Only maxing out HSA + 401(k) match going forward?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
TarHeel2002
Posts: 429
Joined: Sun Jun 17, 2012 2:14 pm

Only maxing out HSA + 401(k) match going forward?

Post by TarHeel2002 »

I’m not necessarily planning on this but here’s a hypothetical question I had.

42 years old and currently have 1.29 million in investments. Up to this point we’ve been maxing 401(k) x 2, Roth IRA x 2 and HSA (71k annually)

I was inputting some numbers and if I just do the current HSA max and get my 401(k) match ($13,300 annually) I end up with roughly 2.6 million by 55 and 4.8 million by 65 @ 6% return. I realize I’m making a few assumptions here on returns and employment.

It seems like those numbers would be sufficient for us. It’s so interesting to me how important it is to get started saving early and let compound interest do the heavy lifting later on.

Do I keep on with pedal to the metal or back off a bit??
pasadena
Posts: 2337
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: Only maxing out HSA + 401(k) match going forward?

Post by pasadena »

What would you do with the extra money?
er999
Posts: 1343
Joined: Wed Nov 05, 2008 10:00 am

Re: Only maxing out HSA + 401(k) match going forward?

Post by er999 »

If you stop ira contributions x 2, and spend the extra $12k / year, and assuming you continue with the extra $12k / year spending through retirement you’d need an extra $300k in your portfolio, assuming a 4% withdrawal rate.

Also, I’d use a real return (subtracting inflation) for your estimated portfolio balances. Vanguard’s projections for us equities are 4.4-6.6% return/ year with an projected inflation rate of (10 year average) of 2-3% / year, giving a real rate of 1.4%- 4.6% / year. If you re-ran your projections with a return of 2% with upper bound of 5% the numbers at 55 and 65 wouldn’t be as attractive.

https://corporate.vanguard.com/content/ ... -2023.html
User avatar
hand
Posts: 2201
Joined: Sun May 17, 2009 8:42 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by hand »

A couple of thoughts:

1) By reducing contributions now, you are making a critical assumption that you will be able to work (and contribute a reduced amount) consistently through retirement. That of course isn't always the case, and recovering from job loss can get more difficult as you get older depending on career.

2) Does spending more now increase or decrease your spending expectations in retirement? If your retirement target isn't changing, and you spend more today, does that mean that there will be a larger reduction in lifestyle from your freespending ways to your target retirement lifestyle.

3) Are you sure you have no interest in retiring early? For many people, a couple years of "freedom" is more valuable than incremental consumption.

4) This decision feels like a high class version of the "One More Year" decision
sailaway
Posts: 8219
Joined: Fri May 12, 2017 1:11 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by sailaway »

We chose to keep the pedal to the medal. And thank goodness we did. DH, the higher earner by far, has developed fibromyalgia and can no longer work a desk job full time. He isn't even 40 yet, but it's fine because we are FI for our current lifestyle. His has currently opted for semi retirement mostly because they asked him to and he loves being an engineer.

This is not the early retirement option we were saving for, but we are glad we saved.

The key is to be frugal without being miserable. Do things you enjoy, spend here and there where it has maximum impact on your satisfaction. We spent quite a bit on outdoor chairs that we often take to a park to sit and read and enjoy the view.
KlangFool
Posts: 31526
Joined: Sat Oct 11, 2008 12:35 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by KlangFool »

TarHeel2002 wrote: Mon Jun 05, 2023 10:17 am I’m not necessarily planning on this but here’s a hypothetical question I had.

42 years old and currently have 1.29 million in investments. Up to this point we’ve been maxing 401(k) x 2, Roth IRA x 2 and HSA (71k annually)

I was inputting some numbers and if I just do the current HSA max and get my 401(k) match ($13,300 annually) I end up with roughly 2.6 million by 55 and 4.8 million by 65 @ 6% return. I realize I’m making a few assumptions here on returns and employment.

It seems like those numbers would be sufficient for us. It’s so interesting to me how important it is to get started saving early and let compound interest do the heavy lifting later on.

Do I keep on with pedal to the metal or back off a bit??
TarHeel2002,

A) Why would you choose to pay more taxes?

B) How much is your portfolio in the tax deferred account? Only the amount in the Trad 401K need to be counted.

C) What is your asset allocation in the Trad 401K account?

D) Is it possible that your calculation is wrong? Please show us your calculation.

