"You can't borrow for retirement. And trust me, the last thing you want to do is depend on your children to take care of you when you're old."
Those words, spoken with booming authority by my newly hired financial adviser, still haunt me. My husband and I recently met with him to formulate a plan on how to reach our two major financial goals: saving for retirement and starting a college fund for our newborn.
While I'd love to put away enough money to pay for my son's college education, (which could cost more than $600,000 in 18 years), for now, I'm focusing on my retirement. Here's why.
You can't borrow for retirement
To be fair, we are putting away some money for our son's college education. But it's nowhere near the $1,500/month our financial adviser suggested, based on his complex calculation that took into account our income, spending habits, inflation, and whether he'd attend a public or private university, among other factors.
Instead, my husband and I are taking that $1,500 and putting it towards our retirement. As much as I'd hate for my son to be saddled with six figures in student loan debt the moment he walks across the stage with his diploma, student loans exist for that very reason.
And he won't be alone. According to Student Loan Hero, the U.S. had about $1.48 trillion in student loan debt in 2017 among 44 million student borrowers. The average graduate left school with $39,400 that year; in 22 years, I can only imagine how large that number will be.
We're hoping to pay for a good portion of his education. But if we come up short, he can finance the rest. And he'll be just fine. On the other hand, when we hit 65, we won't have the opportunity to borrow to bridge the gap.
Max out your current retirement plans
My husband and I have the usual retirement savings vehicles: He has a 401(k) with a hefty employer match that we max out. I have a traditional IRA that we plan to max out this year.
So, well on our way to taking advantage of the usual retirement options, we're still looking for something else.
Lean on your HSA
HSAs are a great option to boost your retirement savings. While originally intended for a way to help offset the costs of a high-deductible health plan (HDHP), HSAs have recently gained notoriety for an excellent retirement savings option. Here's why:
They are tax-advantaged savings accounts. If you have the option to contribute via automatic deductions from your pay, your contributions are taken out pre-tax. If you simply contribute from your bank account, it's tax-deductible. It's a win-win.
Your money grows tax-free. Enough said.
Let's say you don't plan to use the contents of your HSA for medical care and costs, rather, you plan to earmark it for retirement. That's totally fine. As long as you wait until you're 65 to withdraw funds, there's no penalty. If you take money out prior to this age, you'll be subject to a 20% penalty, plus income taxes. In case you're counting, that's three (yes, three) tax benefits to opening an HSA.
You also aren't required to start withdrawing funds from your HSA at a certain age, unlike other retirement savings tools. This means you can let your money grow, tax-free, for as long as you like.
But there is one caveat when it comes to opening your own HSA: To qualify, you have to be enrolled in an HSA-qualified high-deductible health plan (HDHP). They're becoming increasingly common, so be sure to educate yourself on the type of health care plan you have, and how you can best maximize its benefits.
There are other rules for eligibility when it comes to HSA contributions, so you may want to discuss your options with a financial or tax adviser.
So, what's next on your financial planning punch list? If you're enrolled in a HDHP and looking to boost your retirement saving power, then perhaps starting an HSA is your answer.
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