How Can You Retire Early at age 40 or 50 Years Old

b. Here is an even better benefit that often isn’t spoken about. You can delay taxing an HSA distribution for medical expenses. The great benefit of having an HSA is that I can decide when to pay myself back. Since there is no rule stating that you must use your HSA to directly pay for medical expenses or that you must withdraw money from your HSA within a certain amount of time after paying for a medical expense, you can take out the money when you want. As long as the qualified medical expense occurred after the HSA was opened, you can withdraw money from the HSA at any time after incurring the expense to reimburse yourself. Since I am already maxing out my other tax-advantaged accounts and have ample savings, a $250 doctor bill payment isn’t going to break the bank so there is no rush to get paid back from my HSA. Instead, I can leave that $250 in my HSA and can sit back and watch it grow, tax-free, until I decide to withdraw it.

I need to keep my receipts (and make digital copies, in case the physical copies wear out) so I can withdraw the money for qualified medical expenses from my HSA at any time. If you don’t use your HSA funds for medical expenses, you can begin withdrawing money from your HSA account for any expenses after you turn 65, without penalty. You’ll have to pay income tax on any distributions that aren’t for qualified medical expenses, just like you would with a Traditional IRA, but you won’t incur any additional penalties or fees. Therefore, after the age of 65, an HSA is nearly identical to a Traditional IRA but it’s still better because your withdrawals for medical expenses are still completely tax-free!

2. Next, I max out my Roth IRA. This is funded with after-tax money. Once you receive your paycheck you can send money to a Roth IRA. You will not save any income taxes at the time of the contribution. You can always take out your contributions tax and penalty-free any time. There is also such thing as a Roth 401(k) at some workplaces. You may or may not be able to contribute to this if you are maxing out your pre-tax retirement account. Get your own professional advice.

3. Lastly, I put funds into my brokerage account at Vanguard. I purchase stock market index funds. Index funds are comprised of many stocks. I try to stay away from individual stocks because it’s difficult to stay diversified. It’s riskier to me to hold individual companies versus a fund of many companies. You may be fine with the risk and that is okay. You should always do what’s best for your situation. For me and my house, we focus on the S&P 500 index mutual fund called VTSAX (about $95 a share at the time I wrote this) or index ETF called VOO (about $195 a share at the time I wrote this). Learn more about it at Vanguard. This is what I do and I am not saying it is what you should do because you are reading this. Contact me with questions.

4. Entrepreneurs can start retirement plans as discussed in Part 1 of this series. They can also jump straight into a brokerage account and start investing in index funds.

Whew, that was a lot!

Homework:

1. Enroll in the Financial Freedom Course.

2. Calculate your current savings-investment rate. Can you reduce some spending or expenses to invest more and max out preretirement accounts?

3. Come up with three financial goals for this year and next.

4. Write up your 5 estate planning documents.

5. Download Personal Capital net worth tracker. It's an app that allows you to see all your money accounts in one place, in real-time. Get your Retirement Readiness Score™ in minutes, Use Fee Analyzer™ to find hidden fees in your retirement accounts. Sign up and we both get $20.