PBS Frontline : The Retirement Gamble, sorta Must See (1 Viewer)

[wilked]

So my 401k plan (TSP) has a bunch of calculators and I messed around with them tonight. They have a Roth v Traditional calculator but it isn't all that inclusive and seems to be missing a variable or two. What I figured though is in retirement, based on all the things I know now and guessing on my return of investment, I'll have between 65% and 75% of my current earnings in combined pension and 401k annuity.

My other money would come from my Roth IRA and I'd have savings based on selling my primary residence (would sell at retirement or possibly before based on career/geographical move in which case I would not buy another primary residence because home ownership is generally a PITA). I would have to sink money into my retirement home (either the one in Italy, the one in Michigan, or both) but still should have a substantial amount leftover, especially if I ever were to sell the house in Italy which is worth double what my primary residence and vacation residence (Michigan house) are combined right now (but the property taxes are really high). I would likely split time between Italy and Michigan until I was unable to travel so easily, then I would live in Italy only or possibly find a place in a dry climate like west Texas for the winters.

I'm in good shape I think. Or am I not accounting for something?

Didn't see Social Security in there...

 

[moleculo]

So my 401k plan (TSP) has a bunch of calculators and I messed around with them tonight. They have a Roth v Traditional calculator but it isn't all that inclusive and seems to be missing a variable or two. What I figured though is in retirement, based on all the things I know now and guessing on my return of investment, I'll have between 65% and 75% of my current earnings in combined pension and 401k annuity.

My other money would come from my Roth IRA and I'd have savings based on selling my primary residence (would sell at retirement or possibly before based on career/geographical move in which case I would not buy another primary residence because home ownership is generally a PITA). I would have to sink money into my retirement home (either the one in Italy, the one in Michigan, or both) but still should have a substantial amount leftover, especially if I ever were to sell the house in Italy which is worth double what my primary residence and vacation residence (Michigan house) are combined right now (but the property taxes are really high). I would likely split time between Italy and Michigan until I was unable to travel so easily, then I would live in Italy only or possibly find a place in a dry climate like west Texas for the winters.

I'm in good shape I think. Or am I not accounting for something?

sounds like better than good shape to me, as long as you are ok with 65-75% of your current earnings.

For me, that's fine because I expect my expenses to be drastically reduced in about 15 years. At that time, my kids will be out of the house and my house will be paid off. If you are a single guy right now, how do you expect your expenses to drop in retirement?

 

[moleculo]

here's another question - what do you guys think of using whole life insurance as a retirement/savings vehicle? Haven't seen it mentioned here. My financial guy has been pitching one and I've been hesitant. My gut says you should use investment accounts for investment and insurance accounts for insurance - don't mix the two. However, he had some points about how the money can grow tax free if it's under an insurance umbrella.

 

[Steve Tasker]

here's another question - what do you guys think of using whole life insurance as a retirement/savings vehicle? Haven't seen it mentioned here. My financial guy has been pitching one and I've been hesitant. My gut says you should use investment accounts for investment and insurance accounts for insurance - don't mix the two. However, he had some points about how the money can grow tax free if it's under an insurance umbrella.

I'm not an insurance expert, but my general understanding is that you really shouldn't use life insurance as a retirement/savings vehicle.

 

[wilked]

Whole life insurance is almost always a bad idea. They make a lot of money for financial advisors and are a common pitch for them. You are almost always better served with term life. The fees on the investments with whole life are the most disgusting thing you will have seen. THe beauty of whole life (from insurance company and financial advisor perspective) is they make it all so amazingly complicated and non-transparent that you will have no idea how much of your 'fees' go toward commissions, how much toward insurance, etc.

Consumer reports says

"As we've long advised for most consumers, buy term life rather than a cash-value or whole life policy."

From Personal Finance for Dummies

"Don't buy cash value life insurance plans.... Most people should buy term life insurance."

Smartmoney.com

"FOR MOST PEOPLE, the right type of life insurance can be summed up in a single word: term."

I could go on and on, but you probably get the gist.

 

[wilked]

Also, I hate to say it...but if your financial advisor is advising that, you should drop him/her pronto. That is bad advice, and is based upon his/her commissions, not your interests.

moleculo, are you carrying insurance? If you are the sole breadwinner with a family you definitely should be.

