You likely qualify for tax-free health savings account if you have a health insurance policy with a high deductible.

However, did you know that HSAs can be utilized for purposes other than out-of-pocket medical costs?

When it comes to increasing your retirement funds, an HSA can be a good option, especially if you're young, healthy, and don't go to the doctor often. Aside from standard retirement plans like an IRA and a 401(k), HSAs offer another way to accumulate tax-advantaged funds for retirement.

Here is a look at what HSA accounts are and how to make the best use of them, other than out-of-pocket medical costs



What is an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account designed for individuals who have high-deductible health plans (HDHPs) to pay for out-of-pocket medical expenses. An HDHP as defined by the IRS is any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.

HSAs have been available since 2004, and are made available by about one in five employers who offer health benefits. To be eligible for an HSA, you need to be 18 years of age or older and be covered under a qualified HDHP (or a health plan not under a qualified HDHP) on the first day of a certain month. However, many eligible Americans have failed to take advantage of them.

Eligible individuals can save up to $3,550 a year, while families can save up to $7,100 for families pre-tax (these figures are based on the 2020 tax year). If you are 55 years or older at the end of the tax year, you can contribute an additional $1,000.

Your employer can also make a matching contribution to your HSA, though contributions (yours and your employers) are capped annually. Unlike flexible spending accounts (FSA), where the money must be used before the end of the year, money in your HSA account can be accessed anytime.

Additionally, you can take money out of your HSA to cover qualified medical and dental costs, such as copays for office visits, diagnostic tests, supplies, equipment, over-the-counter drugs, and period care items.

However, if you withdraw from your HSA before the age of 65, to pay for non-medical expenses, this would attract a 20% penalty. Withdrawals after the age of 65 do not attract penalties but are subject to income tax. 



4 Reasons to Use an HSA for Retirement

Although they weren't made especially to be used in retirement planning, an HSA can be utilized for retirement as a supplement to other sources of income or assets. Several benefits come with using an HSA alongside a 401(k), Individual Retirement Account, and other retirement savings vehicles. 

Using an HSA for retirement could make sense if you’ve maxed out contributions to other retirement plans and you’re also investing money in a taxable brokerage account. An HSA can help create a well-rounded, diversified portfolio for building wealth over the long term.

Here’s a closer look at the top four reasons to consider using HSA for retirement.


1. Lowers Your Taxable Income.

Contributions to an HSA  are pre-tax, which ultimately lowers your taxable income. Furthermore, employer contributions are excluded from your gross income.

Also, withdrawals are tax-free, provided funds are used for qualified medical expenses. This contrasts with other retirement accounts such as a Roth IRA or 401(k) where contributions and withdrawals are taxed.


2. Earn Interest on Contributions.

Similar to a regular savings account, HSAs pay interest.

But interest earned on an HSA is not taxed, unlike interest earned on a conventional savings account. To optimize HSA earning potential, money can be invested in mutual funds once an account reaches a predetermined balance threshold.

This will help you save more for retirement because any interest, dividends, or capital gains you receive from an HSA are tax-free. Plus, there are no mandated minimum distributions from an HSA account in retirement; you may only withdraw money when you need it or want to.


3. No use it or lose it.

There is no "use it or lose it" clause with an HSA, unlike Flexible Spending Accounts, which let people save pre-tax money for medical expenses but require them to spend it within the same calendar year.

The monies in your HSA will be accessible the following year if you don't use them this year. The funds can be used whenever you want.


4. Extra Money for Health Care After Retirement.

Even though Americans can sign up for Medicare at age 65, the majority of long-term chronic healthcare requirements and treatments are not covered by Medicare.

As long as the money is allowed to accumulate, having an HSA can be a smart way to save money to cover those unforeseen out-of-pocket medical bills.



How to Optimize Your HSA for Retirement

An HSA shouldn't be viewed as a savings account. It is also an opportunity to invest your contributions and grow your portfolio over time.

Funds from HSA can be invested in risk-averse assets like index funds, mutual funds, and ETFs. If you are younger you can add stocks to your HSA investment portfolio mix. The key is diversifying your portfolio - this would hedge risks from market volatility and drawdowns.



What are the Costs of Operating an HSA?

If you choose to start a healthcare savings account, don't be shocked if there are fees associated with doing so.

If a professional is giving you investing advice, some of these accounts may charge you a monthly fee to keep the account open. These costs could be more, but they could also be as low as $3 or $5 per month. 

Additionally, you can be charged a fee that rises in proportion to the worth of your account. However, some HSAs have no costs. These typically require more active management by the account holder as opposed to using financial professionals.

To ensure that you are aware of the guidelines, it is crucial to read the small print of any account agreement.



Things to Consider When Choosing an HSA

If your employer provides a health savings account, this suggests they have already done the research. However, you would have to carry out your own research. There is an array of Health Savings Plans to choose from.

