Health Savings Accounts may provide you with remarkable tax advantages.

Why do higher-income households inquire about Health Savings Accounts? They have heard about what an HSA can potentially offer them: a pool of tax-exempt dollars for health care, a path to tax savings, even a possible source of retirement income after age 65. You may want to look at this option yourself.

About 26 million Americans now have HSAs. You must enroll in a high-deductible health plan (HDHP) to have one, a health insurance option that is not ideal for everybody. In 2020, this deductible must be $1,400 or higher for individuals or $2,800 or higher for a family. In exchange for accepting the high deductible, you may pay relatively low premiums for the coverage.

You fund an HSA with tax-free contributions. This year, an individual can direct as much as $3,550 into an HSA, while a family can contribute up to $7,100. (These contribution caps are $1,000 higher if you are 55 or older in 2018.) Some employers will even provide a matching contribution on your behalf.

HSAs offer you three potential opportunities for tax savings. Your account contributions are tax free (that is, tax deductible), the earnings in your account grow tax free, and you can withdraw funds from your HSA, tax free, so long as they are used to pay for qualified health care expenses, such as deductibles, co-payments, and hospitalization costs. (HSA funds may not be used to pay health insurance premiums.)1,3

At age 65, you can even turn to your HSA for retirement income. Current federal tax law allow an HSA owner 65 and older to withdraw HSA funds for any purpose, penalty free. You can use the an HSA to pay Medicare premiums (other than premiums for a Medicare supplemental policy, such as Medigap) or extended-care insurance premiums. No Required Minimum Distributions (RMDs) are ever required of HSA owners. Keep in mind, however, if you take a distribution that is not used for a qualified medical expense, the money may be taxable and a penalty could apply, depending on your age.1

Why is an HSA less attractive for some people? Well, the first thing to mention is the related high-deductible health plan. When you enroll in one of these plans, you agree to pay all (or nearly all) of the cost of medicines, hospital stays, and doctor and dentist visits out of your pocket until that high insurance deductible is reached.1

The other hurdle is just saving the money. If you pay for your own health insurance, just meeting the monthly premiums can be a challenge, especially if your household contends with other significant financial pressures. There may not be enough money left over to fund an HSA. Also, if you are a senior (or a younger adult) with a chronic condition or illnesses, you may end up spending all of your annual HSA contribution and reducing your HSA balance to zero year after year. That works against one of the objectives of the HSA – the goal of accumulation, of growing a tax-advantaged health care fund over time.

If you would like to explore opening an HSA, your first step is to consult an insurance professional to see if you can enroll in a qualified HDHP, unless your employer already sponsors such a plan. Finding an HSA provider is next.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481 [8/13/17]

This popular retirement savings vehicle comes in several varieties.

 

What don’t you know? Many Americans know about Roth and traditional IRAs, but there are other types of Individual Retirement Arrangements. Here’s a quick look at all the different types of IRAs:

Traditional IRAs (occasionally called deductible IRAs) are the “original” IRAs. In most cases, contributions to a traditional IRA are tax deductible: they reduce your taxable income, and as a consequence, your federal income taxes. Earnings in a traditional IRA grow tax deferred until they are withdrawn, but they will be taxed upon withdrawal, and those withdrawals must begin after the IRA owner reaches age 70½. I.R.S. penalties and income taxes may apply on withdrawals taken prior to age 59½.1

Roth IRAs do not feature tax-deductible contributions, but they offer many potential perks for the future. Like a traditional IRA, they feature tax-deferred growth and compounding. Unlike a traditional IRA, the account contributions may be withdrawn at any time without being taxed, and the earnings may be withdrawn, tax-free, once the IRA owner is older than 59½ and has owned the IRA for at least five years. An original owner of a Roth IRA never has to make mandatory withdrawals after age 70½. In addition, a Roth IRA owner may keep contributing to the account after age 70½, so long as he or she has earned income. (A high income may prevent an individual from making Roth IRA contributions.)1,2

Some traditional IRA owners convert their traditional IRAs into Roth IRAs. Taxes need to be paid once these conversions are made.1

SIMPLE IRAs are traditional IRAs used in a SIMPLE plan, a type of retirement plan for businesses with 100 or fewer workers. Employers and employees can make contributions to SIMPLE IRA accounts. The annual contribution limit for a SIMPLE IRA is more than twice that of a regular traditional IRA.3

