• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Approach Financial

It's important to you, so it's important to me

  • Home
  • Contact
    • Schedule
  • Articles
  • Services
    • Financial Planning & Investment Advice
    • For Employers: Retirement Plans
    • For Advisors: 401(k) Service
    • QuickStart Meeting
  • About
    • About Approach & Justin
    • Pricing

Healthcare in Retirement: How to Plan

posted on

By Justin Pritchard, CFP®

For most people, healthcare is an employer-provided benefit during your working years. Unless you’re self-employed, you’ve probably received healthcare benefits from an employer. At retirement, that may change. It’s crucial to understand how much healthcare costs in retirement and how you’ll pay for healthcare in retirement.

With this information, you’re better prepared to plan, and you’ll understand how to save for healthcare costs. 

You’ve probably seen big, intimidating numbers projecting healthcare costs in retirement. For 2020, Fidelity estimates that a 65-year-old couple will need $295,000 (or more) throughout retirement for healthcare costs. A Vanguard and Mercer study estimates that a 65-year-old woman with Medicare might spend around $7,000 on premiums and out-of-pocket expenses each year (assuming some high-risk health issues). More on these numbers below.

One of the biggest factors is whether you retire before or after you reach age 65. Also, it’s important to know if your employer provides retiree healthcare.

Before Age 65 (Early Retirement)

Pills shaped as question mark indicating questions about healthcare expensesMedicare, as we’ll discuss below, is typically available at age 65. But if you retire before that age, you’ll still need health insurance. This is, perhaps, one of the most challenging times when it comes to healthcare. You may be at an age where healthcare is costly, and you may not have many options. 

For most “early” retirees, several options are available:

  1. Switch to a spouse’s plan (if applicable)
  2. COBRA or state continuation
  3. Private health coverage
  4. Health sharing arrangements

Spouse’s Coverage

If you happen to have a spouse who will keep working, you may be able to switch to their plan. That’s obviously not an option for singles, widows, unmarried partners, or couples who plan to retire at the same time. But for some, it’s a possibility.

When you stop working for your employer, that may be a “qualifying event” that enables you to qualify for coverage under a spouse’s plan.

But let’s move on to more likely options.

COBRA or State Continuation

When you terminate employment, you may be able to keep your existing health insurance from your employer for a limited time. Under COBRA (or, for small companies, your state’s continuation of benefits rules), your healthcare plan may be available for another 18 months after you retire.

While that’s good news, the bad news may be how much you pay. You typically have to pay the full cost of the health insurance yourself. Your employer may have been paying a portion of those costs previously, so you may face a payment shock. Ask your benefits coordinator or HR department for an estimate of how much you’ll pay for healthcare when you retire (ideally, ask this several months or years before retirement).

Important: If you’re anywhere near age 65, be careful about continuing your benefits. Missing Medicare’s age 65 enrollment deadline can cause problems even if you’re still on COBRA.

Private Health Coverage

You can always buy health insurance from insurance companies on your own, even if your employer provides coverage. In most cases, this only makes sense when you have no employer-provided healthcare available. Once you check pricing for those policies, you’ll understand why.

Still, if you’re heading into retirement, you need coverage. Going uninsured is just too risky.

You can get private coverage directly from insurers, or depending on your state, through a state healthcare exchange. It’s always worth checking to see what resources your state makes available, as that may help you narrow down the options available to you (based on the city or county you live in, for example).

Tip: Several months (or years) before retirement, visit your state’s insurance marketplace and get several quotes. The prices will probably rise over time, but you’ll get a ballpark idea of your retirement health insurance costs.

If your income is below certain limits, you might even get subsidies to reduce (or eliminate) the premiums you pay for your individual or family coverage.

Health Sharing Arrangements

You may have heard about health “sharing” programs, which function similarly to health insurance. These programs have several drawbacks, but they’re worth mentioning because you may come across them in your research. Monthly premiums tend to be lower than what you pay for health insurance, which gets everybody’s attention.

Health sharing ministries and similar programs are not insurance. They may limit benefits on pre-existing conditions, they may not provide the prescription drug coverage you want, and they might not even pay benefits in some cases (they’re considered “voluntary,” and not necessarily required to cover your needs).

To qualify for these arrangements, you may need to meet certain ideological or behavioral requirements. Plus, these organizations are not required to offer the same protections to consumers as insurance companies under state and federal laws.

Given the subjective nature of whether or not you qualify, these might not be the most conservative option. As the Advisory Board states, “health sharing ministries have no legal obligation to cover claims.”

After Age 65

When you reach age 65, things get simpler. Medicare is the predominant form of healthcare in retirement, and some people even qualify before age 65. Unless your employer offers retiree health insurance, you’ll probably end up on Medicare.

