Archives for September 2018

Brain Health: A New Series

September 27, 2018 By Deanna 10 Comments

Do you ever wonder what happens to the brain under stress? Does stress serve a purpose? How detrimental is chronic stress on the brain?

When I was 36 years old, I woke up from the downward spiral of drug addiction. As the fog lifted, I wondered how the heck I ended up here.

I set out on a journey to understand my brain, my bend, and why I became addicted. Understanding how the brain works and how it can be rewired is basically a lifelong study. I’ve just scraped the surface; however, I’ve learned enough that I’d like to share with you so I’m starting a new series called, Brain Health. Get your brain healthy and you’ll have the capacity to get your finances in order.

Don’t Rely on Social Security, but Know About It

September 24, 2018 By Deanna 9 Comments

I’ve heard many great financial experts say that we should not rely on our potential Social Security (SS) benefits for retirement. I agree with that. Think of SS benefits as a bonus. It’s not guaranteed but it would be nice.

However, I think it’s wise to know what your potential SS benefits may be and especially if you are close to retirement. It might impact the date you actually pull the trigger.

First Things First

Have you created an account with Social Security Administration (SSA) online? If not, go here. Choose Sign in/up, select My Social Security, and then create an account.

You need to have or meet these qualifications to do so:

A valid email address
Social Security Number (SSN)
A U.S. mailing address
Be at least 18 years of age

You’ll need to enter some identifying information like your SSN and then create a username & password. Voila! There is your SS benefit information.

BTW, www.ssa.gov does use two-factor authentication.

How do you qualify for benefits?

This excerpt is taken directly from www.ssa.gov:

To qualify for benefits, you earn “credits” through your work – up to four each year. This year, for example, you earn one credit for each $1,320 of wages or self-employment income. When you’ve earned $5,280, you’ve earned your four credits for the year. Most people need 40 credits, earned over their working lifetime, to receive retirement benefits. For disability and survivors benefits, young people need fewer credits to be eligible.

Estimated Benefits

They will estimate your benefits based on your earnings over the previous two years. Moreover, they’ll make the assumption that you’ll continue to work and make the same as you did the previous two years.

The closer you are to retirement, the more accurate your estimates will be.

You won’t be provided with an actual benefit amount until you apply for benefits. Reason being is that the following things can fluctuate:

Your earnings
Adjustments for cost of living increases
The law
Employment through which you did not pay SS tax

All of these are key to why you should not rely on SS benefits but the big one that sticks out to me is the possibility of the law changing…at any time.

Your estimated benefits are based on current law. Congress can change the law at any time and has done so previously.

Benefits change depending on when you take them

Estimated Benefits are based on three different ages:

Early retirement (62)
Full retirement (67)
Benefits at age 70

Let’s break those down a bit. When I looked at my estimated benefits I saw that if I wait until I’m 70 to collect SS, I’ll get the biggest amount.

If I collect at full retirement (67), my benefits are 78% of that amount.

Furthermore, if I collect at early retirement (62) my benefits are 65% of the amount I can get at age 70.

At first blush, it makes the most sense to wait to collect until age 70. But maybe not.

Things that stick out to me

On my SS account, I receive the message that I’ve earned enough credits to qualify for retirement benefits. However, my estimates are based on the assumption that I’ll keep working and earning the same amount.

I’m planning on continuing to work and increasing my earnings. However, what if I stop working before I collect my SS benefits? Should I factor them into my retirement calculations?

I’ve made projections on when I can hit Financial Independence (FI) and I’ve calculated that I can hit single FI at the age of 59. That is based on my current savings rate. Of course, as my earnings go up, my savings will increase.

Furthermore, there are benefits to turning 50. At the age of 50, one can contribute what is known as catch-up amounts on certain accounts that I invest in, like HSAs, Simple IRAs, and Roth IRAs. I plan to take advantage of that.

So maybe I hit FI before 59, maybe not.

How do my SS benefits play into my FI number?

I did not factor in my SS benefits into my FI number, but I’m thinking about how they could affect me.