If you are unsure of how to go about this, you can use HSA comparison websites to help navigate the search and make the best choice. 

When choosing an HSA, it is important to pay attention to any monthly/annual fees so you know exactly what to expect. Ideally, you should go for an HSA that makes it easy to manage your account online. Many banks and credit unions offer HSAs, so you can check with your financial institution.



The Takeaway

Your existing budget may benefit greatly from a health savings account, which can be used to pay for tax-free out-of-pocket medical expenses. However, it can also be used to build up tax-free savings (and interest) for future use on both medical and non-medical bills.

However, using an HSA to save for retirement only makes sense if you're taking care of your health. It is not advisable to prioritize saving HSA funds over your health. If you can save your pre-tax HSA funds for later and use post-tax funds for your current medical expenses, you may be able to amass a sizable retirement fund.

Examine whether a high-deductible health plan might be a good fit for you the next time you're selecting a health insurance strategy. Open an HSA as soon as you're qualified and begin making contributions.

You can significantly increase the value of your other retirement options by increasing your contributions, investing them, and holding onto the remaining funds until retirement.

Photo by Karolina Grabowska


When you are many years from retiring, plummeting markets may not appear to be a major concern.

Even so, you can continue to save, purchase equities when they're on bargain, and set yourself up for a future rebound.

However, if you're retired, you might worry that you don't have enough time to wait for a recovery. That amplifies the benefit of having a long-term strategy, but even with a solid plan in place, it could be challenging to continue with your approach.

Corrections in stock market are a normal part of investing.

But experiencing downturns close to, or early in retirement can be nerve wrecking. This is why your retirement income strategy should be founded on conservative expectations, backed up by a stress-tested withdrawal rate that has been proven to be effective during volatile markets.

Many retirees won't have to worry or change their strategy at all if they have a solid plan in place. Nevertheless, you may look for chances to be strategic in your choice of how to make money and what you decide to sell.



4 Steps You Can Take to Weather Market Downturns

1. Have a strong plan.

Having a strong plan in place keeps you on track, preventing you from making changes during a down market.

The main concern for the majority of people approaching or in retirement is:

How much can I withdraw from savings without running out of money too soon?

When you retire, you can accomplish this by capping withdrawals at 4% to 5% of your initial balance and making annual adjustments for inflation.

Apart from your essential needs, your retirement plan should also include an income strategy that guarantees money (to cover housing, food, and other essential expenses) and a solid emergency fund for the unexpected expenses. 


2. Consider cash before selling securities.

Selling stocks during a downturn might result in a portfolio having a lower equity exposure than what is required for your plan.

This could affect your performance after a potential recovery and turn what might otherwise be a brief market dip into a setback for your portfolio returns. 

Cash can be a useful hedge in a bearish market. As such, it is important to consider delaying the need to sell equities while the market is down by using the cash portion of your portfolio or savings.


3. Be strategic with Social Security.

Delaying Social Security benefits makes sense for many people since the greater monthly payment you receive will help you pay for your retirement.

However, you might want to think twice and apply for social security a little earlier if you are short on funds and considering selling equities in a bear market.

If you are between the ages of 62 and your full retirement age, you are eligible to apply for retirement benefits now and can suspend them once you reach your full retirement age before the age of 70.

Using this method, you can increase your income right away while keeping your money invested for a prospective economic recovery.


4. If you do sell, be tax-smart.

Even if you have a strategy in place to try to weather market downturns, you could still need to sell securities to raise money for bills, restock the cash section of your portfolio, rebalance it, or purchase appealing securities during the downturn.

Here are some things to remember.

Rebalance your portfolio to suit the times.

Markets operate in cycles, so it's important that you tweak and rebalance your portfolio to reflect the economic realities of the time. 

You might wish to sell bonds first if the decline in equities has made your portfolio more heavily weighted toward bonds. By doing so, you might raise money while keeping your equities invested in case of a prospective recovery.

Consider rebalancing out of stocks if, on the other hand, your portfolio contains more equities than your long-term investment plan requires.

Start by selling investments you no longer want.

Investments that no longer suit your strategy or whose viewpoint or features have altered since you purchased them can be a good candidate for sale. Even if you have to sell to make money, it may be a fantastic chance to organize your portfolio.

Take advantage of tax loss harvesting.

If you are looking to sell, you may want to consider tax-loss harvesting strategies to reduce capital gains tax from your sales.

This entails prioritizing losing assets for sale. A loss on the sale of a security can be used to offset any realized investment gains, and then reduce taxable income by up to $3,000 annually. However, you should be careful of wash-trading. If you are unsure of how to use tax-loss harvesting, you can contact a professional. 

Consider short-term vs. long-term capital gains.

