As we celebrate Financial Literacy Month this month, it can be a good time to evaluate and reflect on your retirement goals. VBA Benefits Corporation is placing more emphasis on participant education by offering quarterly webinars focused on varying retirement readiness topics and providing access to a dedicated financial consultant for individualized advice. Below are a few retirement insights to consider as you foster your retirement roadmap.

A Balanced Retirement Withdrawal Strategy

One important retirement planning consideration is to determine how and when you plan to use various account types. As outlined in the below chart, taxable, tax-deferred, and tax-free accounts have different benefits and drawbacks from tax and timing considerations. 

Depending on your tax bracket and income, it can also be advantageous to consider a Roth conversion from a tax-deferred account to allow dollars to grow tax-free. A balanced withdrawal strategy can ease the tax burden and allow retirement accounts to last longer.

Medicare’s Six-Month Retro Rule and Its Effect on Health Savings Account (HSA) Contributions

Once you turn 65 you become eligible to enroll in Medicare Part A, but once enrolled in Medicare you are disqualified from funding a HSA. If you are planning to start Medicare the month you turn 65 you should make sure all HSA contributions end before your 65^th birthday month.  This HSA restriction leads some working past age 65 to defer enrolling in Medicare Part A to maintain their contributions to an HSA until they retire. However, if you continue to work after the age of 65 and you or your employer are still contributing to an HSA you are required to stop contributing to the HSA up to six months before enrolling in Medicare Part A.  This six-month lookback period starts when you enroll in Medicare or begin your Social Security retirement benefits.   

HSA Investment Strategy 

There are three important tax-saving benefits of using an HSA: i) tax-free contributions; ii) contributions grow tax deferred and can be invested in mutual funds; and iii) qualified healthcare expense distributions are tax-free. As a result, HSAs can be advantageous as a retirement vehicle.  Fidelity’s 2023 Retiree Health Cost Estimate Report revealed a person retiring at age 65 can expect to spend an average of $157,500 in health care and medical expenses throughout retirement. Consider paying cash for healthcare expenses now and allowing your HSA to grow with investment earnings so you can later cover one of your highest retiree expenses (healthcare) tax-free.  If you need to access the HSA funds for non-healthcare expenses after the age of 65 there is no penalty, but you would be taxed on withdrawals, like an IRA.  If you choose to pay cash now, don’t forget to keep your receipts and explanation of benefit (EOB) statements since you can reimburse yourself with your HSA for expenses at any time in the future if you were enrolled in a qualified high-deductible plan at the time. 

You can learn more about how your bank can partner with the VBA Benefits Corporation and the variety of services and resources they offer here.