Becoming Rich: Get an HSA

In writing this blog, I might make several basic assumptions. One is that many readers are themselves high-earners. Another assumption I may make it that many readers are professionals (doctors, attorneys, etc.) or business owners. If a professional owns their practice, the can be lumped into the business owner category.

One major issue facing business owners and the self-employed is health care costs. Since, in California, the salary limit for health care subsidies in a family of four is $97,200, many high-earners find themselves footing the entire bill for their health insurance.

This leads many of us to choose high-deductible plans, and in our family, we know we are on the hook for all medical procedures up to the out-of-pocket (OOP) max of $6,500 per individual, or $13,000 for the family.

Since we are relatively young and healthy, we treat our insurance as protection against catastrophe. This attitude regarding health insurance can have some great benefits when it comes to taxes.

One positive thing that comes with high deductible plans is the available tax break associated with a health-savings account (HSA). An HSA is a bank account, similar to a checking account, that you can contribute a limited amount to each calendar year. (The contribution limits may change, and are defined by the IRS each year.) The deposits go in with pre-tax money and the withdrawals come out untaxed, as long as the funds are used for qualifying medical expenses. If the funds in the account are not used during the year, the contributed funds do not expire like an employer-back Flexible Spending Account (FSA). The money you put into an HSA can sit there indefinitely, growing a miniscule amount of interest.

Just remember, the goal of using an HSA is not to gain interest, but rather to reduce tax-liability. The 2016 HSA contribution limit for a family is $6,750. If a high-earner is in the 28% federal tax bracket, plus the 10% California tax bracket, they could save just over $2,500 in taxes by contributing the maximum amount. That savings should make up for interest lost. Not to mention the peace of mind it brings to know that if ever a health crisis did occur, you should have plenty of money stashed in an HSA to cover the insurance deductible or out-of-pocket max for the year.

Since tax season is upon us, it may be too late to start an HSA for last year, but it would be a good thing to start now for next year. Just make sure your insurance plan is eligible according to IRS guidelines.

What early retirement looks like to me

I recently was speaking with a friend, and mentioned my goals for early retirement. This peaked his interest, and he related me his story of how retired from pharmaceutical sales at age 45 when the company he worked for went public. He said he had $1.5+ million in the bank, and decided to quit working. He spent his time golfing daily, and had no purpose in life other than relaxing and consuming.

He told me he hated it.

So he went back to school, got an MBA, and since he loves plants, he started a nursery. He now employs 20+ people in his nursery and landscaping business, and loves what he does.

With his personal experience in mind, he told me that I would also hate early retirement, and that it should not be my goal. He asked what I would do in retirement, and when I replied “whatever I want to do,” he said, “You are already doing exactly what you want to do.”

He was right, of course, but only in part. Yes, since an early age, I have wanted to be a doctor to help other people with their health and quality of life, and I am happy to be doing just that. However, there are many aspects of my job that I wish I didn’t have to deal with, and that I would change if money was not an issue.

So what does early retirement look like to me?

When I retire early, I plan on continuing to work as a doctor. (Gasp! That’s not retirement; this guy is full of it.)

However, when I retire, I will be able to drastically change how I practice. I will be free to cut ties with terrible HMOs, and I will be able to consolidate my office hours to give me even more time with my family. I will not have to worry where the next paycheck is coming from, so I will not have to spend my time and energy marketing my practice. I can have a streamlined practice, taking care of patients on my own terms, without being bound by insurance red-tape. Also, I will feel free to take longer vacations without the worry that my practice will collapse while I am gone (because I wont care if it does collapse.) I may even hire additional doctors to provide them good jobs, and allow us to meet the healthcare needs of my community.

Work in retirement? Maybe that was not the ideal for ‘the greatest generation’ or for baby boomers, but it sounds pretty ideal to me.