Long-term securities holdings are those that last for more than a year.

When the security is subsequently sold for a profit, the long-term gains are taxed at the top federal rate of 20% as opposed to the short-term gains' rate of 37%. 

An easy approach to prevent paying higher tax rates is to be aware of holding periods. Taxes are obviously just one factor among many. Before trading, it's crucial to take the risk and expected return into account for each investment.



Adjusting Your Retirement Portfolio for Market Downturns

Particularly for retirees who are living off of their assets or those close to retirement, stock market downturn can be emotionally demanding.

Although you have little control over the direction that the markets go, you can be strategic about your income strategy and the portfolio adjustments you make when the economy is struggling.

The key is having a strategy designed for both good and bad times. It can be a good idea to adjust your portfolio or consult with a financial expert if you don't have one or are unsure whether your plan is still the best option for you.

Photo by Kampus Production

Having a well-built retirement portfolio and a robust income strategy does not insulate it from future risks.

Changes in the economy throw up unforeseen risks which could affect the value and performance of your portfolio. 

When you are younger, navigating, adjusting, and recovering from economic risks is less costly. However, when you are retired and have to depend on your retirement funds, the costs of adjusting could come at a steep price.

This is why it's important to have an idea of potential financial risks you could be facing when you are retired. 

Let's have a look at the post-retirement risks which could affect your portfolio.



5 Risks to Your Retirement Portfolio to Watch Out For

1. Longevity Risk

Advances in medicine and technology have had an impact on life expectancy within our society.

Today's retirees are living longer than ever before. Many people underestimate their life expectancy, which raises the possibility that they may outlive their possessions. Nobody, however, wants their retirement strategy to be hinged on an early death.

Married couples are in a more precarious situation.

They must think through a variety of challenges, such as how their lives will alter if one spouse outlives the other. How will the surviving spouse's income requirements and sources change? Strategies for lifetime income, insured solutions, and a prudent approach to asset allocation are approaches to mitigate this risk.

Depending on your spending flexibility and how much you rely on your portfolio for income, you may want to consider annuities that guarantee an income payment for as long as you live.

You could also do an 'estimate' of how long you would live by looking at the average life expectancy of your country or state. This would give you a benchmark to work with. 


2. Health Care Risk

Inflation on health care costs coupled with living longer in retirement can spell disaster if not properly managed.

Compounding this issue further is the rate of inflation on items such as prescription drugs and preventive care, which have historically exceeded the 3% general rate of inflation mentioned earlier. 

According to a 2022 Fidelity Investments study, a 65-year-old couple would need $315,000 to pay for medical expenses throughout retirement, not including long-term care expenses.

Genworth Financial’s 2021 Cost of Care survey revealed annual long-term care costs were up 4.65% to $54,000 for assisted living facilities and home health care, all the way up to $61,776.

Medicare and Medicaid are the usual go-to solutions, they aren't always sufficient to address a person's requirements.

Luckily the Inflation Reduction Act just signed into law by President Biden could lower healthcare costs for retirees. But it's best that you have a backup plan of your own, like having private insurance coverage and an emergency fund. 


3. Stock market fluctuation

The stock market has historically produced positive returns over the long term, but as you approach retirement, you risk your exposure to market volatility.

This may make avoiding equities a good strategy, but you could be selling yourself short. You have to keep in mind that retirement can last for decades and you may still need to focus on growth. 

Being too conservative may cause you to prematurely run out of money, while being too aggressive increases your exposure to market volatility and potential for losses. A viable solution in this scenario is having a diversified portfolio that still allows for growth without much risk exposure.

You can stay away from volatile stocks or sectors of the market to insulate your portfolio from market volatility.


4. Low-interest rates

The traditional approach to retirement investing is to allocate a higher portion of your portfolio to bonds to help reduce stock market risk.

However, such an approach may be counter-progressive in today’s low-rate environment, as bond investments may not generate sufficient income on their own.

As such, you might consider including equities and real assets, like commodities or real estate, as part of your retirement portfolio to help generate additional income.


5. Inflation

Inflation is the unseen taxman which eats up your income and savings without you realizing it - at least over the short term.

With inflation averaging 3% annually based on historical figures, the cost of retirement is likely to increase over time, which means that your lump-sum savings might not stretch as far as you thought. 

To hedge against inflation, you can consider investing a proportion of your retirement portfolio in equities and real assets. If you choose to purchase an annuity, you can opt for one that offers cost-of-living-adjusted payments to help counteract the risk of inflation.



Final word

The way we prepare for retirement has changed substantially in recent history. Gone are the days of relying solely on employer-provided pension plans and Social Security to fund retirement.

A sound retirement income plan may not have solutions for all of these potential issues and risks, but understanding what might stand in your way and taking action to mitigate their effects will be critical to the long-term sustainability of your plan.