Medicare

Medicare costs come in several forms, and you’ve probably been paying a portion of your Medicare costs throughout your working years. It’s critical to know if you’re covered under Medicare and meet specific deadlines to avoid paying penalties.

As a quick refresher, some essential pieces of Medicare are:

  • Medicare Part A (hospital insurance) is funded from payroll taxes, and as long as you have at least 40 qualifying quarters on your—or your spouse’s—work record, you do not pay a Part A premium.
  • Part B premiums (medical services) are $144.60 per month. However, you may pay more, depending on your income.
  • Part D (prescription drug coverage) costs vary by plan, and you have a variety of choices to choose from.
  • Supplemental or Medigap coverage allows you to purchase additional coverage that may be appropriate for your health conditions and preferences. Medicare does not cover everything, so these plans can fill some of the gaps. Note that you still may need a Part D plan.
  • Medicare Advantage plans are private insurance offerings that provide “all in one” coverage coordinated with Medicare. 

How Much Will Medicare Cost?

Several studies try to estimate how much the average retiree spends on healthcare each year. Your actual costs will depend on your health, where you live, and other factors. But we can get some rough ideas about costs from national averages.

Again, the Mercer-Vanguard study (described more below) does an excellent job of showing some expected costs for retirees using Medicare, including those who use a Medigap plan. That study points out that the total costs depend on what supplemental plans you use, what risk factors you have, and more.

Employer’s Retiree Healthcare

If you’re fortunate enough to get health coverage after retirement from your employer, it’s worth evaluating all of the alternatives. Compare pricing for your employer’s plan and any private healthcare available to you. In some cases, it may make sense to pass on your employer’s offering.

How to Save for Healthcare

Once you know what to expect and roughly how much healthcare might cost, it’s ideal to save for retirement healthcare costs. You’ll probably also get income each year from Social Security or a pension, and that money can also go toward health-related expenses. But it’s always nice to have a rainy day fund for major medical events.

So, where should you save money? You have several options.

Health Savings Accounts (HSAs)

HSAs are ideal for saving money for health expenses, and they provide triple-tax benefits:

  1. Dollars going in may be deductible.
  2. Growth and income inside of the account may be tax-deferred.
  3. Withdrawals you take for qualifying medical expenses may be tax-free.

Drawbacks of HSAs are that you need to be eligible to contribute each year (by having a qualifying high deductible health plan), and IRS limits may prevent you from saving as much as you’d like. You may be accustomed to spending money from your HSA each year, but you don’t have to do that. You can keep the money in your HSA until retirement and spend the money later.

Other Retirement Accounts

If you’re saving money in any type of retirement account, that’s great. That money is for expenses in your retirement years, and healthcare expenses are one of those expenses. A 401(k), 403(b), SEP, SIMPLE, IRA, or TSP is a logical place to save for your future. You can even prepay the taxes if you’re allowed to make Roth contributions.

Taxable Accounts

You can also use standard “taxable” accounts like a joint or individual brokerage account to save for your future. Although you may have tax consequences, the money is available for spending at almost any time. That’s particularly helpful if you retire before age 59.5.

How to Budget for Healthcare in Retirement

Unfortunately, we can’t predict the future. Healthcare costs depend on your health conditions, your good (or bad) luck, your location, and future legislation. That said, we can make some educated guesses right now, and online tools and financial advisors can help you gain clarity.

Back to the Studies

Fidelity estimates a need of $295,000 for a 65-year-old couple. That number, while perhaps staggering, does not include certain out-of-pocket costs or long-term care expenses. But if we break it down, it may be less intimidating. Assuming a 20-year retirement, that’s more like $14,750 per year (for a couple).  Your retirement may be longer or shorter than that.

In some years, you may pay more, and in some years, you may pay less. Again, this doesn’t necessarily include every cost, but it’s a start. If you get Social Security or pension income each year, those payments can help cover your healthcare cash flows. As a result, it can be possible—if the conditions are right—to retire with $500,000 of savings (or less).

All-in costs: In the Mercer-Vanguard study, we see a particularly useful number: An all-in estimate of healthcare costs for a retiree. That includes Medicare premiums as well as other out-of-pocket costs like dental and vision expenses (basic Medicare does not cover those expenses). 

  • A 65-year-old woman with several health issues might pay $2,900 in premiums (for Plan N) and $3,900 out of pocket, for a total of $6,800
  • With better health, she might pay only $1,900 out of pocket, for a total of $4,800 for the year
  • With particularly bad health, she may spend upwards of $10,000 out of pocket

Rising Costs (Inflation)

As you budget for healthcare expenses, it’s important to calculate the effects of inflation. Healthcare costs have been rising, and it’s probably smart to assume that healthcare inflation will be faster than broader price increases. An inflation pace at around 5% is prudent, and a higher number would be safer.