E) What is your marginal tax rate?

F) Do you pay state income tax?

KlangFool
Last edited by KlangFool on Mon Jun 05, 2023 10:37 am, edited 1 time in total.
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
sjt
Posts: 407
Joined: Fri May 26, 2017 3:03 pm
Location: NC

Re: Only maxing out HSA + 401(k) match going forward?

Post by sjt »

TarHeel2002 wrote: Mon Jun 05, 2023 10:17 am It seems like those numbers would be sufficient for us. It’s so interesting to me how important it is to get started saving early and let compound interest do the heavy lifting later on.

Do I keep on with pedal to the metal or back off a bit??
Absolutely - say it louder for the people in the back! To me, heavy investing early on was a bit discouraging, but it takes some time for the returns to really start piling up. The first time my account growth outpaced my contributions was an exciting moment!

In my opinion using a 6% return is good for estimating future account balances, because it somewhat takes inflation into account when estimating in todays dollars. In reality, it'll probably be more like 8% growth with 2% inflation....... or 9% growth with 3% inflation or something like that.

You have my permission to take the foot off the gas. It all depends on your goals for spending. Do you want to retire ASAP? Then keep saving heavily. Are you OK with working until 55 or 65 in order to spend more now? Really it's a personal question and a matter of goals.
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by Jags4186 »

Be wary of 15-25 year projections. It’s better to keep the pedal to the metal until you make it, or at least ratchet down to a 15-20% savings level. Then once you make it you can readjust whether you want to increase consumption while working, call it quits, or somewhere in between.
steadyosmosis
Posts: 980
Joined: Mon Dec 26, 2022 11:45 am

Re: Only maxing out HSA + 401(k) match going forward?

Post by steadyosmosis »

KlangFool wrote: Mon Jun 05, 2023 10:34 am
TarHeel2002 wrote: Mon Jun 05, 2023 10:17 am I’m not necessarily planning on this but here’s a hypothetical question I had.

42 years old and currently have 1.29 million in investments. Up to this point we’ve been maxing 401(k) x 2, Roth IRA x 2 and HSA (71k annually)

I was inputting some numbers and if I just do the current HSA max and get my 401(k) match ($13,300 annually) I end up with roughly 2.6 million by 55 and 4.8 million by 65 @ 6% return. I realize I’m making a few assumptions here on returns and employment.

It seems like those numbers would be sufficient for us. It’s so interesting to me how important it is to get started saving early and let compound interest do the heavy lifting later on.

Do I keep on with pedal to the metal or back off a bit??
TarHeel2002,
A) Why would you choose to pay more taxes?
...
KlangFool
I agree with KlangFool.
I kept 'pedal to the metal' filling pre-tax accounts, avoiding federal taxes of 22% (sometimes 25%).
Now early-retired, I annually convert those same pre-tax dollars, plus their earnings, into Roth status at federal tax cost of 12% (and less).
Was a no-brainer for me.
Good luck with your decision.
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable and re-balance in tIRA.
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by EnjoyIt »

Wait until you are at around 20x before you start taking chances like this. It’s way to risky making assumption on full employment so far out.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by Admiral »

8-10 more years of saving as much as possible, then re-evaluate. You could have a 40 year retirement.

If you have a vested pension, that changes things, but I didn't read that you do.
User avatar
FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by FiveK »

TarHeel2002 wrote: Mon Jun 05, 2023 10:17 am I was inputting some numbers and if I just do the current HSA max and get my 401(k) match ($13,300 annually) I end up with roughly 2.6 million by 55 and 4.8 million by 65 @ 6% return.
The amounts in Roth and HSA accounts don't matter in terms of whether you have "too much" in your pre-tax accounts.

You could start with a Simple method to estimate your taxable income from pre-tax withdrawals. As noted there, a hand calculator would suffice for a first approximation.

See the following link for slightly more complicated back-of-the-envelope calculations, and a Detailed method description for yet more.

Until your expected marginal tax rate in retirement reaches your marginal tax saving rate due to traditional contributions now, you don't have "too much" in those pre-tax accounts. Does that make sense?
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by EnjoyIt »

TarHeel2002 wrote: Mon Jun 05, 2023 10:17 am I’m not necessarily planning on this but here’s a hypothetical question I had.