SEP-IRAs are Simplified Employee Pension-Individual Retirement Arrangements. These traditional IRAs are used in SEP plans, set up by an employer for employees, and funded only with employer contributions.4

Spousal IRAs really do not exist as a distinct IRA type. The term actually refers to a rule that lets non-working spouses make traditional or Roth IRA contributions as long as the other spouse works and the couple files joint federal tax returns.1

Inherited IRAs are Roth or traditional IRAs inherited from their original owner by either a spousal or non-spousal beneficiary. The rules for Inherited IRAs are very complex. Surviving spouses have the option to roll over IRA assets they inherit into their own IRAs, but other beneficiaries do not. No contributions can be made to Inherited IRAs, which are also sometimes called Beneficiary IRAs.5

Group IRAs are simply traditional IRAs offered by employers, unions, and other employee associations to their employees, administered through trusts.6

Rollover IRAs (occasionally called conduit IRAs) are IRAs created to store assets distributed from another qualified retirement plan, often an employer-sponsored retirement plan. If the original plan were a Roth, then a Roth IRA must be created for the rollover. Assets from a non-Roth plan may be rolled over into a Roth IRA, but the rollover will be viewed as a Roth conversion by the Internal Revenue Service.6,7

Education IRAs are now mainly referred to by their proper name: the Coverdell ESA. A Coverdell ESA is a vehicle that helps middle-class investors save for a child’s education. Taxes are deferred on the assets saved and invested through the account. Contributions to a Coverdell ESA are not deductible, but withdrawals are tax-free, provided they are used to pay for qualified higher education expenses.8

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – thestreet.com/story/14545108/1/traditional-or-roth-ira-or-both.html [4/4/18]
2 – forbes.com/sites/catherineschnaubelt/2018/04/25/choosing-the-best-ira-to-maximize-your-retirement-savings/ [4/25/18]
3 – fool.com/retirement/2017/10/28/2018-simple-ira-limits.aspx [10/28/17]
4 – investopedia.com/university/retirementplans/sepira/ [11/14/17]
5 – investopedia.com/terms/i/inherited_ira.asp [4/30/18]
6 – fool.com/retirement/iras/the-eleven-types.aspx [4/30/18]
7 – investor.vanguard.com/401k-rollover/options [4/30/18]
8 – investopedia.com/terms/c/coverdellesa.asp [4/30/18]

After many years together, some retired spouses may find their daily routines far apart.

 

When you see online ads or TV commercials about retirement planning, do they ever show baby boomer couples arguing? No. After all, retirement planning is about the pursuit of a happy outcome – a fun and emotionally rewarding “second act” that spouses and partners can share.

Realizing that goal takes communication. As you approach retirement, you may not be who you were at 30 or 50. You and your significant other may want different daily lives once you retire. This is a frequently ignored reality in retirement planning. In preparing to retire, you might want to consider your individual preferences and differences when it comes to these factors:

How you spend your days. What does a good day in retirement look like to you? What does it look like for your spouse or partner?

Social engagement. How much time do each of you want to spend working, volunteering, or socializing? Your preferences may differ.

Your health. If you contend with serious health issues, you may define a “good day” in retirement much differently than your spouse or partner does.

Your spending. Where will your retirement income go? What will it be spent on besides basic living expenses? Your discretionary spending priorities and those of your spouse could vary. If they vary widely, this could be the source of some drama.

Your time alone. Some couples build businesses together or work in the same office or practice for years; others spend just a few hours per day around each other for decades. In retirement, you will likely be around each other for more hours of the day than when you worked. You will need to decide how much “me time” you need.

Your roles. Have you done most of the cleaning around the house? Or tackled most of the home improvement projects? Should it remain that way in retirement?

To some extent, your spouse or partner’s vision of retirement will vary from yours. It could vary 1%, or it could vary 99%, but some variance is almost certain. It need not breed discord so long as you recognize the following three truths.

Some of your shared retirement savings will be used to fulfill individual dreams. The money you have saved and invested will provide financial support for you as a couple, but you also must concede that some of those dollars will be spent relative to each other’s individual goals, passions, and pursuits. The same applies for your retirement income.