Now more than ever, there is a greater reliance on personal savings and investments to supply the income needed in retirement. 

Photo by Greta Hoffman

Just because you are due for retirement does not mean that you are ready to retire.

Though retirement is thought of as an 'age thing', you could be ready for retirement long before you reach 67. 

Yet even though everyone knows that they will retire at some time, preparing for the twilight of your work life is something many people cannot wrap their heads around. This leads to procrastination and delaying of steps which could make you financially secure when you are no longer eligible to work. 

Yet, the present economic headwinds do not call for cold feet when it comes to retirement planning. Rising inflation, aggressive rate hikes, and the possibility of the economy heading into a recession call for more proactive steps to be taken when it comes to retirement planning. 

Also, the eroding value of the dollar over time, plus increased life expectancy means that retirement planners need to save more than budgeted before. As such, it seems time is the most valuable asset for those that are planning for retirement. 

Though finances play a key part in retirement planning, it is not the only factor you should consider.

Other aspects of your life have to be taken into consideration to support the type of lifestyle you want in retirement.

The possibilities are endless.

So how do you know when you are ready for retirement?



8 Indicators That You're Ready to Retire (If you want to!)

1. You have attained retirement age.

If you were born between 1943 and 1954, your full retirement age for Social Security purposes is 66.

You must wait until you are 67 to retire if you were born after 1959. There are 66 and a few months between the dates. Although you can begin receiving Social Security payments as early as age 62, waiting until full retirement age will result in substantially higher payouts.

Your monthly payment is drastically lowered by a stunning 25% if you begin receiving retirement benefits at age 62.

If you start collecting Social Security early, it will also lower any survivor benefits your spouse is entitled to in the event of your death. This could be a financial problem if your spouse outlives you for many years.

On the other hand, if you choose to wait longer to claim Social Security (the maximum age of delay being 70) you'll receive as much as 132% of the monthly benefit you would have collected at your full retirement age.


2. No debt.

Paying off your debts commitments puts you on the path for a good retirement.

It makes no sense to pay debt while on retirement. When you’re on a fixed income, a hefty mortgage or car payment can put a major strain on your finances. It also makes it more difficult to deal with emergency expenses.

If you have credit card debt or still owe a lot of money on a home or car, you may want to postpone your exit from the labor market. 


3. No kids or parents to support.

Having fewer responsibilities makes it easy to retire.

Supporting aging parents or kids at home is as expensive as college and housing costs continue to rise. There is no way you can downsize and minimize expenses if you have a household to take care of.

If your kids are grown up and out of the house, or you don't have aged parents to take care of, then you can start implementing your retirement plans.


4. You have a retirement budget.

Even while it might seem obvious, many people who will shortly be retiring don't do the math.

Determine whether you can live comfortably on your post-retirement income before quitting your job.

Start by totaling your monthly expenses that are a must, such as:

Then include your "wants," such as:

It's time to determine if you'll have enough revenue to pay for your anticipated monthly expenses after you've estimated them.

Include your anticipated Social Security benefits, dividends from your retirement accounts, pension payments (if you receive them), and any additional sources of income you will have in your total.

Keep in mind that all distributions—aside from those from Roth IRAs, Roth 401(k)s, and a part of Social Security - will be subject to income taxes (unless you meet the income threshold for tax-free Social Security benefits.)


Budgeting should also take inflation into account. Although yearly inflation has been only 2 to 2.5% on average over the past few years, there is no assurance that it won't increase in the future.

Additionally, some inflation rates, such as those for medical costs, may be much higher. An often-overlooked component of one's retirement budget is the cost of healthcare during retirement.

Fortunately, Social Security now provides cost-of-living adjustments (COLA), but many pension plans don't, so your objective for retirement plan contributions is to continuously earn enough to outpace inflation.

Now is the time to project how much money you will need to cover those expenses once you have created your retirement budget. Your sources of income will normally comprise retirement funds, Social Security, and pension payments if you're fortunate enough to have one, as was previously discussed.


5. You have adequate health insurance.

Even while Medicare can help with a lot of the costs, it's very probable that you'll still have to pay for supplemental medical costs out of your pocket.

When it comes to long-term care needs, this is especially true.

In order to prevent depleting all of your finances owing to the extremely expected rise in your medical expenses as you age, having enough insurance in place is a crucial step before retiring.


6. Well-structured portfolio.

Having a well-structured retirement nest is the pivot upon which a happy retirement revolves.

You want to retire with the confidence that you have enough to take care of your expenses and any emergency that may come up. 

There are three things to consider when building a retirement portfolio: size, rate of growth, and your expenses. Your expenses determine how much you would need to save or invest.

Thereafter, you have to determine which appropriate size (or amount) is based on your expenses. To weather the effects of inflation, offset losses, or other uncertainties, your portfolio has to be able to post gains annually. 