Let’s say I retire at 59 and live off my investments. At that age, I’m close to what SS considers early retirement age (62). I imagine, that my SS benefit estimates will be fairly accurate at that point.

The time between 59 and 62 is short and I’d feel confident if SS benefits are still around when I’m 59, they’ll be around when I’m 62.

Obviously, I cannot collect them until the age of 62 but I can factor in what they may be. Furthermore, if I wait to collect them at 67 or even 70, my SS benefits will be more.

Can Social Security benefits affect the age I retire?

The short answer is, maybe.

I’m planning on saving as much as I can while continuing to live a happy and comfortable life.

As I approach the possibility of early retirement I might factor in my SS benefits. I believe this is a valid consideration since my early retirement age is really not that early, nor is it far off from being able to collect my SS benefits.

What if at the age of 57, I’m at what Joel from FI180 calls lean FI in his phenomenal article, The Milestones of FI. Furthermore, what if I calculate that when I start collecting my SS benefits at the age of 62, I’ll be at Fat FI?

I’m not certain I’d do this as a lot can change between now and then. Although, I will definitely look into this as I approach FI.

Can Social Security change what I do in retirement?

The short answer is, yes.

In favor of being more conservative, I’ll probably retire when I’ve confidently achieved financial independence with some cushion.

However, receiving SS benefits can certainly play a factor in what I do in my retirement. For example, let’s say I retire comfortably at the age of 59 and decide to collect my SS benefits at the age of 62.

Maybe I can travel more? Maybe I can give back more? It will be bonus money at this point and it’s fun to contemplate what I’ll do with it.

I’ve heard it said, that it’s better to wait until you’re 70 to collect your SS benefits because it will be more money. My argument to that is that is twofold and it’s based on SS being bonus money:

If you don’t really need the money and collecting it at a younger age allows you to do more in retirement, I say get it as soon as you can!
Who knows how long you’ll live so may taking less sooner is better

Closing Thoughts

I plan on checking my social security benefits once a year when I do my annual review meeting. I have this task scheduled in my todoist app for June of each year. I’ll let you know how my first review goes in 2019.

Anyway, it’s interesting to think about how SS benefits will play into retirement, especially when you are considering it to be bonus money.

What have I missed? Do you factor your SS benefits into your retirement?

*Edit November 4, 2018:

I just used On Trajectory to calculate the most optimal time to take SS benefits for me. Turns out, waiting until I’m 70 makes the most mathematical sense. This pivots off the belief that I’m going to live a long life.

Lost In Translation

September 20, 2018 By Deanna 6 Comments

Have you ever said something that got lost in translation? Traditionally this refers to something which is translated into another language and the subtlety of the meaning is lost.

However, I propose it can happen in everyday life while speaking in one language.

Yeah, I know you want to talk about the sign in the picture but you’re going to have to read to the end this post to get at it. 😉

Reactions Out of The Wounds of Our Past

Yep, I know a thing or two about this. There are certain things that left a “scar” on me from my childhood. No doubt in my adult life, other people have received a reaction from me that was probably baffling. That’s because it had nothing to do with them.

Basically something they said or did triggered me to a painful memory.

I work really hard at recognizing the cues so that I don’t fall into old patterns of reaction. Occasionally, I get caught off guard and give an emotional reaction from the wounds of my past.

In hindsight, I usually recognize it quickly because I feel crappy about my response.

So how do I handle it? I humble myself and offer an apology and sometimes an explanation. People usually extend me grace.

Breaking Habits

Charles Duhigg wrote an awesome book, The Power of Habit, and if you haven’t read it yet, I highly recommend it.

Duhigg explains the habit loop which basically has three components:

The cue or trigger
The routine or habit
Reward

Triggers

The cues or triggers are something that causes you to fall into the habit. For example, we get hungry.

In early sobriety, it was recommended that I stay away from triggers that might tempt me to drink or drug.

The triggers could be anything from getting off a certain exit on the highway where I used to score drugs or a Friday night after the work week.

