Have You Considered a Health Savings Account?

Health Savings Accounts (HSAs) have been around since 2004 and present a viable alternative to traditional medical insurance coverage.  Especially given the ever-escalating cost of health insurance.

HSAs work as follows:

1. Enroll in what is called a "High Deductible Health Plan" (HDHP).  A HDHP is a health insurance plan with, what else...a "high" deductible.  What is considered high?  The Government says at least $1100 for single coverage and $2200 for family coverage.  The annual maximum "out-of-pocket" for a HDHP cannot exceed $5600 (single) or $11,000 (family) in 2008. 

2. Establish a separate HSA, usually through a bank, brokerage or other approved HSA provider.  Health insurance providers usually are linked to an HSA provider; for example, Blue Cross currently offers HDHPs that offer easy access to Chase or Mellon Bank.

3. Fund the HSA by depositing money into the account.  In 2008, you can contribute up to $2900 (single) or $5800 (family) into an HSA.  You have all year to contribute but you must have money in the account prior to use if for healthcare expenses.

4. Use the HSA to pay for your out-of-pocket healthcare expenses, including medical, dental, prescriptions, etc.  You can usually pay using a debit card or checkwriting option.

5. At the end of the year, take a Federal TAX DEDUCTION for your HSA contributions!  Yes, HSA contributions reduce your Adjusted Gross Income on your tax return.  The bad news:  California law does not conform to Federal law on this and thus you will not get a California tax deduction for HSA contributions.  (Come on, Arnold, let's work on this discrepancy!)

Summary of HSA benefits:

1. HSA contributions are tax deductible on your Federal tax return (but not California). 

2. Your insurance premiums on a HDHPs will usually be lower than on most traditional health insurance plans.  Thus, the savings can be directed towards your HSA account.

3. Any money remaining in an HSA account that has not been used for healthcare can be carried forward indefinitely.  (This is quite different than Flexible Spending Accounts, which you must use each year or lose.)  In fact, you can keep the money in the account until you retire and use it for Medicare premiums and deductibles. 

4. HSA accounts can grow and accumulate over time and earn income.  Many HSAs allow investments in mutual funds when your balance reaches a certain threshold.

More and more employers are offering HSAs and HSAs are also available through individual insurance policies.  For more information, visit www.hsainsider.com.

Start Thinking About Social Security

Most of us over 25 years old receive annual Social Security Statements about 3 months prior to our birthday.  These statements show us how much we have paid in towards Social Security and Medicare taxes over our lifetimes and how much our estimated benefits will be once we retire.

It is interesting to see how much you and your employers have paid out in Social Security over the years.  Yet at the same time it is frustrating because we don't have access to that money and the Comissioner tells us that by 2040 the number of Americans over 65 will double and there will not be enough money coming in to pay them without changes in the system.  More reason to invest in a 401(k) or IRA.

One way the Government is making up the gap is by increasing the "Maximum Taxable Earnings" subject to the 6.2% Social Security tax each year.  In 2008 they are increasing this wage base from $97,500 to $102,000, a 4.6% increase.  This increase is double the 2.3% Cost of Living adjustment being given to retirees on Social Security in 2008.

So assuming Social Security is still there for you when you retire, you can opt to take "early" retirement at age 62.  However, your monthly payment will be much less then if you waited until your "normal" retirement age (defined as 66 years old if you were born between 1943 and 1959 and 67 if you were born since 1960).  In my case, it would be 30% less, but I would have 5 extra years of payments. 

You can increase your monthly payments by as much as 24% more by waiting another 3 years past your normal retirement age to start your payments.

In my case we're talking $1600 per month if I retire at age 62 vs $2300 per month at age 67 vs $2850 per month at age 70.

So if I retire at age 62 I'll be paid $96,000 by age 67.  If I wait until age 67 it will take me 11.5 years to break-even and I'd be ahead after reaching age 78.5.  In other words, if I think I'll be living well into my 80s it makes sense to hold off and take normal retirement. 

You can calculate your estimated benefits and your break-even age on the Social Security Administration website at www.socialsecurity.gov.

What to do?  Heck if I know.  But generally speaking it seems best to wait to earn your full benefit, especially if you are healthy.  But then again, it might be better to start taking the money and investing it, especially if the future of Social Security payments is in question.  It also makes sense to take early retirement if you are in doubt of living into your 70s or if you simple really need the money!

Pay Bills Online - Save Money and Time!

How many checks do you write and mail each year?  If you're reading this post you must have Internet access and thus you could be paying your bills online. 

If you are like me and have monthly mortgage, electricity, gas, credit cards, cable, phone, cell phone, auto insurance, trash, water/sewer, etc. bills, the traditional approach of writing checks can be labor intensive. 

To mail the 250+ checks per year I could be writing it would cost over $100 in postage and HOURS and HOURS of time manually writing, ripping, inserting, addressing, licking, sealing and delivering bills.  Not to mention that nasty envelope paste I'd be scraping off my tongue!

First take a look at automating any recurring payments you can be charging directly to your credit card.  This is your best option as long as you don't carry a balance on your credit cards. 

Some bills cannot be charged to a credit card or are charged fees for that convenience.  So pay them online with a billpay account!

Bank of America has an easy to use free of charge billpay service that allows you to pay anyone completely online (assuming you have the $$ in your account of course).  You can pay any bill online and B of A will mail the check for you for free.  Try it out!  Mail a check to yourself!

B of A allows for recurring payments to be made (like your mortgage bill), automatic debits (like your gym), online billings (like your credit cards and electricity) as well as any other payments as long as you have a mailing address.

One note of financial caution.  B of A pays a microscopic .05% on a checking account.  So don't keep too much excess cash there.  Plenty of highly liquid money market accounts currently pay over 4.5% (PayPal is one) that you can use to transfer money to your billpay account as needed.  (OUCH!  Here we are 5 months later and my PayPal money market is down to 2.6%!  Time to look elsewhere for better returns...!)

There are plenty of other online billpay providers out there, so check it out and start saving time and money!  It may feel awkward at first but before you know it you'll LOVE how much time (and stamps) it saves you!