When you are younger, you can take more investment risks to grow your portfolio. As such, investing in stocks can be a viable way to grow your portfolio.

As you get closer to retirement age, your priority should shift from growth to security of your assets. As such, you move towards less risky assets like bonds or Certificates of deposits.


7. Your spouse agrees.

Retirement affects everyone unless you live alone. You and your partner should decide together when to retire.

How the change in your salary will affect your relationship is one thing to talk about. You'll have a better chance of having a satisfying retirement together if you and your spouse are both emotionally and financially prepared for it.

Your retirement may be a lot more lonely than you anticipated if your partner plans to work for a long time. On the other hand, if both partners have work, retiring simultaneously can be financially and psychologically upsetting.

Always keep lines of communication open, but especially when it comes to managing your home finances. You'll feel more at ease about entering your next stage of life if you and your spouse are on the same page regarding your retirement plan. Therefore, it is vital that you determine the timing that works best for both of you.


8. You have a life plan after you retire.

It's crucial to have a life plan after retirement for two key reasons.

It will first help you create a more precise budget and keep you from overspending. If your retirement strategy consists of doing nothing but lounging around the home and living day to day, you're more likely to succumb to temptations like that "last-minute cruise" discount or shopping for trinkets to occupy your time.

You'll be less inclined to succumb to moment-to-moment spending distractions if your day has some structure.

Perhaps even more crucially, making a plan for your life after retirement can keep your mind active and ease the transition to retirement. You might get bored or even upset with your new retired life if you don't have anything to do.



The Bottom Line: Are You Ready to Retire?

Finances play an important role when planning for retirement, but it is not a one-size-fits-all approach. Other factors such as your health, spouse, and lifestyle also play critical roles in determining whether you are ready for retirement. 

This is why some have advocated for the live and die with zero approach as a constructive way to look towards retirement. Others suggest accumulating as much as you can and retire early so you can do the things you love. 

Whatever your approach, one thing is obvious: retirement has nothing to do with age, but how prepared you are. Many who have attained retirement age, have to keep on working, while others have retired early to face other things. The choice is yours. 

Photo by Gary Barnes

The modus operandi of the developed society has been to work hard, save our money and retire at the age of 65.

Vacations are used as short-term rewards for working hard while we await a blissful retirement. 

As such, we roll up our sleeves and dig deep into the trenches of the capitalist mode of work, hoping to get ahead of the rat race. This is why most people spend the most productive years of their life working for and accumulating money to spend in retirement.

The irony of living in the rat race is that you are never in the present, but always living in the future, overlooking the pleasures of the present as you chase a 'better tomorrow'. The reality is while you look past the present chasing an ever-elusive future, time quietly steals up on you, and passes on. 

The result? You are old and retired before you realize that you did not optimize your life. For those that have accumulated wealth, they may be confronted with the problem of 'Brewster's Millions': not being able to spend their fortune before they die. 

'Die with Zero' takes a contrasting view to the prevailing 'work, save and retire' thought pattern of modern-day society. It is hinged on the assumption that money should be used as a vehicle to enhance your life experiences, and not as a backup plan for an uncertain future.

But is it a practicable retirement strategy? 



What is Die with Zero?

Die with Zero is a phrase coined by Bill Perkins in his book authored by the same title.

The core of this idea revolves around not wasting much time working to accumulate resources you'll never use. For Perkins, a high-stakes poker player, and former hedge fund manager, the most important thing in life is how to optimize your time because once spent, you can't get time back.

It is possible to regain money lost, but you can never recapture time.

Money not used reflects a life experience lost. For example, if you die with $1 million in your account, that is $1 million worth of life experiences you didn't get. The same goes if the money was $100,000, $10,000, or $1000. 

Perkins proposes that once you have saved up enough to fund your retirement and leave an inheritance for your children and contribute to charity, your focus should shift to getting memorable life experiences, rather than clocking in longer hours.

Experiences keep on giving in the form of fulfillment from your memories. Over time, the ongoing memory dividend can sometimes add up to more experience points than the original experience provided.

This is a differing viewpoint from delaying gratification but borrows a leaf from the teachings of Stoics like Seneca who argued that time should be treated as a commodity because of its non-renewability. As such while preparing for retirement, it is expedient to use your money to enjoy the present. 



How 'Die with Zero' Works

So how does one calculate the amount of money needed to die with zero amount in your bank account? 

First, you have to estimate how many years you hope to live (which is not easy). Try using the average life expectancy of your country or area to estimate how many years you expect to live. 

Then your current living costs. This allows you to form a baseline of how much you need to save to maintain your standard of living or something close to it. This should be calculated annually and may include other costs like repairs and renovations, relocation, or travel costs. 