You will not automatically see money the same way. Those online ads and TV commercials would have you believe that some kind of magic happens once retirement starts, leaving every retired couple to walk along the beach smiling, laughing, and in total agreement about their future. Yes, retired couples do disagree about money; they also learn to overcome those disagreements through understanding and compromise.

Many things are more valuable than money in retirement. Time is probably your most valuable asset, and your health and relationships are close behind. So, whether your retirement savings falls short of or far exceeds the median baby boomer amount of $147,000 (as identified last year by the Transamerica Center for Retirement Studies), keep what matters most in mind.1

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – forbes.com/sites/forbesfinancecouncil/2017/05/15/retirement-its-not-as-simple-as-it-used-to-be/ [5/15/17]

A few things you may want to think about before filing for benefits.

Whether you want to leave work at 62, 67, or 70, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.

How long do you think you will live? If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after Full Retirement Age (which varies from age 66-67 for those born in 1943 or later), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at FRA or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, c) have sizable retirement savings.1

If you sense you might not live into your eighties or you really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them; the choice comes down to more lifetime payments that are smaller or fewer lifetime payments that are larger. For the record, Social Security’s actuaries project the average 65-year-old man living 84.3 years and the average 65-year-old woman living 86.7 years.2

Will you keep working? You might not want to work too much, for earning too much income can result in your Social Security being withheld or taxed.

Prior to Full Retirement Age, your benefits may be lessened if your income tops certain limits. In 2018, if you are 62-65 and receive Social Security, $1 of your benefits will be withheld for every $2 that you earn above $17,040. If you receive Social Security and turn 66 later this year, then $1 of your benefits will be withheld for every $3 that you earn above $45,360.3

Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + non-taxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000-34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000-44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income tax on up to 85% of their Social Security benefits.3

When does your spouse want to file? Timing does matter, especially for two-income couples. If the lower-earning spouse collects Social Security benefits first, and then the higher-earning spouse collects them later, that may result in greater lifetime benefits for the household.4  

Finally, how much in benefits might be coming your way? Visit ssa.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple of years might translate to slightly higher Social Security income.1

Your claiming decision may be one of the major financial decisions of your life. Your choices should be evaluated years in advance, with insight from the financial professional who has helped you plan for retirement.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – fool.com/investing/2018/07/07/4-frequently-asked-social-security-questions.aspx [7/7/18]
2 – ssa.gov/planners/lifeexpectancy.html [7/9/18]
3 – blackrock.com/investing/literature/investor-education/social-security-retirement-benefits-quick-reference-one-pager-va-us.pdf [7/9/18]
4 – thebalance.com/social-security-for-married-couples-2389042 [7/4/18]

Some life & financial factors that can be overlooked.

 

We all have a “blue sky” vision of the way retirement should be, yet it helps to plan for retirement with a little pragmatism. Fate may alter the course of our retirement in ways we do not currently anticipate. So, as we plan for the next act of life, we may want to think about (and plan for) some life and financial factors that are often overlooked.

We may retire earlier than we think we will. Some of us envision leaving the workforce at “full” retirement age (66 or 67), looking forward to “full” monthly Social Security benefits rather than slightly reduced monthly payments. Will that happen? It might not, according to data released this year by the respected Employee Benefit Research Institute.

In EBRI’s most recent Retirement Confidence Survey, 26% of the respondents thought they would retire at age 65. Another 26% expected to retire at age 70 or later.1

These expectations may not correspond with reality. In surveying current retirees, EBRI found that only 8% had worked into their seventies. In fact, just 8% had retired at age 65. Sixty-nine percent of the respondents had left work before age 65, up from 65% in EBRI’s 2015 survey.1

We may see retirement as an extension of the present rather than the future. This is only natural, as we live in the present – but the present will not go on forever. Things change, and the costs we have to shoulder five or ten years from now may be greater than the expenses we face at the start of retirement. As many of us will likely be retired for 20 or 30 years, it becomes essential to take a long-term view of the retirement experience – which is why retirees need to consider growth investing and long-term care coverage.

We may face an insurance coverage shortfall. Some of us rely on employer-sponsored health insurance. If we have to retire before age 65, how do we insure ourselves until we become eligible for Medicare? Will we be able to find coverage?