 

[NewlyRetired]

So my 401k plan (TSP) has a bunch of calculators and I messed around with them tonight. They have a Roth v Traditional calculator but it isn't all that inclusive and seems to be missing a variable or two. What I figured though is in retirement, based on all the things I know now and guessing on my return of investment, I'll have between 65% and 75% of my current earnings in combined pension and 401k annuity. My other money would come from my Roth IRA and I'd have savings based on selling my primary residence (would sell at retirement or possibly before based on career/geographical move in which case I would not buy another primary residence because home ownership is generally a PITA). I would have to sink money into my retirement home (either the one in Italy, the one in Michigan, or both) but still should have a substantial amount leftover, especially if I ever were to sell the house in Italy which is worth double what my primary residence and vacation residence (Michigan house) are combined right now (but the property taxes are really high). I would likely split time between Italy and Michigan until I was unable to travel so easily, then I would live in Italy only or possibly find a place in a dry climate like west Texas for the winters. I'm in good shape I think. Or am I not accounting for something?

Hard to say with out knowing your planned expenses. My advisor says more than half of her clients spend slightly more in retirement than they did before retirement, at least in the early years. The two biggest retirement costs are medical insurance and travel. The way I went about it was to create a very detailed budget of what I spent before retirement. Then I added and subtracted items from that list that would be present or go away in retirement. Once you get a rough feel for what your yearly expenses will be, then you can start playing around with firecalc, which will let you fool around with a bunch of scenario's and the run simulations for you based on those scenario's to determine how your retirement may look. www.firecalc.com

 

[NewlyRetired]

here's another question - what do you guys think of using whole life insurance as a retirement/savings vehicle? Haven't seen it mentioned here. My financial guy has been pitching one and I've been hesitant. My gut says you should use investment accounts for investment and insurance accounts for insurance - don't mix the two. However, he had some points about how the money can grow tax free if it's under an insurance umbrella.

I would listen to your gut here. While not every situation is the same whole life is not typically the best choice. Make sure you understand why your advisor is mentioning this. That could be a red flag to me. Is your advisor fee based or commision based?

 

[wilked]

Small additional note on whole life... If you are already in a whole life plan, many times it makes sense to stay in it. Do not take the above advice as advice to leave your whole life plan. You would have to get into the details for that.

I am aware of only a couple of situations where whole life makes sense. One is for the wealthy who wish to incorporate it into estate planning. The other is for someone who starts a family later in life (say, 50 years old), where term rates begin to rise exponentially. Other than these, you are almost certain to do better in term.

 

[moleculo]

Also, I hate to say it...but if your financial advisor is advising that, you should drop him/her pronto. That is bad advice, and is based upon his/her commissions, not your interests.

moleculo, are you carrying insurance? If you are the sole breadwinner with a family you definitely should be.

Definitely. I got signed up for a 20 year term deal when my first was born. The term runs out roughly when my youngest will be 18. If something were to happen to me after that point, well, our retirement savings will be enough for my wife to live off of.

This really was a pitch to put my wife on an insurance policy as an investment vehicle. We declined.

 

[moleculo]

here's another question - what do you guys think of using whole life insurance as a retirement/savings vehicle? Haven't seen it mentioned here. My financial guy has been pitching one and I've been hesitant. My gut says you should use investment accounts for investment and insurance accounts for insurance - don't mix the two. However, he had some points about how the money can grow tax free if it's under an insurance umbrella.

I would listen to your gut here. While not every situation is the same whole life is not typically the best choice. Make sure you understand why your advisor is mentioning this. That could be a red flag to me.Is your advisor fee based or commision based?

fee based, through Northwestern Mutual. Obviously, insurance is a large part of their racket. I feel like I need an adviser because I had a lot of old 401(k),s IRAs, Roths, company stock, and various other inherited accounts that needed consolidation and allocation. It's been worth the money getting that all straightened out and under control, especially seeing how I know just enough about this stuff to know its important, but have no real interest in managing it further.Pretty soon, I'll have all of that wrangled in and will likely ask to transfer to a different account structure and drop the management fee.

 

[Doctor Detroit]

So my 401k plan (TSP) has a bunch of calculators and I messed around with them tonight. They have a Roth v Traditional calculator but it isn't all that inclusive and seems to be missing a variable or two. What I figured though is in retirement, based on all the things I know now and guessing on my return of investment, I'll have between 65% and 75% of my current earnings in combined pension and 401k annuity.

My other money would come from my Roth IRA and I'd have savings based on selling my primary residence (would sell at retirement or possibly before based on career/geographical move in which case I would not buy another primary residence because home ownership is generally a PITA). I would have to sink money into my retirement home (either the one in Italy, the one in Michigan, or both) but still should have a substantial amount leftover, especially if I ever were to sell the house in Italy which is worth double what my primary residence and vacation residence (Michigan house) are combined right now (but the property taxes are really high). I would likely split time between Italy and Michigan until I was unable to travel so easily, then I would live in Italy only or possibly find a place in a dry climate like west Texas for the winters.