Long-Term Care

If you need long-term care, such as memory care or high-level care in a nursing home, things can get expensive quickly. You may face additional costs that range from a few thousand per month to over $10,000 per month. Again, it depends on your location and the level of care you need. Long-term care insurance policies are available, but there are pros and cons of going that route, and it’s not for everybody. Most importantly, you need to be aware of the possibility of catastrophic costs.

Make a Plan!

Now that you know what to expect, is your plan in order? Ideally, you’re saving money for future healthcare costs, and you have some idea of how much retirement income you’ll receive. Put all that together to find out if you’re on track to cover ongoing health expenses (as well as a few surprises) throughout your retirement years.

Meet the author: Justin Pritchard, CFP® is a fee-only financial advisor with over 15 years of experience working directly with clients. Based in Colorado, Justin can work with clients across the U.S., offering financial planning, one-time reviews, and investment management.People hiking in Colorado mountains

Learn more about working with Justin and explore pricing options for clients. Or, take it slow: You can get more tips and information like this by downloading the free guide to retirement.

Filed Under: Uncategorized

Approach Financial

Approach Financial
It can feel great to pay off your mortgage when you retire. And sometimes that becomes a possibility because you get access to the money in your (former) employer’s retirement plan. You’ll be free of the monthly payment, and you stop paying interest on your loan balance.  But there may be a catch (and there are solutions). If you’re going to use money from a pre-tax retirement account to pay off your home loan, things can get complicated. Taking a substantial withdrawal may cause you to pay taxes at high rates. Plus, you may make your Social Security income taxable,and you could pay higher costs for health coverage like Medicare.  See those issues in more detail in this video: https://youtu.be/Utzru1S2vAI  Now, let’s talk about solutions.  With some strategy, you can minimize the impact on your taxes and other financial matters. The trick is to pay off the loan in stages instead of all at once.  We’re assuming that paying off your mortgage at retirement is the right move. That might or might not be the case (my other video reviews some pros and cons), but we’ll assume that you’ve decided this is right for you.  We’re also assuming that the money is in pre-tax retirement accounts. If you have the funds available to pay off your home loan in taxable or Roth accounts, things are different. That doesn’t mean you should or should not move forward—it’s just that we’re looking at traditional IRA and pre-tax 401(k) money (or TSP, 403(b), and others).  Figure out how much you can withdraw each year to avoid unwanted costs, and take out as much as you want up to that limit. You should definitely review your strategy with your tax preparer and other financial professionals before you decide on anything, as they may be able to spot things or share insight based on their knowledge of your tax return and your bigger-picture finances.  Remember that there are infinite ways to approach this, and this is only one way of looking at the issues. There may be other (better) solutions out there, and you need to evaluate if aggressively paying off the mortgage early makes sense. Hopefully, this gives you food for thought and helps start the conversation with your professional advisors.  Chapters:
0:00 Intro, and How to See Pros and Cons
0:48 2 Critical Assumptions: It's the right move, and it's pre-tax money
1:24 Your Plan, Light at the End of the Tunnel
1:38 Overview: Slower Withdrawals Over a Few Years
2:17 Avoid a High Federal Income Tax Bracket
3:33 Avoid Income Tax on Social Security Benefits
4:37 Avoid Higher Medicare Premiums (IRMAA)
5:44 Under Age 65? Note ACA Subsidy Levels
6:31 Evaluate the Costs, Pros, and Cons  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  Get free retirement planning resources: https://approachfp.com/2-downloads/
🔑 9 Keys to Retirement Planning
🐢 6 Safest Investments  Learn about working with me at https://approachfp.com/  Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.  IMPORTANT:
It's impossible to cover every detail and topic in a video like this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a restult, you need to speak with your own tax, legal, and financial professional who is familiar with your details. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
A SMART Way to Pay off the Mortgage With Retirement Savings
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_xWt7QGw9toI
A Roth IRA can provide tax-free income in retirement when you follow IRS rules. But sometimes you need to take early withdrawals, and a Roth can be a flexible account. Even if you’re at retirement age, the tax rules can be complicated, so we’ll review how things work in this video.  Whether or not you get a tax-free withdrawal from your Roth depends on several factors. The type of money you take, how long you’ve had your account, and your age are all important.  You can typically take back your regular contributions at any time with no taxes and penalties. Those are your standard annual Roth IRA contributions of several thousand dollars per year. Then, you may have earnings in your account (you could also have losses, which change things), and it’s possible that you’ll owe income tax and penalties on the earnings portion of your withdrawal.  Roth conversions are not regular contributions, and they’re treated separately. It’s possible to owe the IRS money when you withdraw conversions, especially if you’re under age 59.5. Plus, each conversion has its own 5-year rule, which might delay the availability of tax-free access.  And what about your Roth 401(k) or Roth 403(b) accounts? Most people roll those funds over to a Roth IRA, but that’s not always the right move. Evaluate the pros and cons, and if you decide that a Roth IRA is the right place for that money, consider opening and funding a Roth (if you don’t already have one) to start the 5-year clock for that account.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  A few resources to help you research this topic. It’s critical that you triple-check everything.
Basics of Roth IRA distributions: https://www.irs.gov/publications/p590b#en_US_2020_publink1000231061
Interactive tool to help you determine if a distribution is taxable: https://www.irs.gov/help/ita/is-the-distribution-from-my-roth-account-taxable
Explainer on Roth IRA withdrawals: https://www.schwab.com/ira/roth-ira/withdrawal-rules