Thirdly, because inflation erodes the purchasing power of the dollar, you make adjustments for inflation in your calculations to reflect the true value of your savings needed, not nominal value. 

Hence from this, Perkins believed we can calculate how much we would need by using this: 

0.7 x annual living costs x amount of years left to live. 


Let's Calculate

Using data from the Bureau of Labor Statistics, average household expenditures in the United States is $61,334, while the average annual income is $74,949. This means Americans spend 82% of their income after taxes. Life expectancy in the United States is currently at 79.05 years.

Using this data we can estimate that the average 32-year-old American would need:

0.7 x $61,334 x 47.05 = $2,020,035.29 



Why Die with Zero is a Good Retirement Strategy

Many individuals think that to live well in retirement, they need a sizable sum of money. However, they discover after retiring that they can no longer take enjoyment in life. As a result, the objective of working hard to enjoy a happy retirement is unsuccessful.

44 percent of Americans say they would work for companionship and networking, and 64 percent say they want to continue working after retirement. This implies that money may fill the void left by people. Humans have an urge to interact with one another and partake in our favorite activities.

Before you reach retirement age, you can correct these memories by dying with zero. The main advantage of this is that, by the time you retire, you would have lived a fulfilled life with no regrets which would make your retirement more blissful.



Why Die with Zero may not be a Good Retirement Strategy

While there are benefits with Die with Zero, because it tends to look at life in its totality and not just for monetary values, it also has some disadvantages. 

Given the current state of the economy, Perkin's estimation may not be achievable. From our example above, the average American needs to save roughly $2 million to be able to fund this lifestyle.

This is aside from leaving an inheritance and charity donations. Given that the average savings of a 32-year-old American is $11,250, this means such a person would have to save for almost 180 years to save such an amount. 

Let's say the average American decides to invest all their savings to retire 10 years earlier (at 55) savings.

The S&P 500's historic annual returns have come in at around 10.5% annually. With an initial annual saving of 11,250, compounded by 23 years, (55-32), this would amount to $1,069,025.07, far below the target of roughly $2 million using the 'Die with Zero' calculation.

As such, dying with zero may not be a practicable retirement strategy. 



Key Takeaway

Your life is a sum of life experiences, not monetary accumulations.

Your life is shaped by your experiences. There is a saying: A traveler is wiser than an old man. This is because the traveler has accumulated experiences and memories from his journey, while the old man just lived his years. 

Money can be made or lost, but memories can never be extinguished. Once you're in the habit of working for money to live, the thrill of making money exceeds the thrill of actually living. The memories you accumulate determine how well your life was lived.

While you should not substitute experiences for the money trail, you should consider the fact that dying with zero may not be a practical retirement strategy for you. You don't have to overexert yourself to save to retire early or overindulge, so optimize your experiences in life. 

Rather, the key thing is making as much as you can from life with as little as you can afford. You have to find a balance between capturing experiences and meeting your daily needs based on your income. Or as Seneca says: 'don't waste your time preparing for life', or should we say retirement. 

Photo by Greta Hoffman

Many Americans intend to keep working after they have retired. This is because more people are retiring with less savings than they need to be comfortable.

According to data from Northwestern Mutual, 21% of Americans have no retirement savings at all. The Federal Reserve says 60% of Americans are off track when it comes to their retirement savings.

This means more than half of American retirees may not be able to take care of themselves during retirement. 

Given that the life expectancy of the average American is 79.5 years, this implies that many retirees would live for another decade depending on their retirement fund without any source of income. 

As such, you need to make sure that you have built a sizeable nest that would cater to your needs when you are no longer eligible for the labor market.  

One way of ensuring that you have sufficient funds for retirement is to identify unnecessary expenses that could take a chunk out of your savings. In this article, we look at ways you can save more money in retirement.



7 Expenses You Can Cut Back on to Save More Money in Retirement

1. Travel/vacation

Many people intend to see the world once they are retired. They wish to catch up on the pleasures they missed while working a 9 to 5. However, taking trips abroad could also be an expensive venture if not carefully planned. One option is limiting the number of trips you embark on.

You could also take advantage of the strong dollar and travel to locations that are less pricey than popular destinations like Paris, Rome, or Hawaii. You can opt for vacation spots in Eastern Europe or Asia. Also, while on vacation, it's best that you live like a local if you intend to save some money. 

When you travel, choose locations based on cost-efficiency. Rather than go to Paris, Hawaii, or other exotic locations, you can either choose vacation spots in Eastern Europe or Asia. 

Another way to save money on travel is living like a local. Rather than eating at fancy restaurants or booking expensive hotels, you can live in a modest apartment and frequent the same restaurants that locals do. 

Also, if you want to travel, try scheduling your trips during off-peak periods is a way to save on your travel costs. 