I wanted to stay sober more than anything so I followed that advice and avoided triggers until I built up some sobriety time.

The Habit

What occurs after the trigger is known as the habit. Without any intentional thought, one can easily fall into habits. When we get hungry (cue) we eat (habit).

Not all habits are bad. Some are. I think we can all tell the difference.

The Reward

So why do we do these things? Because there’s a reward. The food tastes good and we are satiated.

Duhigg has this great little flow chart with some action steps to take in favor of breaking a habit. Essentially, you are to pay attention and write down certain factors which are present when the cue occurs:

What time is it?
Where are you?
Who is with you?
What kind of emotions are you experiencing?

With Friday night being a trigger, I recognized it occurred after the work week. I was usually alone. I experienced feelings of anticipation of what the weekend had in store.

Next, you test the reward and substitute different things for what you are actually craving. You keep doing this until you find something new which satisfies your urge.

So I didn’t really test a bunch of things but I did find something which satisfied the urge. I went to a large and thriving recovery meeting on Friday nights. It definitely had the feeling of being “the place to be” so it totally worked.

Lastly, you establish a new routine. When the old cue occurs you insert a new habit. Write this down, post it, and repeat it until a new habit is formed.

Okay, I didn’t write it down and post it somewhere but I did sign up to be a home-group member of this Friday night meeting. Additionally, I started volunteering. This ensured I’d go back each week. Hence a new habit is formed.

Changing habits takes intentionality, persistence, and repetition. I’ve found that usually the inspiration to change is a strong distaste with one’s current habits.

This Can Also Apply To Money Habits

Do you want to curb your shopping or spending habits? Do you want to practice mindful spending?

The above exercise can work well for creating intentionality in your consumerism habits.

What Does It Really Take?

Pain is a great motivator. I can tell you about other people’s research but I am most qualified to speak from my own experience.

In my 30’s, when I hit my bottom, the pain was too great to bear. Something had to change and I considered several options two of which involved giving up.

I thank God every day that I chose life. Additionally, I chose to change and look to Him for a less self-serving life.

To be honest, when I walked away from it all I knew I wasn’t going back, ever. That life I left behind was too painful.

I had family and friends who supported me so I believed I could succeed if I remained honest with myself and others.

Who Needs Subtlety?

My friend, Jane & I went to a delicious Vietnamese restaurant the other day. When Jane came back from the restroom and told me about the cute sign in the bathroom, naturally I had to go take a picture of it.

“Please Do Not Put Brown Paper In Toilet” sounds hilarious.

In the bathroom at said restaurant the hand towels are brown so it’s obvious what they meant. However, their literal translation is not quite how Americans would typically state this request.

But were they wrong? Nope, they were literally right.

Treating Others With Grace

We are all walking around with our own perceptions of this world we live in. These perceptions were shaped by the environments we came from. Sometimes from the things we endured.

Additionally, it may be from things we’ve survived.

Furthermore, it could be from things we wish to forget.

We all have a story and backdrop. Take the time to hear each other’s stories. People are fascinating.

Above all else, extend grace to one another for you never know what kind of battle that person may be fighting.

And if you get a reaction from someone that doesn’t quite make sense, remember this article. And if you’re feeling bold, ask them what’s the real problem. Life is too short not to be real with one another.

Above all else, please do not put brown paper in toilet!

The Magic of Health Savings Accounts

September 17, 2018 By Deanna 20 Comments

Health Savings Accounts (HSAs) can be a great tool for trifecta tax efficiency. Yep, I said trifecta! Additionally, they can be used as an investment vehicle.

Who doesn’t love to legally avoid paying taxes?? I do!

I wanted to invest in an HSA account. However, formerly my employer-sponsored health plan did not allow for that.

I did some research and was able to convince my boss into providing an HSA qualified option for me. Which leads me to the next point…

How Do You Qualify to Contribute to An HSA Account?