I'm in good shape I think. Or am I not accounting for something?

Didn't see Social Security in there...

Yeah, I don't. I'm really planning for now like it doesn't exist as it is largely out of my control, and the system is likely to change over the next twenty years or so. SS would make up maybe 20-25% but for now I'll just count nothing and consider that a bonus. I'll worry more about this in ten years or so.

 

[BeTheMatch]

Anyone have some insight on TIPS? Can anyone buy them? Where? And how do I go about purchasing TIPS that are newly issued or recently issued? Would someone (a novice) just be better off buying a Vanguard TIPS fund instead?

How about Series I savings bonds? Same concept, no?

Should I be doing either before maxing out other options like Roth, 401K, etc.?

 

[wilked]

I'll take a stab.

TIPS / I-Bonds similar concept. I personally keep half my bonds in TIPS. I think it is very important to have some inflation hedge built in to my portfolio.

You ask if you should be doing this before Roth / 401K. I think you should be doing it within your Roth / 401K.

Decide what % bonds you want in your portfolio (age in bonds is a common rule of thumb, as an example), and then decide how you want to split your bonds between inflation-protected and general bonds. I would recommend buying bond funds, so a TIPS fund and a total bond fund.

I would not worry about I-bonds until you have filled up your tax-advantaged (Roth, 401K) accounts

 

[BeTheMatch]

I have a lot of my retirement through USAA. Here's a fund I was looking at, Wilked:

USAA Government Securities Fund (USGNX)

• Provides potential income you can take or reinvest.
• No credit risk; principal and interest are guaranteed by U.S. government.
• Higher income potential than U.S. Treasuries.

The Fund's principal investment strategy is to normally invest at least 80% of its assets in government securities, including, but not limited to U.S. Treasury bills, notes, and bonds; Treasury Inflation Protected Securities (TIPS); Mortgage-Backed Securities (MBS) backed by GNMA, Fannie Mae, and Freddie Mac; U.S. government agency collateralized mortgage obligations; and securities issued by U.S. government agencies and instrumentalities, supported by the credit of the issuing agency, instrumentality or corporation (which are neither issued nor guaranteed by the U.S. Treasury), including but not limited to Fannie Mae, Freddie Mac, Federal Housing Administration, Department of Housing and Urban Development, Export-Import Bank, Farmer's Home Administration, General Services Administration, Maritime Admini-stration, Small Business Administration, and repurchase agreements collateralized by such investments.

Is the kind of fund that I should be looking at?

 

[wilked]

That is classified by Morningstar as an Intermediate Bond fund.

Think you want something like this

https://www.usaa.com/inet/pages/mc_0057?akredirect=true

 

[BeTheMatch]

That is classified by Morningstar as an Intermediate Bond fund.

Think you want something like this

https://www.usaa.com/inet/pages/mc_0057?akredirect=true

OK, so can you unpack that a little? The one I listed is guaranteed and has lower expenses than this one. And the one you listed isn't guaranteed, right? So the upside is higher, but so is the risk (and the expenses). Is the one I listed too conservative? I thought that was the point of these bond funds?

ETA: Oh, I see that's an asset allocation fund, not a bond fund.

 

[wilked]

That is classified by Morningstar as an Intermediate Bond fund.

Think you want something like this

https://www.usaa.com/inet/pages/mc_0057?akredirect=true

OK, so can you unpack that a little? The one I listed is guaranteed and has lower expenses than this one. And the one you listed isn't guaranteed, right? So the upside is higher, but so is the risk (and the expenses). Is the one I listed too conservative? I thought that was the point of these bond funds?

Not exactly sure what you mean when you say guaranteed... You mean like FDIC insured? Investing in the market (bond and stock) does not involve guarantees, unless I am missing something you are saying.

I can't see expenses, can you share?

I am not saying the one you listed is too conservative, only that it doesn't protect that well against inflation since it is an intermediate bond fund. It protects better than a long term fund, but is not comparable to a TIPS fund, that I can tell

 

[BeTheMatch]

I have a lot of my retirement through USAA. Here's a fund I was looking at, Wilked:

USAA Government Securities Fund (USGNX)

• Provides potential income you can take or reinvest.
• No credit risk; principal and interest are guaranteed by U.S. government.
• Higher income potential than U.S. Treasuries.