42 years old and currently have 1.29 million in investments. Up to this point we’ve been maxing 401(k) x 2, Roth IRA x 2 and HSA (71k annually)

I was inputting some numbers and if I just do the current HSA max and get my 401(k) match ($13,300 annually) I end up with roughly 2.6 million by 55 and 4.8 million by 65 @ 6% return. I realize I’m making a few assumptions here on returns and employment.

It seems like those numbers would be sufficient for us. It’s so interesting to me how important it is to get started saving early and let compound interest do the heavy lifting later on.

Do I keep on with pedal to the metal or back off a bit??
I did similar math a few years ago and I came to the conclusion that I should start doing some Roth 401k contributions.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
ScubaHogg
Posts: 3573
Joined: Sun Nov 06, 2011 2:02 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by ScubaHogg »

Tough to answer not knowing your income or expenses
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
broncocountry25
Posts: 352
Joined: Thu May 18, 2017 11:49 am

Re: Only maxing out HSA + 401(k) match going forward?

Post by broncocountry25 »

I would recommend you redirect your savings to taxable. Do that for a while and see how you feel. If you are still on track then spend more.

I do not agree with traditional retirement in 2023.

There are so many interesting things to do and ways to make money. You did the hard part. Don’t touch that money and let it grow but for sure spend now and don’t wait.
broncocountry25
Posts: 352
Joined: Thu May 18, 2017 11:49 am

Re: Only maxing out HSA + 401(k) match going forward?

Post by broncocountry25 »

Should have said I did this and am so much happier. It was depressing thinking of waiting until 60.

Have healthy assets outside of retirement now and growing. Don’t feel stressed at work, excited about next decade, not holding my breath for 60 and what will be in my golden years.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by Admiral »

broncocountry25 wrote: Mon Jun 05, 2023 8:25 pm I would recommend you redirect your savings to taxable. Do that for a while and see how you feel. If you are still on track then spend more.

I do not agree with traditional retirement in 2023.

There are so many interesting things to do and ways to make money. You did the hard part. Don’t touch that money and let it grow but for sure spend now and don’t wait.
Employers do not match taxable contributions. Or Roth contributions (though you can make them in a workplace plan and the employer will match in pre-tax, if the plan supports Roth.)
Topic Author
TarHeel2002
Posts: 429
Joined: Sun Jun 17, 2012 2:14 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by TarHeel2002 »

Income = 280-300k
Core expenses 115-125k …but we spend more than this if you include travel, home improvements, entertainment etc

Saving 71k annually in retirement accounts
Saving 15-18k annually for 529 accounts (currently have 160k)

1290k is broken down as follows:
785k = 401(k)
272k = Roth
107k = brokerage
66k = HSA
22k = cash
44k = ibonds
KlangFool
Posts: 31526
Joined: Sat Oct 11, 2008 12:35 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by KlangFool »

TarHeel2002 wrote: Tue Jun 06, 2023 12:49 pm Income = 280-300k
Core expenses 115-125k …but we spend more than this if you include travel, home improvements, entertainment etc

Saving 71k annually in retirement accounts
Saving 15-18k annually for 529 accounts (currently have 160k)

1290k is broken down as follows:
785k = 401(k)
272k = Roth
107k = brokerage
66k = HSA
22k = cash
44k = ibonds
TarHeel2002,

Only 785K of the 401K is taxable upon withdrawal in retirement.

If you withdraw 4% per year, it is only 31.4K per year. How much taxes do you pay with 31.4K of taxable income per year in retirement?

Unless you enjoy paying a lot more taxes, why would you stop contributing to 401K?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
makeitcount
Posts: 288
Joined: Wed Aug 01, 2018 8:07 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by makeitcount »

TarHeel2002 wrote: Tue Jun 06, 2023 12:49 pm Income = 280-300k
Core expenses 115-125k …but we spend more than this if you include travel, home improvements, entertainment etc

Saving 71k annually in retirement accounts
Saving 15-18k annually for 529 accounts (currently have 160k)

