planning on taking COBRA as part of your retirement plan, as many people do, then you can pay for the insurance premiums out of an HSA.

I think you have to have a certain dollar amount of medical expenses, over $10K if I recall, before it's tax deductible. In any event, since my house is paid off, I do not have enough deductions to itemize so I've been claiming the standard deduction for years. Contributions to an HSA is taken directly off your reportable income so you don't need to itemize your deduction and claim it as an expense.

It's 7.5% of gross or above. HSA good idea for those with known medical expenses. The penalty has been removed. So it's a pre-tax savings account specifically for medical that can be rolled over. Definitely good for those with chronic conditions.

I knew it was high enough that it would be unrealistic for me to claim. Most people with decent income and decent insurance aren't going to reach that threshold.

I always knew it was a good idea for those with chronic conditions. For years, I just contributed $1K per year or so as we didn't have any significant medical expenses, but when I saw everything it covered and how much the tax break was worth, it quickly became apparent that it was too good of an opportunity to pass up even if we didn't have a lot of uncovered medical expenses, especially given that once you go on Medicare, you can no longer make contributions to it.

[RiverDog]

Ayup. They're fantastic. And you can negotiate cash payment in many circumstances.

Which is another good point. Since retiring, I no longer have dental insurance so I'm paying for those services out of my pocket. Most dentists offer a cash discount so I'll pay them cash, take the discount, then keep the receipt and pay myself back via my HSA. I'm sure that you could do the same thing at vision clinics.

On a related subject, there's a new law that just went into effect Jan. 1 that requires hospitials and clinics to make available the prices they charge for each service they provide. However, their published rates may be a lot higher than what they eventually end up charging you as many times, insurance companies/Medicare may not pay for it in its entirty but the hospital/clinic won't pass along the difference and instead will eat it themselves.

[RiverDog]

The bottom line in all this is that you have to take it upon yourself to figure this stuff out. There is no guardian angel that's going to materialize and tell you how to navigate through all of this. I know that there are a lot of people that are under the assumption that the government will help you with your decision making when in fact it's the exact opposite. For example, SSA employees are specifically instructed not to give any advice whether the customer asks for it or not. My employer, while offering very generous benefit, does not provide any financial counseling services.

But it's not that difficult. There are lots of free retirement seminars, some offering free dinners (although there's a catch: You'll have to listen to their sales pitch to manage your money for you). Just don't give anyone your SS number or bank account number. I attended a Medicare seminar put on free of charge by our local hospital and plan on going again later this year. Public libraries often times host these types of seminars. Plus going to those meetings provides an opportunities to meet others that are in a similar predicament.

Good thread, Idahawkman!

[idhawkman]

Which is another good point. Since retiring, I no longer have dental insurance so I'm paying for those services out of my pocket. Most dentists offer a cash discount so I'll pay them cash, take the discount, then keep the receipt and pay myself back via my HSA. I'm sure that you could do the same thing at vision clinics.

The V.A. doesn't have dental available to me so I go to Mexico for my dental work. The largest concentration of dentist and eye doctors are just across the border in Yuma AZ. They take care of all the snow birds down there. My dad found a guy in San Luis that does a great job at reasonable rates. When I took my family down there, it saved us over $10,000. I had a daughter with wizdom teeth that needed to come out, I had a bridge I needed after breaking a tooth and my wife needed a couple inplants - my other daughter had some cavities. Total quoted in the states was over $13k, we got everything done for just under $2k.

Best part is, this detist would fill out all the forms for insurance if you needed him to.

[RiverDog]

The V.A. doesn't have dental available to me so I go to Mexico for my dental work. The largest concentration of dentist and eye doctors are just across the border in Yuma AZ. They take care of all the snow birds down there. My dad found a guy in San Luis that does a great job at reasonable rates. When I took my family down there, it saved us over $10,000. I had a daughter with wizdom teeth that needed to come out, I had a bridge I needed after breaking a tooth and my wife needed a couple inplants - my other daughter had some cavities. Total quoted in the states was over $13k, we got everything done for just under $2k.

Best part is, this detist would fill out all the forms for insurance if you needed him to.

Not an option for me, but even if it was, I don't want to change dentists. My hygenist is a personal friend of mine that's been cleaning my teeth for the past 30 years and she has forgotten more about dental work than some dentists will ever know.

[idhawkman]

Not an option for me, but even if it was, I don't want to change dentists. My hygenist is a personal friend of mine that's been cleaning my teeth for the past 30 years and she has forgotten more about dental work than some dentists will ever know.

yeah, its not for everyone but everyone in the Yuma area that snow birds it is for. I know people who fly in on a friday to Yuma, rent a hotel room through the weekend, have all their teeth pulled on Friday and by Monday they have all inplants or dentures done. Less than $2k to do that, too. No more dentists for the rest of your life... Kind of makes you say, hmmmmm...... don't it?

[RiverDog]

Since we had some discussion about taxes in another thread, I thought it might be useful to bump this one to see if there's any interest in discussing the topic.

As most of you know, my wife and I are retired, so I recently attended a free seminar on Taxes in Retirement, and I'm glad I did. Here's a couple of take-aways:

The Trump tax cut did help us out quite a bit. The top of the 12% tax bracket went up, from $19,051 to $77,400 for married couples. That is huge, as the next bracket is 22%, the largest single jump in the brackets. Secondly, you can deduct medical expenses if they exceed 7.5% of your income. Since I am under 65 and pay for my own health insurance (you can't claim group health insurance premiums), and along with my wife being on Medicare, our medical expenses easily exceed that percentage. And they increased the standard deduction, from $12,700 to $24,000, and since our house has been paid off for years, we haven't had enough expenses to itemize anyway.

Next year, our taxable income will only reach about $65k, well below the top of the 12% tax bracket, so I've already moved some money from my pre tax IRA (converted from a 401K on retirement) to my Roth IRA. If I don't move it now, I'll pay for it later at a 22-24% rate as taxes come due via the Minimum Required Distribution when I hit 70.5 years old. My plan is to move as much as I can each year and still keep my annual taxable income at the top of the 12% tax rate.

I understand the disapointment others are facing as there was a lot of fine print people didn't read in the new tax law, but let that be a lesson. There's tons of free seminars available that one can attend, and, of course, the information is readily available on the internet. There are no guardian angels that will materialize and help you, so you're going to have to do your own homework.

[idhawkman]

tsk, tsk River... You should know, in the minds of liberals and millenials, its always someone elses fault that they don't know something. I usually hear it in these terms. "Nobody told me...." As if we were twanged in the head with a magic wand to learn what the law says, right...

[RiverDog]

tsk, tsk River... You should know, in the minds of liberals and millenials, its always someone elses fault that they don't know something. I usually hear it in these terms. "Nobody told me...." As if we were twanged in the head with a magic wand to learn what the law says, right...

It's not limited to liberals or millenials. As a matter of fact, I just got through talking with my neighbors, conservative Republicans that are approaching retirement, and you should have seen the jaw drops when I told them about some of the things such as those we've been discussing in this thread. Ignorance has no political or generational boundries.

[idhawkman]

It's not limited to liberals or millenials. As a matter of fact, I just got through talking with my neighbors, conservative Republicans that are approaching retirement, and you should have seen the jaw drops when I told them about some of the things such as those we've been discussing in this thread. Ignorance has no political or generational boundries.

Oh, I wasn't referring to politics, I was referring to finding fault. I mainly hear it from Millenials and liberals more than I do conservatives. I'm not sure I've ever heard a millenial say, "I'm sorry, that's my fault."