The Fund's principal investment strategy is to normally invest at least 80% of its assets in government securities, including, but not limited to U.S. Treasury bills, notes, and bonds; Treasury Inflation Protected Securities (TIPS); Mortgage-Backed Securities (MBS) backed by GNMA, Fannie Mae, and Freddie Mac; U.S. government agency collateralized mortgage obligations; and securities issued by U.S. government agencies and instrumentalities, supported by the credit of the issuing agency, instrumentality or corporation (which are neither issued nor guaranteed by the U.S. Treasury), including but not limited to Fannie Mae, Freddie Mac, Federal Housing Administration, Department of Housing and Urban Development, Export-Import Bank, Farmer's Home Administration, General Services Administration, Maritime Admini-stration, Small Business Administration, and repurchase agreements collateralized by such investments.

Is the kind of fund that I should be looking at?

See bolded above from USAA.

 

[BeTheMatch]

Expense ratio on the government securities fund is 0.41%. On the Real Return asset allocation fund you listed, it's 1.55% plus fees of 0.04%

 

[wilked]

If your only goal is to protect principal you can stick the money in an FDIC insured bank account, no? The risk, though, it that it only earns 0.5%, and that inflation is something like 3-4%. Principal would be protected, but you would be bleeding.

That is the risk with your proposed fund: inflation. Since that is what you originally were trying to protect against it may not match your intent

 

[wilked]

Expense ratio on the government securities fund is 0.41%. On the Real Return asset allocation fund you listed, it's 1.55% plus fees of 0.04%

That is a pricey fund...

Another alternative is to put your TIPS fund in your Roth, where you are not restricted by choices

 

[wilked]

Gotta head to bed, will check back in tomorrow. If you can list all your bond choices (maybe in a spoiler frame) I can take a look tomorrow

 

[BeTheMatch]

If your only goal is to protect principal you can stick the money in an FDIC insured bank account, no? The risk, though, it that it only earns 0.5%, and that inflation is something like 3-4%. Principal would be protected, but you would be bleeding.

That is the risk with your proposed fund: inflation. Since that is what you originally were trying to protect against it may not match your intent

OK, but I thought that fund I listed had a bunch of its money in TIPS (among other things), so I thought that was the point of that fund - to be better than a simple money market fund or something.

 

[wilked]

If you re-read it...it invests 80% of its money into a broad array of gov securities, some portion of which are TIPS.

http://money.usnews.com/funds/mutual-funds/intermediate-government/usaa-government-securities-fund/usgnx

Morningstar, US News, others all rate it as an intermediate bond fund. Intermediate bond funds have an average bond term of 7ish years.

Found this quote elsewhere, to give you a sense of the inflation risk:

[SIZE=1em]Duration is a measure of interest rate risk. As a rule of thumb, a fund with an average duration of 4.5 will rise 4.5% in value if rates fall 1% and fall 4.5% if rates rise 1%. If they rise 2%, the drop will be roughly 9%, and so on (all else being equal).[/SIZE]

I am not saying it is a bad fund, but just saying it will likely not provide inflation risk protection, if that is your intention

 

[igbomb]

Nice work by wilked to get this thread back on track.

 

[BeTheMatch]

If you re-read it...it invests 80% of its money into a broad array of gov securities, some portion of which are TIPS.

http://money.usnews.com/funds/mutual-funds/intermediate-government/usaa-government-securities-fund/usgnx

Morningstar, US News, others all rate it as an intermediate bond fund. Intermediate bond funds have an average bond term of 7ish years.

Found this quote elsewhere, to give you a sense of the inflation risk:

[SIZE=1em]Duration is a measure of interest rate risk. As a rule of thumb, a fund with an average duration of 4.5 will rise 4.5% in value if rates fall 1% and fall 4.5% if rates rise 1%. If they rise 2%, the drop will be roughly 9%, and so on (all else being equal).[/SIZE]

I am not saying it is a bad fund, but just saying it will likely not provide inflation risk protection, if that is your intention

OK, so then if this fund isn't the answer and I'm not looking for an asset allocation fund (there are tons of those on USAA - target date retirement accounts, etc.), are you able to buy TIPS within your Roth? Are they bought and sold like stocks or mutual funds, or how do you buy them? Did I see somewhere that they are sold in $1,000 blocks?

 

[Dentist]

here's another question - what do you guys think of using whole life insurance as a retirement/savings vehicle? Haven't seen it mentioned here. My financial guy has been pitching one and I've been hesitant. My gut says you should use investment accounts for investment and insurance accounts for insurance - don't mix the two. However, he had some points about how the money can grow tax free if it's under an insurance umbrella.

Buy insurance to be insured.

Invest in investment products when you want to invest.

Life insurances sell investment products because they make a lot of money for the life insurance company.