2. A second car

Working couples sometimes require two vehicles get to and from their workplaces. However, if you and your spouse can organize your schedules, there is no need having two cars sitting in the driveway.

First off, having one car saves money on gas which is incredibly expensive now. It also costs less in terms of insurance and maintenance. If you are not monetizing the second car, you are better off selling one and adding the proceeds to your retirement nest.  


3. Eating out

Eating out also offers certain benefits when you are retired. It is more convenient plus it is an avenue for networking with other people. However, in the long term, the benefits of cooking outweigh the convenience that comes with eating out.

Cooking at home allows you to learn new things and stay occupied during your retirement. It can also be a source of self-fulfillment knowing that you can do something with your own hands. 

Plus, it is much easier to keep track of your diet and stay healthier when you cook at home. Most of all, it is cheaper in the long run which is beneficial for those that want to save money while retired. 


4. Debt

Retiring with debt is a huge financial misnomer. Every dollar you owe sets you up for a less blissful retirement. Liabilities such as credit card debt, mortgage, and student loans take huge drawdowns on your retirement fund. 

The number of workers age 75 and older is expected to increase in the US by 96.5%, according to a 2021 survey from the Bureau of Labor Statistics. By 2040, the US population of adults ages 65 and older is expected to increase to 80.8 million from 54.1 million in 2019.

With the cost of living continually going up, thus making it more difficult for people to retire, eliminating your debt burden before retirement is one of the best things you can do.

While you are still working, you should prioritize debt reduction before retirement savings. Pay off your high-interest loans first, but do not leave the low-interest loans running into your retirement.

If you are on a mortgage, try and finish the payments and own a house. Who knows? You may need to take out a loan against your house while you are retired.


5. Health care

Health care expenses take a huge chunk out of your nest egg. In a recent Principal survey, 64% of workers cited healthcare costs in retirement as a factor that's preventing them from feeling financially secure about the future.

While it is difficult to estimate your health costs, you can start by living a healthier life. Do away with habits that have negative effects on your health in the long term. 

If you can't, the alternative is building emergency savings for your health care. You can invest this amount in low-risk assets that mutual funds or bonds so that your money accrues interests over time. 


6. Investment fees

Having your portfolio managed by a professional can incur costs like management fees and commissions.

Given that you have more than a decade to live after you are retired, investment costs could be a drag on your portfolio if left unattended. 

 As such, it is worthwhile to review your portfolio to reduce your investment costs. You can do this by taking note of the expense ratio of each fund and challenging yourself to find a lower-cost fund that meets your investment needs. 

Also, take time to learn ways you can withdraw from your retirement account without attracting penalties of taxes.


7. Taxes

For those 65 and older, there are tax incentives that include a higher standard deduction. Additionally, there are tax benefits for senior homeowners in several areas. 

Plan your retirement account withdrawals wisely to further lower your tax burden. More money in a 401(k) can be deferred from income tax payments by retirees who are still employed than by younger workers.

Retirees who have a heart for charity can make qualifying charitable gifts to avoid paying income tax on their IRA-required minimum distributions.



To Save More Money in Retirement, Get Started Early

Cutting expenses during retirement starts before you are retired.

Reducing /eliminating your debt burden, building a health emergency fund, or reducing your traveling gives some wiggle room to save more money for your retirement.

It also takes some form of adjustment. Since you would not be working, it is expedient to adjust your lifestyle to suit your condition. This can be challenging considering that you have already established a pattern while working. 

The key is being mentally prepared for the inevitable life-changing process that comes with retiring.

Photo by Anna Shvets

If you are working, you most likely have a 401(k) plan for your retirement.

A 401(k) plan has taken over the pension plan and is the only opportunity you have to save for retirement from your paycheck directly. All other retirement planning must be done on your own through an IRA or Roth IRA.

Let's take a look at how this works. 



What is a 401(k)? 

A 401(k) is a retirement plan provided to you directly through your employer. The name comes from the section of the US IRA that outlines it. 

When you start a new job, you will be given an option to sign up for your employer's 401(k). A certain percentage of your paycheck will go directly into this account.

If you choose to invest your money in this account, your employer may also match some or all of your contributions. Always make sure you are getting the maximum contribution from your employer. 


How do you choose an investment in a 401(k)? 

When you open up a 401(k), you will be given investment options.

Depending on what your employer sets up, you can choose from stocks, bonds, or mutual funds. Make sure you look at this list and do your research for what is the best option for you. A good rule is to find a fund that follows the S&P 500 if you are unsure of all of the options. 


Can I have a Roth 401(k)? 

Most employers give you an option to put your money in taxed or not taxed, also known as a Roth option or traditional option.

A traditional option will be pre-taxed, and you will not pay taxes now, but you will when you withdraw. A Roth option will be after-tax income, and you will pay taxes now, but you will not when you withdraw. 