Firstly, to be able to contribute to an HSA account, you need to be on an HSA qualified medical plan. Because HSA accounts provide a tax break, the Internal Revenue Service (IRS) sets limits on the type of health plans that qualify.

I included a graphic taken from the Society for Human Resource Management (SHRM) on the limits for 2018 comparative to 2019:

HSA qualified plans are high deductible health plans in which everything is subject to the deductible. The only exception is zero dollar cost preventative care. Preventative care is included in all Affordable Care Act (ACA) compliant health plans.

As you can see from the chart above, the minimum deductible is $1,350 (single)/ $2,700 (family). There has been no change in deductible minimums from 2018 to 2019.

Of course, a qualified plan can have a higher deductible. However, the highest the maximum out of pocket can be is $6,750 (single) / $13,500 (family) for 2019. The maximums have gone up slightly from 2018 to 2019.

Obviously, with the IRS being able to change limits each year, you’ll want to investigate this in the year you are considering an HSA qualified plan.

Things to Consider

Your employer may offer several options in health care plans. There are several things to consider before choosing an HSA qualified option.

Step 1 – Open Enrollment

Ask your employer when is the open enrollment period for the healthcare plan. Additionally, find out what type of health care plan options your employer offers.

Each year your employer-sponsored health plan has an open enrollment period. During open enrollment, you can change from one plan to the next and/or come on if you formerly waived coverage.

Ask to see the Summary of Benefits and Coverage (SBCs) of the offered plans. Yeah, health insurance is like alphabet soup!

Anyway, the SBC will tell you almost everything you need to know about your health plan options. Furthermore, you’ll want to find out your share of the premium for all of the plans offered. This is also called your payroll contribution.

If your employer set up a cafeteria (or section 125) plan, your payroll contributions will be taken out pre-tax.

High deductible HSA qualified plans are typically cheaper in premium than the traditional type of plans with copays up front. That is because you must meet a deductible before the plan pays (except for preventative care).

Step 2 – Know The Deductibles

Deductibles typically run calendar year and re-set annually. There are some employers who have deductibles which run plan year and re-set when your plan renews. You should ask your Human Resource department about yours.

If you’re insuring your family as well as yourself, you’ll want to know if you plan has an embedded or aggregate deductible.

An embedded deductible is better as it protects single members inside of the family. It means that if one member of the family hits their single deductible, they are then covered. At least two members need to make up the family deductible before the entire family is covered.

An aggregate deductible means that the entire family deductible must be met before even one member is covered.

Example:

Let’s say you’re on a plan with a $1,350 (single) / $2,700 (family) deductible, 0% coinsurance & $1,350 (single) / $2,700 (family) Maximum Out Of Pocket (MOOP). I’ll explain coinsurance in a bit.

If it’s an embedded plan and one member of the family meets $1,350 in claims, that member is then covered 100%. Now if other members incur claims, combined they will have to meet another $1,350 before the entire family is covered 100%.

Now let’s say you have the same deductible, coinsurance and MOOP parameters but it’s an aggregate deductible plan. If one member incurs a lot of claims on an aggregate deductible plan, they will have to meet the family deductible of $2,700 before being covered 100%.

Step 3 – Know The Coinsurance

Coinsurance is a percentage that you split with the insurance company after the deductible has been met. If you have 0% coinsurance, the insurance company pays 100% after deductible.

Many plans have an 80%/20% split where after the deductible has been met, the insurance plan pays 80% and you, 20%. Know what this is! Your coinsurance share will continue until you hit your MOOP.

Step 4 – Know The Co-Payments

Some HSA qualified plans have co-payments after the deductible for certain episodes of care. The co-payments are typically for office visits, prescriptions drugs, urgent care, and emergency room. Remember if it’s an HSA qualified plan, the copayments kick in after you first meet your deductible.

These will continue until you hit your MOOP.

Step 5 – Know The Maximum Out Of Pocket (or MOOP ‘cus we are tired of typing out the same words) 🙂

All plans have a MOOP and this is the most you’ll pay in one calendar year for your health care expenses (not including premium).