One of the more devastating financial things in my life is that my 401k is with a life insurance company because it's the official American Dental Association provider.

The horrible thing about those companies is that they tack on that mortality risk expense before they even start charging the expense ratio on the funds.

So... my S&P 500 index fund has an expense ratio of 0.37%.. that's pretty high considering many other companies will do that same fund for 0.1 - 0.2 %.

BUT before i even pay that 0.37%, i have to pay about 0.52% for the risk and mortality... meaning that even with the cheapest fund I'm pretty close to 1% in expenses, which sucks.. and that's even using an index fund.

If there's one thing i've learned financially. it's that life insurance companies are fine for insurance, but not to be trusted for investing.

yet almost all teacher's 403b's, and many other companies use life insurance companies over other products.

most likely because of kickbacks... the ADA makes nearly 7 MILLION from AXA because of fee kickbacks.

 

[lumpy19]

OK, that changes things. You will need to pay those taxes out of pocket. I assumed from your 'take the heat' comment that you recognized the heat as the tax bill due immediately - my B. If you can't pay the taxes from savings it won't make sense to convert...

Because my wife's a teacher we know her pay schedule for the next 5 years...saving to pay the taxes shouldn't be a problem before we jump into the next tax bracket.

 

[BeTheMatch]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

 

[wilked]

If you re-read it...it invests 80% of its money into a broad array of gov securities, some portion of which are TIPS.

http://money.usnews.com/funds/mutual-funds/intermediate-government/usaa-government-securities-fund/usgnx

Morningstar, US News, others all rate it as an intermediate bond fund. Intermediate bond funds have an average bond term of 7ish years.

Found this quote elsewhere, to give you a sense of the inflation risk:

[SIZE=1em]Duration is a measure of interest rate risk. As a rule of thumb, a fund with an average duration of 4.5 will rise 4.5% in value if rates fall 1% and fall 4.5% if rates rise 1%. If they rise 2%, the drop will be roughly 9%, and so on (all else being equal).[/SIZE]

I am not saying it is a bad fund, but just saying it will likely not provide inflation risk protection, if that is your intention

OK, so then if this fund isn't the answer and I'm not looking for an asset allocation fund (there are tons of those on USAA - target date retirement accounts, etc.), are you able to buy TIPS within your Roth? Are they bought and sold like stocks or mutual funds, or how do you buy them? Did I see somewhere that they are sold in $1,000 blocks?

Yes, I recommend a TIPS fund. I use Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX). Some funds have a minimum investment, but they are not sold in $1000 blocks. I have never looked into buying individual bonds, suggest that you stay away from that unless you are very knowledgeable on it.

 

[Dentist]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

 

[Dentist]

If you re-read it...it invests 80% of its money into a broad array of gov securities, some portion of which are TIPS.

http://money.usnews.com/funds/mutual-funds/intermediate-government/usaa-government-securities-fund/usgnx

Morningstar, US News, others all rate it as an intermediate bond fund. Intermediate bond funds have an average bond term of 7ish years.

Found this quote elsewhere, to give you a sense of the inflation risk:

[SIZE=1em]Duration is a measure of interest rate risk. As a rule of thumb, a fund with an average duration of 4.5 will rise 4.5% in value if rates fall 1% and fall 4.5% if rates rise 1%. If they rise 2%, the drop will be roughly 9%, and so on (all else being equal).[/SIZE]

I am not saying it is a bad fund, but just saying it will likely not provide inflation risk protection, if that is your intention

OK, so then if this fund isn't the answer and I'm not looking for an asset allocation fund (there are tons of those on USAA - target date retirement accounts, etc.), are you able to buy TIPS within your Roth? Are they bought and sold like stocks or mutual funds, or how do you buy them? Did I see somewhere that they are sold in $1,000 blocks?

Yes, I recommend a TIPS fund. I use Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX). Some funds have a minimum investment, but they are not sold in $1000 blocks. I have never looked into buying individual bonds, suggest that you stay away from that unless you are very knowledgeable on it.

Wilked, does a tips bond fund still have the same risks as any other bond fund.. meaning a loss of principal when interest rates rise?

Certainly i wouldn't recommend to anyone without some good knowledge to buy their own corporate bonds, but I-bonds, tips, and treasury bonds are pretty easy to buy from the treasury direct website... and as long as you commit to holding until maturity, your money is safe as long as the government is solvent.

 

[Random]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

 

[wilked]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

They are quite different.