Roth 403(b), 401(k), and 457 (also known as Designated Roth Accounts): https://www.irs.gov/retirement-plans/designated-roth-accounts  Note: It's impossible to cover every detail and topic in a video like this. You need more information, so please consult with a professional who is familiar with your circumstances. This is general information and entertainment, not specific advice.  Always consult with a CPA before making decisions or filing a return. Verify with your plan administrator and a financial professional who is familiar with your individual circumstances. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration. Justin Pritchard, CFP® is a fee-only fiduciary advisor.
Roth IRA: Early Withdrawals & Tax-Free Income
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_161oT-3Oubc
Three seemingly little questions can have a surprisingly big impact on your retirement happiness. These are non-financial items (at least they’re not directly related to your retirement accounts). But simply thinking about these things helps improve your chances of living a satisfying, comfortable, and rewarding retirement.  By envisioning your retirement years, you can be sure to address some of the most important things: Your day-to-day satisfaction and autonomy, your housing situation, and your connection to loved ones. That’s all crucial to enjoying yourself and maintaining your health after you stop working.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  This is from research done by MIT’s Agelab and Hartford. Approach Financial is not affiliated with either of those organizations, but Hartford makes the research available to financial advisors like me.  It's impossible to cover every detail and topic in a video like this. You need more information, so please consult with a professional who is familiar with your circumstances. This is general information and entertainment, not specific advice.  Always consult with a CPA before making decisions or filing a return. Verify with your plan administrator and a financial professional who is familiar with your individual circumstances. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration. Justin Pritchard, CFP® is a fee-only fiduciary advisor.  #shorts
3 Retirement Questions (Non-Financial) #shorts
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_DOJIHUbT60w
See what you need to know when you leave your job and you’re thinking of moving money to an IRA.  You may have the opportunity to roll funds from your 401(k) plan to an IRA that you control. There are several advantages to doing so (like potentially lower fees, more investment choices, and better control over distributions and beneficiaries).  But there may also be disadvantages to making the move. For example, if you leave your job after age 55 or you plan to do Roth conversions, it could make sense to leave your money in your former employer’s 401(k)—at least temporarily.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  We cover some of the pros and cons of a 401k to IRA rollover here. While there may be other aspects to consider, you’ll learn about some of the biggies, and you’ll be off to a decent start.  Remember that you don’t need to roll the money over immediately. If it makes sense to wait and do it later, that’s often an option. Just verify with your former employer to see what’s available to you.  Read about this topic and download sign up for free downloads and retirement planning resources here: https://approachfp.com/how-and-why-to-transfer-your-401k-to-an-ira/  Be sure to research issues on creditor protection. This might be a good start in your journey as it relates to IRAs: https://www.irahelp.com/slottreport/your-ira-protected-creditors-you-may-be-surprised  Always check with a CPA before making decisions or filing a return. Verify with your plan administrator and a financial professional who is familiar with your individual circumstances. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.  By Justin Pritchard, CFP®.
401k to IRA: Pros and Cons, How to Do It
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_wRc2EW1aqCg
Your vested balance is the amount of your retirement account that you actually own. But can you take that money out right now and spend it? It depends.  Vesting is a strategy that encourages employees to stay with their jobs, and it can also be a cost-saving measure for employers that offer retirement plans.  Your vested account balance is the amount you can take with you when you leave your job. The funds might also be available for 401(k) loans or hardship withdrawals. Once you’re vested, the employer generally can’t take that money back.  Any money you contribute from your pay (or any rollovers into your retirement plan) are typically 100% vested immediately. But employer contributions, like 401(k) matching dollars, might have a vesting schedule. An exception would be certain safe harbor 401k contributions that vest immediately.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  There are several different vesting schedules, including a 6-year graded schedule, cliff vesting, and other approaches. It’s important to know what vested means with your particular plan so you can decide what to do about your job. If you’re only 40% vested, does it make sense to stay longer and boost your vested account balance?  Unlike 401k vesting, IRA-based plans don’t use vesting schedules. If you have a SEP or a SIMPLE plan, you generally have access to take that money out whenever you want. However, doing so reduces your retirement savings, and there may be tax consequences.  Find out exactly how your 401k vested balance works before making any decisions. This is a general overview, but every plan is different. Plus, this information may contain errors and omissions, so it’s critical that you double-check everything. Check with a CPA to learn about the tax impact of taking money from a retirement account—you don’t want any unpleasant surprises.  Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
Vesting: How Your 401k Vested Balance Works
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_KWffAznGNZA
