Is it ever too early to plan for or save for retirement? Robert “Bob” Powell and Wells Fargo Head of Advice and Planning Michael Liersch break down the answer to this question, providing his keys to retirement planning, how to get parents and children to discuss retirement, and much more in this week’s episode of Decoding Retirement.
Keys to retirement planning (02:55)
Liersch breaks down his keys to retirement planning. “What’s the most important thing you wanna get done with your money?” Liersch says. “Then there’s a second question. Do you have enough to get that done? Just enough, more than enough, or not enough? Do you know the answer to that?”
“Then there’s a third question, which is, well, who do you think outside of yourself should be entitled to know this information? Or who could collaborate with you around what you want to accomplish?”
How to get parents and children to talk about retirement (06:20)
Money is a taboo topic. So how do we get parents and children to discuss retirement? Liersch provides his answer to the question. “A big piece of research we receive is people are concerned that there’s going to be a lot of friction if they really share their ideas, thoughts, concerns, needs around money, even with the people closest to them,” Liersch explains. “And so when we try to overcome that idea, it’s really important to say, well, what’s the frictionless environment to start sharing those ideas in a safe space? And so I would just encourage all your listeners to really think about that.”
Powell was also joined by Yahoo Finance’s Molly Moorhead to discuss open enrollment season and the importance of HSAs.
What is an HSA? (15:00)
HSA (decoded)
An HSA, or a Health Savings Account, is a tax-advantaged account for medical expenses, available with high-deductible health plans.
“A health savings account is a highly misunderstood vehicle. I think of it more as a retirement vehicle. I don’t know about you, but it is tied to what’s often your employer health plan. But you don’t have to use it in the current year,” Moorhead explains. “And really you shouldn’t. Because it’s actually money that you can invest to use in retirement to pay for medical expenses when your medical expenses are likely to be higher.”
Should I enroll in an indemnity plan or HDHP? (19:55)
Indemnity plan (decoded)
An indemnity plan, also known as a fee-for-service plan, is a health insurance plan that pays a set amount for qualified medical services. The plan pays a fixed amount, regardless of the total bill for the service. The insured pays the rest of the bill, which can vary depending on the provider’s charges.
HDHP (decoded)
An HDHP is a high-deductible health insurance plan. This means that you pay more out-of-pocket for medical expenses before your insurance kicks in. However, HDHPs typically have lower monthly premiums than traditional insurance plans. HDHPs can be combined with an HSA. This allows you to save money tax-free for medical expenses. For this reason, HDHPs are often called HSA-eligible plans.
Moorhead provides her thoughts on which plan people should choose if facing the choice during open enrollment season. “That’s the problem with HSAs being tied to your current health plan. Because when you’re making that choice, you’re thinking, what are my health expenses going to be in the coming year? And that’s really kind of disconnected from what your health expenses are going to be in retirement,” Moorhead says. “So I think the ideal to me would be pick the plan that serves your needs the most right now.”
Ask Bob: Long-term care insurance (22:35)
Question:
The Secure 2.0 legislation has a number of provisions, one of which addresses something I’m interested in buying – long-term care insurance. What do I need to know about it?
Answer:
Richard Kaplan at the University of Illinois College of Law recently helped me answer this reader’s question. The big change is this: Retirement plan distributions used to pay for long-term care insurance are exempt from the 10% penalty that applies to “early” distributions, i.e., distributions prior to attaining age 59½. People over 59 ½ could already take out money without penalties, so it’s a bit of a curious provision, according to Kaplan.
While this penalty relief is certainly worth something, the distributions used to pay for long-term care insurance remain subject to federal income tax and possibly to state income tax as well, depending on the tax laws of the individual states.
If you’ve got questions about money or retirement, email us at AskBob@yahoofinance.com.
Video highlights:
00:25 – Is it ever too early to plan for or save for retirement?
02:55 – Keys to retirement planning
06:20 – How to get parents and children to talk about retirement
08:00 – How to align financial decisions with retirement goals
15:00 – What is an HSA?
18:20 – How to balance HSA and 401(k) contributions
19:55 – Should I enroll in an indemnity plan or HDHP?
22:35 – Ask Bob: What do I need to know about long-term care insurance?
Retirement planning doesn’t mean locking up your money for a rainy day and forgetting about it. Planning your future means reacting to events today. Decoding Retirement gives you the tools to navigate the years ahead, and take action now!
Yahoo Finance’s Decoding Retirement is hosted by Robert Powell, and produced by Zach Faulds.
Find more episodes of Decoding Retirement at https://finance.yahoo.com/videos/series/decoding-retirement.
Thoughts? Questions? Fan mail? Email us at yfpodcasts@yahooinc.com.
Editor’s note: This post was written by Zach Faulds.