FSA is use or lose money. There is regular FSA (used for health-related stuff. Can be used for a surgery, or braces, or lasik, or just plain ol doctor bills). Then there is Dependent Care FSA, used for day care or preschool. Essentially you set a dollar amount once a year for each, it is taken out of your paycheck (pre-tax), and you get reimbursed for the qualified expenses. It is USE OR LOSE. Before you get upset about that, though, recognize that using those pretax dollars is like a 30% off coupon. So long as you plan well it should not be an issue.

HSA is used with a high deductible health care plan. It is not use or lose. Think of it as a Roth for your health care expenses (it is a nice deal if available to you)

 

[igbomb]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

Yep, FSAs suck. We've used ours before and on two different occasions found ourselves with money left and the end of the year approaching. We had to stock up on OTC stuff to spend the money. Now they have limited a lot of that as well.

We no longer use it. Health spending has just been too unpredictable in our family.

 

[BeTheMatch]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

They are quite different.

FSA is use or lose money. There is regular FSA (used for health-related stuff. Can be used for a surgery, or braces, or lasik, or just plain ol doctor bills). Then there is Dependent Care FSA, used for day care or preschool. Essentially you set a dollar amount once a year for each, it is taken out of your paycheck (pre-tax), and you get reimbursed for the qualified expenses. It is USE OR LOSE. Before you get upset about that, though, recognize that using those pretax dollars is like a 30% off coupon. So long as you plan well it should not be an issue.

HSA is used with a high deductible health care plan. It is not use or lose. Think of it as a Roth for your health care expenses (it is a nice deal if available to you)

It's not that we have a high deductible. In our case, it's that our insurance doesn't cover the braces my son will likely need soon. So if our insurance doesn't cover it at all, would it still be something we could use money in an HSA for? And if so, do we set up the HSA through my wife's employer? Or is that something we do on our own?

 

[BeTheMatch]

If you re-read it...it invests 80% of its money into a broad array of gov securities, some portion of which are TIPS.

http://money.usnews.com/funds/mutual-funds/intermediate-government/usaa-government-securities-fund/usgnx

Morningstar, US News, others all rate it as an intermediate bond fund. Intermediate bond funds have an average bond term of 7ish years.

Found this quote elsewhere, to give you a sense of the inflation risk:

[SIZE=1em]Duration is a measure of interest rate risk. As a rule of thumb, a fund with an average duration of 4.5 will rise 4.5% in value if rates fall 1% and fall 4.5% if rates rise 1%. If they rise 2%, the drop will be roughly 9%, and so on (all else being equal).[/SIZE]

I am not saying it is a bad fund, but just saying it will likely not provide inflation risk protection, if that is your intention

OK, so then if this fund isn't the answer and I'm not looking for an asset allocation fund (there are tons of those on USAA - target date retirement accounts, etc.), are you able to buy TIPS within your Roth? Are they bought and sold like stocks or mutual funds, or how do you buy them? Did I see somewhere that they are sold in $1,000 blocks?

Yes, I recommend a TIPS fund. I use Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX). Some funds have a minimum investment, but they are not sold in $1000 blocks. I have never looked into buying individual bonds, suggest that you stay away from that unless you are very knowledgeable on it.

Wilked, does a tips bond fund still have the same risks as any other bond fund.. meaning a loss of principal when interest rates rise?

Certainly i wouldn't recommend to anyone without some good knowledge to buy their own corporate bonds, but I-bonds, tips, and treasury bonds are pretty easy to buy from the treasury direct website... and as long as you commit to holding until maturity, your money is safe as long as the government is solvent.

I'm no expert, but I read that your principal is guaranteed with TIPS. The only caveat was if you bought a TIPS fund that already had accumulated (accreted??) a lot of the inflation prior to your purchase of it. That's why they recommended buying newly issued TIPS.

 

[Judge Smails]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

Yep, FSAs suck. We've used ours before and on two different occasions found ourselves with money left and the end of the year approaching. We had to stock up on OTC stuff to spend the money. Now they have limited a lot of that as well.

We no longer use it. Health spending has just been too unpredictable in our family.

Unfortunately I have no problem maxing out our maxed out FSA every year...To us it's gold

 

[lumpy19]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

Yep, FSAs suck. We've used ours before and on two different occasions found ourselves with money left and the end of the year approaching. We had to stock up on OTC stuff to spend the money. Now they have limited a lot of that as well.

We no longer use it. Health spending has just been too unpredictable in our family.

Unfortunately I have no problem maxing out our maxed out FSA every year...To us it's gold

Me too. If we ever have FSA money about to expire...stock up on contacts, buy a pair of glasses, so many uses. We probably underfund the FSA every year but even then we keep receipts and as soon as we fund it for the next year we send in old receipts and get all that cash back.