Roth IRA savers often wonder if lawmakers will change the rules. A Roth 401(k) or IRA can ideally provide tax-free income in retirement. But what if tax laws change 😨?  That would be unfortunate for those who made after-tax contributions and completed Roth contributions expecting to reap the benefits in retirement.  We clearly can’t predict the future. But it’s interesting to see how much revenue might be available if lawmakers wanted to tax the earnings in Roth accounts.  The good news for Roth investors is that it doesn’t look like there’s a significant payoff for changing tax laws. But things could still change, and extra revenue is more than no revenue at all, so anything is possible.  This excellent research comes from JP Morgan, and the retirement team, in particular, cobbled together information from a variety of sources. The latest data is not as of yesterday, but the proportions are probably more important than the specific numbers, and new information will come out eventually.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  Please discuss your situation with a financial professional who is familiar with your details before you make any decisions. I’m not saying things will go one way or the other—I have no clue what will happen. This information may contain errors and omissions, and things change, so please don’t rely on this for important decisions.  Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.  #shorts
Will Your Roth Get Taxed? #shorts
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_O7JgQmVI728
What types of retirement plans can not-for-profit organizations use? Help employees save for retirement and provide an employee benefit by setting up an employer-sponsored retirement plan. Learn the pros and cons of each option.  This is a release of a 2019 video, but the main thing that has changed is the maximum dollar limits.  Nonprofits traditionally used 403b plans, for the most part. That's still an option, and may even be the best option for some organizations. But you may also benefit from using 401k plans or IRA-based plans (like a SIMPLE IRA) for your staff.  See the pros and cons of different types of retirement plans. We'll look at administrative fees, maximum contribution limits, matching and profit-sharing contributions, features like loans, and the ability to make after-tax Roth contributions to your retirement plan. There's also the issue of discrimination testing, which can be an issue for some employers.  403b plans have some unique features. Small, private nonprofits (not government, church, or school, for example) don't always get the most out of those plans, but we'll highlight a few of the most interesting strategies you can use with a 403b in the right circumstances.  With this information, hopefully you're on your way to choosing the right retirement plan for your nonprofit.  For more details, see: https://approachfp.com/nonprofit-retirement-plans/.  IMPORTANT: Verify all information with a CPA before you open any accounts or take any action. This information may be inaccurate or may not apply to your circumstances.  In many cases, nonprofits can use 403(b) plans, 401(k) plans, SIMPLE IRAs, payroll deduction IRAs, and more. Even defined benefit pension plans (as well as non-qualified deferred compensation plans) work for some organizations.
Retirement Plans For Nonprofits: 403(b), 401(k), or Something Else?
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_R2eRjfhVHkQ
See the 3 most important factors that affect your retirement. There are things you can control, and things you can't. The key is to improve your chances so you're in the best position possible at retirement.  We'll cover:
1) Retirement income, such as Social Security
2) Ideas on how much you can spend from your savings (or figuring out how much you need to save)
3) Healthcare costs in retirement  Get answers to questions like:
1) How can you get the most out of Social Security, and should you even include Social Security benefits in your retirement plan?
2) You’ve seen those huge, scary numbers for healthcare costs. How will that really work out for most people?  Note: Originally recorded sometime in 2020, but I thought it might be helpful to release to the public. The Social Security numbers have been updated for inflation since this recording, but the release date is appearing as 2021, which is understandably confusing. For the latest Social Security numbers, please see https://www.ssa.gov/news/press/factsheets/colafacts2021.pdf.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration. This video might contain errors or omissions, so please verify your plan with a financial professional.
When Can I Retire?
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_TRktIXTd_90
Surprising details about using Roth money to fund your retirement.  As you plan for retirement, you need to decide if you want your retirement savings to be in pre-tax or after-tax (Roth) accounts.  Pre-tax savings make it easier to build up your retirement nest egg. Also known as deductible or traditional contributions, those savings can potentially reduce your taxable income. But you need to pay taxes eventually, and the traditional view has been that you might be in a lower tax bracket in retirement. Sometimes that’s true, and sometimes it’s not—and other factors may come into play.  Roth money can potentially provide tax-free income in retirement. But you don’t get a tax break when you contribute to Roth accounts, making it a bit more difficult to build up your savings. However, withdrawals in retirement can be beneficial. When you don’t have to pay income tax, you get to spend all of the money you withdraw. Plus, those withdrawals might not cause issues on your taxes that lead to other “hidden” or unexpected costs.  Taxable income in retirement can affect whether or not you pay taxes on your Social Security income. It can also affect your Medicare premiums and your ability to qualify for credits and deductions. Finally, we don’t know what types of means testing may arise in the future that could impact you in a variety of ways, so having a low income might be helpful.  All of that might point to Roth as a no-brainer. But it’s not so simple. Tax rates and rules could change, making a Roth strategy backfire. We can’t predict how things like consumption taxes, VAT, flat taxes, or other issues might affect the decision to use pre-tax or after-tax accounts. As a result, you need to make the best decision you can with the information available today (and your assumptions about the future).  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  Note that all of this depends on your ability to successfully satisfy IRS rules. For example, if you don’t qualify for a deduction or you don’t qualify for tax-free withdrawals, things get more complicated (and other issues are certainly possible). Be sure to review your strategy with a CPA or a tax expert who is familiar with all of your details before you make any decisions. This video is just high-level information, and it is not made with any knowledge of your circumstances. Plus, the video may contain errors and omissions, and things change over time.  Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
The Logic Behind Roth IRA and Roth 401(k)
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_GHiBAmXTAr4
Load More... Subscribe