Once again know what this is!

I recommend knowing these things when considering between healthcare plan options:

Premium
Deductible
Annual maximum out of pocket

If you know how often you typical seek care, you can estimate how much you’ll spend in a year. Additionally, make sure you can afford the deductible & MOOP.

Many people choose traditional plans with co-payments that kick in before deductibles are met. Reason being is that they know what they’ll pay each time they visit the doctor.

However, doctor visits are not really expensive. It’s the major tests, in-patient stays, surgeries, emergency room visits, and high-cost prescriptions that you need to watch.

If you can afford to cover your deductible then you should consider the HSA qualified options because you can tap into the magic of HSAs…

It’s Mostly About the Tax Break

Once you’re on an HSA qualified plan, you can contribute up to certain amounts set by the IRS each year into a tax-advantaged HSA account. Go back up and look at the graphic taken from SHRM.

The 2019 contribution limits are $3,500 and $7,000. They’re going up slightly from 2018. If you are currently maxing out your HSA for 2018 (me included), you’ll want to make sure you let payroll to increase it in January to the new limits for 2019.

HSA accounts are so magical because you can contribute pre-tax dollars to them. Furthermore, if you use the money for qualified medical, dental, and vision expenses, you will not have to pay taxes on the backend. Score!

It’s Also About the Investment Opportunity

Most HSA accounts allow you the opportunity to invest your contributions into mutual funds. This means you can have tax-free contributions, tax-free growth, and potentially tax-free distributions. Winner, winner chicken dinner!! It’s a trifecta!

I cannot write an article about HSAs without linking to this stellar article by the Mad Fientist. He nails it.

The way you can get the tax-free distributions is to use it for qualified medical, dental, and vision expenses. You can do this one of two ways:

Use the HSA account as a debit account to pay for your qualified expenses.
Invest the HSA monies, pay for your qualified expenses with post-tax dollars, save your qualified expense receipts, and reimburse yourself later.

The second option can be useful for the person looking to retire early and wanting access to investments.

Edit: Seonwoo reminded me of the absence of a time limit in reimbursing yourself. As long as you save your receipts for qualified medical, dental, and vision care, you can reimburse yourself years later after lots of growth occurs. Truly Amazing!

HSA Banks

Unfortunately, Vanguard does not offer HSA accounts. Actually, your employer may have a specific bank they recommend for your HSA account needs. However, you can also open your own HSA account at any bank who offers them.

I currently use Health Savings Administrators and am very happy with their investment options. Through Health Savings Administrators I have access to Vanguard Total Stock Market Index Fund, Admiral Shares (VTSAX).

I’m not really quite sure how as I don’t have the $10K minimum which is typically required for admiral shares. When I saw it was an option, I didn’t ask, I just signed up for it!

Anyway, one can also do a combo of the above two options which is what I’m currently doing.

I’m maxing out my HSA for 2018 and I have my contributions split:

25% going into a cash account tied to a debit card
75% going into VTSAX

This way, I don’t need to budget for medical expenses and can use my debit card to pay for them. At the end of 2018, I’ll see how much money I have left in the cash account (if any) and adjust my 2019 percentages accordingly.

Accessing The Money If You Have No Health Expenses

If you have no qualified health, dental or vision expenses, wow! You are truly blessed! However, you may be wondering how you can access these monies.

You will be able to access these monies at the age of 65 without incurring a penalty. It’s kinda like a Traditional IRA (with a later distribution age) in the sense that you can:

Contribute pre-tax dollars
Your contributions grow tax-free
You’ll pay income tax on distributions after age 65

The way to get the tax break trifecta is to withdraw the money for qualified medical expenses.

Closing Thoughts

I’ve discovered now that I’m not living paycheck to paycheck, I can manage a high deductible health plan. Moreover, it’s giving me access to another tax-advantaged vehicle to max out.

Take the time to do a little homework with your employer-sponsored options. See if an HSA qualified plan will work for you. Then you can tap into this magical vehicle and get the trifecta win!