 

[igbomb]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

Yep, FSAs suck. We've used ours before and on two different occasions found ourselves with money left and the end of the year approaching. We had to stock up on OTC stuff to spend the money. Now they have limited a lot of that as well.

We no longer use it. Health spending has just been too unpredictable in our family.

Unfortunately I have no problem maxing out our maxed out FSA every year...To us it's gold

I thought about that as I wrote my post. I guess we're fortunate that we don't need it and I shouldn't complain. First-world problems.

 

[culdeus]

When my grandfather was about to pass away he gave his grandkids a one time whole life insurance policy with a cashout value. At the time this looked to be like a pretty sweet meal ticket. With interest rates where they are the cash out value has basically been the minimum increase for about 5 years now. When is a good time to just take the thing out and be done with it? I've never needed the money, but the huge returns they promised are now nearly certainly out the door.

 

[wilked]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

Yep, FSAs suck. We've used ours before and on two different occasions found ourselves with money left and the end of the year approaching. We had to stock up on OTC stuff to spend the money. Now they have limited a lot of that as well.

We no longer use it. Health spending has just been too unpredictable in our family.

Just to illustrate... If you earmark $3k for FSA, but only spent $2k... You didn't actually lose any money. Food for thought...

 

[NewlyRetired]

It's not that we have a high deductible. In our case, it's that our insurance doesn't cover the braces my son will likely need soon. So if our insurance doesn't cover it at all, would it still be something we could use money in an HSA for?

Yes, you can use an HSA for braceshttp://www.hsaforamerica.com/qualified-expenses.htm

 

[wilked]

If you re-read it...it invests 80% of its money into a broad array of gov securities, some portion of which are TIPS.

http://money.usnews.com/funds/mutual-funds/intermediate-government/usaa-government-securities-fund/usgnx

Morningstar, US News, others all rate it as an intermediate bond fund. Intermediate bond funds have an average bond term of 7ish years.

Found this quote elsewhere, to give you a sense of the inflation risk:

[SIZE=1em]Duration is a measure of interest rate risk. As a rule of thumb, a fund with an average duration of 4.5 will rise 4.5% in value if rates fall 1% and fall 4.5% if rates rise 1%. If they rise 2%, the drop will be roughly 9%, and so on (all else being equal).[/SIZE]

I am not saying it is a bad fund, but just saying it will likely not provide inflation risk protection, if that is your intention

OK, so then if this fund isn't the answer and I'm not looking for an asset allocation fund (there are tons of those on USAA - target date retirement accounts, etc.), are you able to buy TIPS within your Roth? Are they bought and sold like stocks or mutual funds, or how do you buy them? Did I see somewhere that they are sold in $1,000 blocks?

Yes, I recommend a TIPS fund. I use Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX). Some funds have a minimum investment, but they are not sold in $1000 blocks. I have never looked into buying individual bonds, suggest that you stay away from that unless you are very knowledgeable on it.

Wilked, does a tips bond fund still have the same risks as any other bond fund.. meaning a loss of principal when interest rates rise?

Certainly i wouldn't recommend to anyone without some good knowledge to buy their own corporate bonds, but I-bonds, tips, and treasury bonds are pretty easy to buy from the treasury direct website... and as long as you commit to holding until maturity, your money is safe as long as the government is solvent.

I'm no expert, but I read that your principal is guaranteed with TIPS. The only caveat was if you bought a TIPS fund that already had accumulated (accreted??) a lot of the inflation prior to your purchase of it. That's why they recommended buying newly issued TIPS.

Again, I wouldn't buy individual funds here...just buy an index.

Read here for some pros / cons (this article mainly speaks to the cons) of TIPS http://www.nytimes.com/2011/07/10/business/mutfund/treasury-inflation-protected-securities-carry-risk.html?_r=0

You need to come up with a personal investment plan. Write it down. Within, it should speak to percent stocks to own, percent international, percent bonds, and of those bonds, what percent are inflation-protected.

See here for some lazy portfolios (of which I am a big fan)

http://www.bogleheads.org/wiki/Lazy_Portfolios

FWIW I do 65% stocks (split 75/25 domestic international), 25% bonds (split 67/33 total bond market / TIPS), and 10% REIT.

 

[wilked]

It's not that we have a high deductible. In our case, it's that our insurance doesn't cover the braces my son will likely need soon. So if our insurance doesn't cover it at all, would it still be something we could use money in an HSA for?

Yes, you can use an HSA for braceshttp://www.hsaforamerica.com/qualified-expenses.htm

Get braces estimate in writing from the dentist before you submit your FSA number for benefits. I would take whatever they put in writing and negotiate it down as well... Have found in the past that dentists have some decent wiggle room on these things.