1290k is broken down as follows:
785k = 401(k)
272k = Roth
107k = brokerage
66k = HSA
22k = cash
44k = ibonds
1290k/125k = ~10.
I would suggest not let up until you are nearing 25x.
I am of the opinion that one should "make hay while the sun shines". We are of similar age but have ~30x saved, save >1x per year and have a vested federal pension. Perhaps I am too much of a fraidy-cat but I am as of now not comfortable taking my foot off the pedal. Tomorrow may bring an unexpected financial hardship I will be better prepared for by continuing to save now while I am able. If such hardship does not come to pass then mayhaps I'll have the option of a retirement date earlier than planned.
"Yeah, well, you know, that's just like, uh, your opinion, man." - J. Lebowski
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by EnjoyIt »

makeitcount wrote: Tue Jun 06, 2023 4:30 pm
TarHeel2002 wrote: Tue Jun 06, 2023 12:49 pm Income = 280-300k
Core expenses 115-125k …but we spend more than this if you include travel, home improvements, entertainment etc

Saving 71k annually in retirement accounts
Saving 15-18k annually for 529 accounts (currently have 160k)

1290k is broken down as follows:
785k = 401(k)
272k = Roth
107k = brokerage
66k = HSA
22k = cash
44k = ibonds
1290k/125k = ~10.
I would suggest not let up until you are nearing 25x.
I am of the opinion that one should "make hay while the sun shines". We are of similar age but have ~30x saved, save >1x per year and have a vested federal pension. Perhaps I am too much of a fraidy-cat but I am as of now not comfortable taking my foot off the pedal. Tomorrow may bring an unexpected financial hardship I will be better prepared for by continuing to save now while I am able. If such hardship does not come to pass then mayhaps I'll have the option of a retirement date earlier than planned.
I would even consider 20x and then let compounding do the rest. I would never even consider it at ~10x where OP appears to be hanging out. Way too many unknowns for this.

Just to point out I am a proponent of a 4% withdrawal rate mixed with flexibility. At least that is how we have lived our lives.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
broncocountry25
Posts: 352
Joined: Thu May 18, 2017 11:49 am

Re: Only maxing out HSA + 401(k) match going forward?

Post by broncocountry25 »

Admiral wrote: Tue Jun 06, 2023 9:25 am
broncocountry25 wrote: Mon Jun 05, 2023 8:25 pm I would recommend you redirect your savings to taxable. Do that for a while and see how you feel. If you are still on track then spend more.

I do not agree with traditional retirement in 2023.

There are so many interesting things to do and ways to make money. You did the hard part. Don’t touch that money and let it grow but for sure spend now and don’t wait.
Employers do not match taxable contributions. Or Roth contributions (though you can make them in a workplace plan and the employer will match in pre-tax, if the plan supports Roth.)
Yes I am aware employers don’t match a brokerage account. I contribute up to the match at work, do backdoor Roth IRAs, the rest into taxable/real estate.

My goals are not to have the highest amount possible at 60 but to smooth my spending over time and avoid working away the early years of my life.

Even doing this at the current moment I only defer 4% to 401k and employer puts in 9% so 13% total.
lakpr
Posts: 11613
Joined: Fri Mar 18, 2011 9:59 am

Re: Only maxing out HSA + 401(k) match going forward?

Post by lakpr »

EnjoyIt wrote: Mon Jun 05, 2023 4:13 pm
TarHeel2002 wrote: Mon Jun 05, 2023 10:17 am I’m not necessarily planning on this but here’s a hypothetical question I had.

42 years old and currently have 1.29 million in investments. Up to this point we’ve been maxing 401(k) x 2, Roth IRA x 2 and HSA (71k annually)

I was inputting some numbers and if I just do the current HSA max and get my 401(k) match ($13,300 annually) I end up with roughly 2.6 million by 55 and 4.8 million by 65 @ 6% return. I realize I’m making a few assumptions here on returns and employment.

It seems like those numbers would be sufficient for us. It’s so interesting to me how important it is to get started saving early and let compound interest do the heavy lifting later on.

Do I keep on with pedal to the metal or back off a bit??
I did similar math a few years ago and I came to the conclusion that I should start doing some Roth 401k contributions.
+1000 to Bolded-and-underlined text.

If you feel you have more than sufficient pre-tax contributions in the 401(k), start doing Roth 401(k) contributions instead. But never let the tax-advantaged space go waste (assuming you have funds to contribute).
Silverado
Posts: 1650
Joined: Fri Oct 18, 2013 6:07 pm

Re: Only maxing out HSA + 401(k) match going forward?

Post by Silverado »

At that income level, it seems like maxing out retirement accounts is barely noticeable. We have about that much income and max out our 401k and HSA without even noticing it. The long term benefits of that are going to be sweet. No way I’d give up a single penny of that tax advantaged space.
Post Reply