Primary Sidebar

Follow Along

  • Facebook
  • Twitter
  • LinkedIn
  • Instagram

Hi, I’m Justin Pritchard, CFP®, and I provide fee-only financial planning and investment advice to clients nationwide (see disclosures).

I don’t know everything about everything, but I have been quoted in the New York Times, Consumer Reports, Wall Street Journal, and more. My 15 years of experience working directly with clients helps me offer customized advice to clients planning for retirement and saving for goals.

Right now, get two free guides for retirement planning—you’ll know more about retirement and investing, and that knowledge should help you make smart decisions.Cover of e-book on retirement planning shown in mobile device

What Makes Approach Financial Unique?

  • ✔️ Over 15 years of direct experience working with clients
  • ✔️ Focus on retirement planning and investment management
  • ✔️ Down-to-earth vibe (no suits)
  • ✔️ Privately-owned business
  • ✔️ No executives forcing me to push unnecessary products (“flavor of the month”)
  • ✔️ Don’t need to share half—or more—of revenue with a big company and charge you accordingly
  • ✔️ Skilled at working remotely while keeping your data secure
  • ✔️ Fee-only (no commissions allowed)
  • ✔️ Colorado-grown, and able to work with clients in most other states

 

Let’s talk about working together. I work with clients throughout the U.S.

  • 📞 970-765-0595
  • ✉️ Info@ApproachFP.com
  • 🗓️ Schedule a time

Explore your options:

Overview of pricing for one-time financial advice, retirement planning, or investment management

Who Does Approach Financial Work With?

You look like most (but not all) of my clients if you:

  1. Are planning for retirement or a transition
  2. Are in your 40s or older
  3. Have retirement savings of $100,000 to $5 million
  4. Are not struggling with debt
  5. Want help from a financial advisor, even though you’re probably smart enough to figure everything out yourself (there’s just not enough time, or you want professional guidance)

 

Not every client matches this profile, but most people do.