Some employers allow you to choose if you want a traditional or Roth 401(k). You may even have the option to split your contribution into both accounts. You can have the benefits of both accounts if that works for you. The contribution limit applies to the total that you put into this account, not a traditional and Roth portion. 


Are there contribution limits to a 401(k)? 

Just like other retirement accounts, there is a contribution limit for your 401(k). As of 2022, an individual can contribute up to $20,500 a year. Last year it was $19,500. If you are someone who wants to max out their plan, make sure you know of the contribution increase so you can always max out the new limit. 


What is Employer Matching? 

Some companies offer an employer match to the amount you invest in this plan.

It is different for every company, so ask your HR team about your matching policy.

Always make sure you understand the employer match to get this "free" money. 


When can I withdraw from my 401(k)? 

Once you are 59 1/2, you can withdraw from your 401(k).

If you have a traditional 401(k), you will have to pay taxes on what you are withdrawing because you have not yet paid taxes on this money. If you have a Roth 401(k), you will not have to pay taxes on what you are withdrawing since you already paid taxes on this money. 

For early withdrawal, there is usually a fee of 10% on top of paying taxes on that money. Using your plan as a savings account is not ideal. This really should be used for retirement. 

Your employer may allow you to take out a loan again their matching on your 401(k). However, you will have to pay this loan back, and if you leave before paying back this amount, there could be additional fines. 



Final Thoughts on 401(k)

Take advantage of this if your employer offers a 401(k) and match.

For most people, this is their only account for retirement. If you can't max out the contribution limit, at least put in the minimum for you to get your employer matching.

For long-term planning, consider opening up a 401(k) and other retirement accounts to account for your living expenses when you retire.

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When it comes to retirement accounts, there are a few options for what you can do outside of your work 401(k). 

An Individual Retirement Account, also known as an IRA, and a Roth Individual Retirement Account, also known as a Roth IRA, are two options where you can invest money for your retirement.

Retirement planning is important and if you want to ensure you have enough for retirement, you may want to consider opening up an additional retirement account. 



What is an IRA? 

An Individual Retirement Account, also known as an IRA, is a type of retirement account that lets you contribute pre-tax income, and you can choose where your money is invested. In addition, the money in this account will grow tax deferred.

This means you will not pay any taxes on growth while still contributing to this account. However, once you begin to withdraw money from this account, you will have to pay taxes. 

1. How much can I contribute in an IRA? 

To be able to open and contribute to an IRA, you will need to have an earned income. You can contribute up to $6,000 of pre-taxed dollars each year per the 2022 limit. This limit changes every few years. If you are over 50 years old, you can contribute up to $7,000 of pre-taxed income. 

2. Is there an income limit for an IRA? 

There is no income limit for a traditional IRA. Therefore, you can contribute to this account regardless of your income. This is not true for all retirement accounts. 

3. When can I withdraw funds from an IRA? 

Since an IRA is a type of retirement account, you cannot withdraw any money until the age of 59 ½ or later. If you need to withdraw your money early, then there is a 10% fee on top of the taxes you’ll have to pay. You’ll be taxed at your standard income tax rate. 



What is a Roth IRA? 

Roth Individual Retirement Account, also known as a Roth IRA, is similar to an IRA.

It is a retirement account where you can invest taxed income. The money you will put into this account will be taxed at your current tax rate. However, your account will grow tax-free, and you will not have to pay taxes on any growth or withdrawals on this account. 

1. How much can I contribute in a Roth IRA? 

Like an IRA, a Roth IRA has a contribution limit of $6,000 of taxed income as of the 2022 limit. If you are 50 years or older, then you can contribute up to $7,000. These amounts can change every year, so make sure you know the contribution limit for each year. 

2. Is there an income limit for a Roth IRA? 

A Roth IRA has an income limit. You cannot contribute to this account if you make over a certain amount.

For example, as of 2022, if you are single and make over $140,000 a year, then you cannot contribute to a Roth IRA. The limit is double a household income. These limits can change from year to year. 

3. When can I withdraw funds from a Roth IRA? 

Withdrawing money from a Roth IRA is different than a traditional IRA.

Any money that you have put into your Roth IRA can be withdrawn at any time. However, you cannot withdraw on any gain. For example, if you’ve put in $6,000 and your account has grown to $7,000, then you can only take out $6,000. Once you’ve taken out this money, you cannot put it back into your account. 

At the age of 59 ½, you can withdraw all of your money from your Roth IRA. You will not pay any taxes on your gains. 



Final Thoughts 

A 401(k) is a great place to start for your retirement savings, but if you want to have more money for your retirement, consider opening up either an IRA or Roth IRA. Both have different purposes, but they are a great place to save extra money for your retirement. 

Photo by Olya Kobruseva