Legacy Asset Management
Principal & Director of Financial Planning
BS, Business Administration, University of Colorado at Boulder
Assets Under Management:
My general advice only knowing your age and your expressed (and awesome) money habits is to grow the heck out of your HSA funds. As far as waiting until the market dips to invest, its impossible to time the market. You could be waiting a year or two - and will have missed some upside potential. Also, as you stated, there are decades of years for growth and deposits so you have time on your side to recover when the market does correct. A better option than trying to time the market is investing in your HSA at regular intervals - monthly or quarterly to take advantage of different market cycles. Do always keep in low volatility (cash or something with a bit of interest) enough to cover your deductibles and total out of pocket. Dollar cost average the rest, i.e. invest at regular intervals.
One other note, your current financial situation is a reflection of really good money habits! The only item that seems to be missing is an adequate emergency fund which is 3-6 months of essential expenses. Since you are saving for a home and currently have your savings in your HSA already, you likely already have enough funds to cover emergencies. My point in suggesting that you also establish an emergency fund in addition to your HSA and savings for a home is eventually that home savings will be used to buy a house. If you dont have other cash, you could need to dip into your HSA for expenses other than those that are health related.
Hope that helps!
Reducing or eliminating your mortgage upon retirement is an excellent goal. However, you must consider the taxes owed on a large lump sum withdrawal from a 401K. This is especially true if you have earnings from second job, a taxable pension, and likely taxable social security income.
How old are your children? Did the social security administration alert you to family benefits available to children under the age of 18? If you begin your social security retirement benefits, child dependants under 18 can also recieve 50% of your primary insurance amount. If there are 3 kids under 18, these benefits can add up! This could also hopefully defray some of your mortgage costs.
Another note is we are approaching year end - you may consider withdrawing some 401K monies now and some after the 1st of the year to spread out the taxes. If you are not retiring until next year, you could institute this strategy then, pay off some, then wait until 2020 to pay off more or the remainder.
Consolidating accounts from former employers is a great idea. This keeps costs down and is a lot easier to manage the investments. Where the money should go depends upon your overall tax picture. If you convert your 403B accounts to a Roth IRA, the total amount converted will be taxed at ordinary income rates. The company holding the 403B accounts will send you 1099s that you will have to add to your tax return. As such, you should add up all of your income and deductions from various sources to determine how much taxes will be owed on the converted amounts.
That being said - getting as much of your retirement savings into a Roth as soon as you can will be hugely beneficial to you since you are young. Because the money that goes into a Roth IRA is after tax - the deposits grow tax free so long as the account has been open 5 years and you wait to withdraw money after you attain the age of 59 and a half. Thus, consider the many years of compounded growth between now and your early 60s. You will want to invest your Roth deposits for long term growth in order to capture as much tax-exempt earnings as possible.
If you keep the money in the 403Bs, any growth over time is taxable when you draw it out of the account in retirement.
If the taxes owed on converting the full amounts to Roth this year turn out to be excessive and too expensive, you can consider converting them in smaller amounts overtime so that the tax burden is reduced. This would be a balanced way to control the tax cost while adding deposits to a vehicle with tax exempt growth.
The answer to your first question is yes!
Visit https://www.ssa.gov/planners/retire/whileworking.html - "after you reach full retirement age, we will recalculate your benefit amount to give you credit for any months in which you did not receive a benefit because of your earnings. We will send you a letter telling you about any increase in your benefit amount."
So if you turn 62 this year and decide to draw benefits while working, the earnings threshold for 2018 is $17,040. If you make $24,000, they will reduce your benefits by $3480 a year, this is as you state a $1 reduction for every $2 earned above the threshold.
You will need to earn $41,040 to see a $1000 per month reduction.
When you turn full retirement age - your benefits will be recalculated based upon the earnings you continued to accrue (if they increase your lifetime earnings average) as well as give you credit for the reduction due to those earnings withheld. There is not a calculator to figure the specific number, but you can assume the full retirement age amount will be $2000 plus credit for the amount withheld due to earnings in previous years.
The administration penalizes you for earnings under full retirement age as they are trying to encourage people to take them only when you really need them. They also penalize you with the amount - i.e. starting benefits early results in a permanent reduction and in your case $700 a month. If you are continuing to work and dont necessarily need the income, consider delaying receipt of benefits. It will make a huge difference overtime.
No it should not since you will be using your FSA funds for different expenses. The government doesnt want taxpayers double dipping by using the FSA to pay for medical expenses and then using the same expenses as justification for a reimbursement from an HSA. Use your FSA for your healthcare expenses and your wife can use her HSA for her expenses.
An even better strategy would be to maximize contributions into the HSA and not use the funds for any healthcare expenses until retirement (so long as cash flow permits this savings expense). Let the funds accumulate and grow over time. Most HSAs have the option of investing a portion into a set of mutual funds or other diversified holdings. I recommend you dont invest it all, leave some in cash to the tune of a2 years or so of deducitibles in case you have a medical emergency. As this money grows overtime in the HSA - you will create a tax free (tax exempt growth as well) bucket to draw off of in retirement for health care related expenses. You will never have too much in an HSA with the projected cost of healtcare in retirement.