Approach Financial

Approach Financial
It can feel great to pay off your mortgage when you retire. And sometimes that becomes a possibility because you get access to the money in your (former) employer’s retirement plan. You’ll be free of the monthly payment, and you stop paying interest on your loan balance.  But there may be a catch (and there are solutions). If you’re going to use money from a pre-tax retirement account to pay off your home loan, things can get complicated. Taking a substantial withdrawal may cause you to pay taxes at high rates. Plus, you may make your Social Security income taxable,and you could pay higher costs for health coverage like Medicare.  See those issues in more detail in this video: https://youtu.be/Utzru1S2vAI  Now, let’s talk about solutions.  With some strategy, you can minimize the impact on your taxes and other financial matters. The trick is to pay off the loan in stages instead of all at once.  We’re assuming that paying off your mortgage at retirement is the right move. That might or might not be the case (my other video reviews some pros and cons), but we’ll assume that you’ve decided this is right for you.  We’re also assuming that the money is in pre-tax retirement accounts. If you have the funds available to pay off your home loan in taxable or Roth accounts, things are different. That doesn’t mean you should or should not move forward—it’s just that we’re looking at traditional IRA and pre-tax 401(k) money (or TSP, 403(b), and others).  Figure out how much you can withdraw each year to avoid unwanted costs, and take out as much as you want up to that limit. You should definitely review your strategy with your tax preparer and other financial professionals before you decide on anything, as they may be able to spot things or share insight based on their knowledge of your tax return and your bigger-picture finances.  Remember that there are infinite ways to approach this, and this is only one way of looking at the issues. There may be other (better) solutions out there, and you need to evaluate if aggressively paying off the mortgage early makes sense. Hopefully, this gives you food for thought and helps start the conversation with your professional advisors.  Chapters:
0:00 Intro, and How to See Pros and Cons
0:48 2 Critical Assumptions: It's the right move, and it's pre-tax money
1:24 Your Plan, Light at the End of the Tunnel
1:38 Overview: Slower Withdrawals Over a Few Years
2:17 Avoid a High Federal Income Tax Bracket
3:33 Avoid Income Tax on Social Security Benefits
4:37 Avoid Higher Medicare Premiums (IRMAA)
5:44 Under Age 65? Note ACA Subsidy Levels
6:31 Evaluate the Costs, Pros, and Cons  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  Get free retirement planning resources: https://approachfp.com/2-downloads/
🔑 9 Keys to Retirement Planning
🐢 6 Safest Investments  Learn about working with me at https://approachfp.com/  Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.  IMPORTANT:
It's impossible to cover every detail and topic in a video like this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a restult, you need to speak with your own tax, legal, and financial professional who is familiar with your details. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
A SMART Way to Pay off the Mortgage With Retirement Savings
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_xWt7QGw9toI
A Roth IRA can provide tax-free income in retirement when you follow IRS rules. But sometimes you need to take early withdrawals, and a Roth can be a flexible account. Even if you’re at retirement age, the tax rules can be complicated, so we’ll review how things work in this video.  Whether or not you get a tax-free withdrawal from your Roth depends on several factors. The type of money you take, how long you’ve had your account, and your age are all important.  You can typically take back your regular contributions at any time with no taxes and penalties. Those are your standard annual Roth IRA contributions of several thousand dollars per year. Then, you may have earnings in your account (you could also have losses, which change things), and it’s possible that you’ll owe income tax and penalties on the earnings portion of your withdrawal.  Roth conversions are not regular contributions, and they’re treated separately. It’s possible to owe the IRS money when you withdraw conversions, especially if you’re under age 59.5. Plus, each conversion has its own 5-year rule, which might delay the availability of tax-free access.  And what about your Roth 401(k) or Roth 403(b) accounts? Most people roll those funds over to a Roth IRA, but that’s not always the right move. Evaluate the pros and cons, and if you decide that a Roth IRA is the right place for that money, consider opening and funding a Roth (if you don’t already have one) to start the 5-year clock for that account.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  A few resources to help you research this topic. It’s critical that you triple-check everything.
Basics of Roth IRA distributions: https://www.irs.gov/publications/p590b#en_US_2020_publink1000231061
Interactive tool to help you determine if a distribution is taxable: https://www.irs.gov/help/ita/is-the-distribution-from-my-roth-account-taxable
Explainer on Roth IRA withdrawals: https://www.schwab.com/ira/roth-ira/withdrawal-rules
Roth 403(b), 401(k), and 457 (also known as Designated Roth Accounts): https://www.irs.gov/retirement-plans/designated-roth-accounts  Note: It's impossible to cover every detail and topic in a video like this. You need more information, so please consult with a professional who is familiar with your circumstances. This is general information and entertainment, not specific advice.  Always consult with a CPA before making decisions or filing a return. Verify with your plan administrator and a financial professional who is familiar with your individual circumstances. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration. Justin Pritchard, CFP® is a fee-only fiduciary advisor.
Roth IRA: Early Withdrawals & Tax-Free Income
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_161oT-3Oubc
Three seemingly little questions can have a surprisingly big impact on your retirement happiness. These are non-financial items (at least they’re not directly related to your retirement accounts). But simply thinking about these things helps improve your chances of living a satisfying, comfortable, and rewarding retirement.  By envisioning your retirement years, you can be sure to address some of the most important things: Your day-to-day satisfaction and autonomy, your housing situation, and your connection to loved ones. That’s all crucial to enjoying yourself and maintaining your health after you stop working.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  This is from research done by MIT’s Agelab and Hartford. Approach Financial is not affiliated with either of those organizations, but Hartford makes the research available to financial advisors like me.  It's impossible to cover every detail and topic in a video like this. You need more information, so please consult with a professional who is familiar with your circumstances. This is general information and entertainment, not specific advice.  Always consult with a CPA before making decisions or filing a return. Verify with your plan administrator and a financial professional who is familiar with your individual circumstances. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration. Justin Pritchard, CFP® is a fee-only fiduciary advisor.  #shorts