Beyond that basic question, we need to think about insurance from a couple of other angles. Will we need long-term care coverage? It seems to get more expensive each year, but as medicine and health care continue to advance and evolve, the possibility of a gradual rather than sudden death may increase. The wealthy may have the assets to contend with long-term care costs, but the middle class rarely does. In Genworth’s 2016 Cost of Care Survey, the median annual cost for a semi-private room in a nursing home is $82,125. In California, it is $91,250; in Florida, $89,060.2

Additionally, few pre-retirees have disability insurance. Some employers do provide it, but many do not. A small percentage of us will become disabled in our fifties or sixties, or become ill to a point where we cannot work for an extended period of time. If we don’t have disability insurance, how do we make ends meet? We may be tempted to draw down retirement savings.

Disability insurance and long-term care coverage may prove more essential to retirement planning than many of us realize.

Age may catch up to us sooner rather than later. Generationally speaking, are we healthier than our parents and grandparents were? Anecdotally, it would seem so: we see people running 10Ks in their eighties, climbing mountains in their seventies, and so forth. Then again, we have diabetes and obesity plaguing American health.

Will we be able to manage our finances at age eighty? At age ninety? How long will we remain able-bodied? Many of us will live long and healthy retirements, but this is not a given. That means we need to find people we can trust to manage our finances and help us in our daily lives if we become mentally or physically infirm. Our estate planning should not dismiss such concerns.

We may be alone sooner than we assume. Many couples retire with a reasonable assumption that they will be together for some time – but, inevitably, something will happen to leave one spouse alone. As anyone who has ever lived alone realizes, a single person does not simply live on 50% of the income of a couple. Keeping up a house – or even a condo – could be arduous for an eighty-year-old man or woman. Driving is a concern. All this means that we may need someone or some group of people to care for us when our spouse is gone. Is that kind of support currently available? Could it be available twenty years from now? If not, what will take its place?

These are some of the blindspots that can surprise us in retirement. They may quickly affect our money and our quality of life. If we age with an awareness of them and recognize them in our retirement and estate planning, then we may be more financially prepared when or if they emerge.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – ebri.org/pdf/surveys/rcs/2016/EBRI_IB_422.Mar16.RCS.pdf [3/16]
2 – genworth.com/corporate/about-genworth/industry-expertise/cost-of-care.html [4/11/16]

Even those who have saved millions must prepare for a lifestyle adjustment.

 

A successful retirement is not merely measured in financial terms. Even those who retire with small fortunes can face boredom or depression and the fear of drawing down their savings too fast. How can new retirees try to calm these worries?

Two factors may help: a gradual retirement transition and some guidance from a financial professional.

An abrupt break from the workplace may be unsettling. As a hypothetical example, imagine a well-paid finance manager at an auto dealership whose personal identity is closely tied to his job. His best friends are all at the dealership. He retires, and suddenly his friends and sense of purpose are absent. He finds that he has no compelling reason to leave the house, nothing to look forward to when he gets up in the morning. Guess what? He hates being retired.

On the other hand, if he prepares for retirement years in advance of his farewell party by exploring an encore career, engaging in varieties of self-employment, or volunteering, he can retire with something promising ahead of him. If he broadens the scope of his social life, so that he can see friends and family regularly and interact with both older and younger people in different settings, his retirement may also become more enjoyable.

The interests and needs of a retiree can change with age or as he or she disengages from the working world. Retired households may need to adjust their lifestyles in response to this evolution.

Practically all retirees have some financial anxiety. It relates to the fact of no longer earning a conventional paycheck. You see it in couples who have $60,000 saved for retirement; you see it in couples who have $6 million saved for retirement. Their retirement strategies are about to be tested, in real time. All that careful planning is ready to come to fruition, but there are always unknowns.

Some retirees are afraid to spend. They fear spending too much too soon. With help from a financial professional, they can thoughtfully plan a withdrawal rate.

While no retiree wants to squander money, all retirees should realize that their retirement savings were accumulated to be spent. Being miserly with retirement money contradicts its purpose. The average 65-year-old who retires in 2017 will have a retirement lasting approximately 20 years, by the estimation of the Social Security Administration. So, why not spend some money now and enjoy retired life?1

Broadly speaking, our spending declines as we age. The average U.S. household headed by an 80-year-old spends 43% less money than one headed by a 50-year-old.1

Retirement challenges people in two ways. The obvious challenge is financial; the less obvious challenge is mental. Both tests may be met with sufficient foresight and dedication.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – tinyurl.com/ydedsyl5 [4/24/17]