Don't forget that sometimes you can play games with these things... If praces cost $8K (for instance), and your FSA max is $4K, your dentist may be able to charge $4K in November 2013 and $4K in Jan 2014. Your FSA savings on that $8K would then be on the order of $2500

 

[BeTheMatch]

It's not that we have a high deductible. In our case, it's that our insurance doesn't cover the braces my son will likely need soon. So if our insurance doesn't cover it at all, would it still be something we could use money in an HSA for?

Yes, you can use an HSA for braceshttp://www.hsaforamerica.com/qualified-expenses.htm

OK, I'm really confused. That site is talking about me paying "premiums" for my "insurance plan" and "locking in rates" and stuff like that. I thought this was just a tool to put money aside to get tax benefits. I must not be understanding what these are.

 

[Steve Tasker]

It's not that we have a high deductible. In our case, it's that our insurance doesn't cover the braces my son will likely need soon. So if our insurance doesn't cover it at all, would it still be something we could use money in an HSA for?

Yes, you can use an HSA for braceshttp://www.hsaforamerica.com/qualified-expenses.htm

OK, I'm really confused. That site is talking about me paying "premiums" for my "insurance plan" and "locking in rates" and stuff like that. I thought this was just a tool to put money aside to get tax benefits. I must not be understanding what these are.

An HSA is basically a savings/investment account for healthcare expenses, hence the name. In order to make contributions, you need to be enrolled in a high-deductible healthcare plan (HDHP). If you are in an HDHP, you can set up an HSA - think of it as a bank account. You put money into the account, and when you incur qualified medical expenses not covered by your insurance, you can use your HSA to pay the cost. The HSA is very valuable for the reasons Dentist stated - it's effectively a savings account that is never taxed if you use it for qualified healthcare expenses.

 

[igbomb]

Is there a difference between a Health Savings Account and a flex spending account? My wife (teacher) had her annual meeting this morning, and she did get clarification: it is in fact a use it or lose it account. This is our only chance to put money in, and we have to put it all in now. And then anything we don't use, they simply TAKE from us. We lose it forever.

How can this be possible? Is there another avenue for us to take given the circumstances?

Flex spending accounts suck unless you KNOW you're going to use it.. because of the lose it nature of it.

the HSA (if you have a high deductible insurance) by comparison is the greatest account ever invented because it's triple tax protected... no tax going in, no tax on the gains if you invest any of it, and no tax on the way out.

since it's nearly a lock you'll spend money on some sort of health care over the course of your life on either eye care, dentistry, or medicine... there's no reason to not max this type of an account out almost every year.

Yep, FSAs suck. We've used ours before and on two different occasions found ourselves with money left and the end of the year approaching. We had to stock up on OTC stuff to spend the money. Now they have limited a lot of that as well.

We no longer use it. Health spending has just been too unpredictable in our family.

Just to illustrate... If you earmark $3k for FSA, but only spent $2k... You didn't actually lose any money. Food for thought...

Are you talking due to the tax implications? My effective rate ends up being somewhere around 15% so it's way less than you're suggesting, isn't it?

Regardless, our only predictable health care costs are $10 prescriptions monthly for my wife and son. We have an HMO w/ no deductible. Nobody has glasses, too early for braces, etc. I wish we had an HSA option. I'd be all over it. Until then, I'm okay with missing out on the occasional year where it would help if it means I don't have the stress of forcing spending to use my money.

 

[BeTheMatch]

It's not that we have a high deductible. In our case, it's that our insurance doesn't cover the braces my son will likely need soon. So if our insurance doesn't cover it at all, would it still be something we could use money in an HSA for?

Yes, you can use an HSA for braceshttp://www.hsaforamerica.com/qualified-expenses.htm

OK, I'm really confused. That site is talking about me paying "premiums" for my "insurance plan" and "locking in rates" and stuff like that. I thought this was just a tool to put money aside to get tax benefits. I must not be understanding what these are.

An HSA is basically a savings/investment account for healthcare expenses, hence the name. In order to make contributions, you need to be enrolled in a high-deductible healthcare plan (HDHP). If you are in an HDHP, you can set up an HSA - think of it as a bank account. You put money into the account, and when you incur qualified medical expenses not covered by your insurance, you can use your HSA to pay the cost. The HSA is very valuable for the reasons Dentist stated - it's effectively a savings account that is never taxed if you use it for qualified healthcare expenses.

OK, I doubt that we have what is considered an HDHP through my wife's job as a teacher. It's generally pretty good - except it doesn't cover braces.