3 Retirement Questions (Non-Financial) #shorts
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_DOJIHUbT60w
See what you need to know when you leave your job and you’re thinking of moving money to an IRA.  You may have the opportunity to roll funds from your 401(k) plan to an IRA that you control. There are several advantages to doing so (like potentially lower fees, more investment choices, and better control over distributions and beneficiaries).  But there may also be disadvantages to making the move. For example, if you leave your job after age 55 or you plan to do Roth conversions, it could make sense to leave your money in your former employer’s 401(k)—at least temporarily.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  We cover some of the pros and cons of a 401k to IRA rollover here. While there may be other aspects to consider, you’ll learn about some of the biggies, and you’ll be off to a decent start.  Remember that you don’t need to roll the money over immediately. If it makes sense to wait and do it later, that’s often an option. Just verify with your former employer to see what’s available to you.  Read about this topic and download sign up for free downloads and retirement planning resources here: https://approachfp.com/how-and-why-to-transfer-your-401k-to-an-ira/  Be sure to research issues on creditor protection. This might be a good start in your journey as it relates to IRAs: https://www.irahelp.com/slottreport/your-ira-protected-creditors-you-may-be-surprised  Always check with a CPA before making decisions or filing a return. Verify with your plan administrator and a financial professional who is familiar with your individual circumstances. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.  By Justin Pritchard, CFP®.
401k to IRA: Pros and Cons, How to Do It
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_wRc2EW1aqCg
Your vested balance is the amount of your retirement account that you actually own. But can you take that money out right now and spend it? It depends.  Vesting is a strategy that encourages employees to stay with their jobs, and it can also be a cost-saving measure for employers that offer retirement plans.  Your vested account balance is the amount you can take with you when you leave your job. The funds might also be available for 401(k) loans or hardship withdrawals. Once you’re vested, the employer generally can’t take that money back.  Any money you contribute from your pay (or any rollovers into your retirement plan) are typically 100% vested immediately. But employer contributions, like 401(k) matching dollars, might have a vesting schedule. An exception would be certain safe harbor 401k contributions that vest immediately.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  There are several different vesting schedules, including a 6-year graded schedule, cliff vesting, and other approaches. It’s important to know what vested means with your particular plan so you can decide what to do about your job. If you’re only 40% vested, does it make sense to stay longer and boost your vested account balance?  Unlike 401k vesting, IRA-based plans don’t use vesting schedules. If you have a SEP or a SIMPLE plan, you generally have access to take that money out whenever you want. However, doing so reduces your retirement savings, and there may be tax consequences.  Find out exactly how your 401k vested balance works before making any decisions. This is a general overview, but every plan is different. Plus, this information may contain errors and omissions, so it’s critical that you double-check everything. Check with a CPA to learn about the tax impact of taking money from a retirement account—you don’t want any unpleasant surprises.  Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.
Vesting: How Your 401k Vested Balance Works
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_KWffAznGNZA
Roth IRA savers often wonder if lawmakers will change the rules. A Roth 401(k) or IRA can ideally provide tax-free income in retirement. But what if tax laws change 😨?  That would be unfortunate for those who made after-tax contributions and completed Roth contributions expecting to reap the benefits in retirement.  We clearly can’t predict the future. But it’s interesting to see how much revenue might be available if lawmakers wanted to tax the earnings in Roth accounts.  The good news for Roth investors is that it doesn’t look like there’s a significant payoff for changing tax laws. But things could still change, and extra revenue is more than no revenue at all, so anything is possible.  This excellent research comes from JP Morgan, and the retirement team, in particular, cobbled together information from a variety of sources. The latest data is not as of yesterday, but the proportions are probably more important than the specific numbers, and new information will come out eventually.  🌞 Subscribe to this channel (it's free): https://www.youtube.com/channel/UCFFNzgGX4UyGQk12KL38I1Q?sub_confirmation=1  Please discuss your situation with a financial professional who is familiar with your details before you make any decisions. I’m not saying things will go one way or the other—I have no clue what will happen. This information may contain errors and omissions, and things change, so please don’t rely on this for important decisions.  Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.  #shorts
Will Your Roth Get Taxed? #shorts
YouTube Video UCFFNzgGX4UyGQk12KL38I1Q_O7JgQmVI728
Load More... Subscribe

Footer CTA

Stay in Touch!

Free Downloads

Crucial big-picture retirement concepts illustrated with charts (and my commentary). Instant access via email, with takeaways you can use to improve your chances of success. Bonus: 6 Safe Investments.

Important

Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.

Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Approach Financial in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Approach, unless otherwise specifically cited.  Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

See important disclosures for readers and prospective investors.

 

 

  • Online Privacy Policy
  • Important Information & Disclosures
  • Accessibility

Copyright © 2021