What's the Real Cost of Retiring at 63?

Well, hello and welcome in.

Glad you're here.

I'm Ralph Estepp Jr. And this is Financially Confident Christian Live.

This is your weekly 1pm Friday, right here, every week.

And this show isn't where we pretend that money is easy.

Money's not easy.

It's hard.

But we also don't shame you for where you are.

And.

And we don't do that glossy version of personal finance where everything gets fixed in seven steps.

I wish I could tell you there were seven steps to fix everything, but that just isn't true.

On this show, we talk, we have real questions with real people, and we add in a little real faith.

And today we've got three questions that stop me when I read them.

Now, before I get to that, though, my producer Abby put something together and I want to share it with everybody.

I think it's really cool.

Here it goes foreign.

Let's do this.

And like I said, I thought that was really cool.

So today we're going to work through three questions that stopped me when I read them.

We're going to talk about a couple who had circled 63 years old on their calendar for years, and then all of a sudden, they started to worry about their whole plan around a number they never actually verify.

We're going to talk about Social Security retirement age.

Then we're going to move into a listener who watched her sister get locked out of a joint bank account right after she lost her husband.

So in the middle of grief, trying to pay for a funeral with money she thought was already hers.

And then finally, we're going to talk about HSA accounts.

We're going to talk with a man who's been doing the smart thing with his HSA for years now.

HSA is a health savings account, in case you're missing that.

He was maxing it out, investing the balance, letting it grow.

Now he's finding out his kids could owe a huge tax bill the year after they inherit, which is a really sad thing.

But we're going to talk about that on today's show.

These are three real questions and we're going to get into all them today.

So if you're watching on YouTube, I would love it if you drop your questions and comments in the chat.

If you're joining us on Clubhouse, come on up on the stage or listen in.

Either way, I want to hear from you.

Alrighty.

Well, let's get started today.

Now, before we get into this, a couple of things.

I received this voicemail from a listener and I wanted to share it because this one really made my day and this is why I do today's show.

Hi Ralph, my name is Alex and I just wanted to say that I am really thankful that I came across your podcast.

I listened to the daily Christian mindset over there with Carrie and you were on there and that connected me to.

Well, that found out about the podcast.

So I've been listening to that just about daily since for the last few weeks or so.

I'm just in a horrible situation financially but I'm working my way to getting out just, you know, one step at a time.

So I love your episodes, you know, 10, 15 minutes long.

You take step here and there.

So one of the things that I will be doing today is creating a savings account.

I haven't had a savings account a long time just because our the money again, you know, just doesn't cover the expenses.

So but focusing on, on working on that and starting off.

So I will be doing that today, making that deposit, a transfer and then setting up to just a deposit like once a month or so.

I realtor so I'm commission based.

I also have a part time job.

I do Uber sometimes as well.

So getting in that income wherever I can.

But yeah, just wanted to you mentioned to go ahead leave you a voicemail.

So I am driving right now to an appointment and I figured I'd go ahead and do so and just wanted to say thank you.

I appreciate that.

I know everything happens for a reason and God sent me sent you to me to work on my finances.

I'm.

My business is in a better position than it's ever been.

As well as my health, I've also been on a weight loss journey.

So finance is the last one that I really just need to work on to just do better.

Just do better.

So thank you again.

Well Alex, I just want to thank you so much for sending in that voicemail.

That really made my day when we got that the other day because that's really the reason I do the show and, and I would love to hear from you.

If you've got something going on or there's a challenge or a triumph in your life, you can send that to us by going to financiallyconfidentchristian.com voicemail.

Again, that's financiallyconfidentchristian.comvoicemail and it's super easy.

You go right to that website, you click record, tell me what's going on in your life because I would love to hear from you because that's what really fuels what we're doing here today.

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Welcome and make sure you come back next week and tell a lot of people with it.

Talk a lot of people about it, don't tell people with it, but tell people about it.

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And if you want to go deeper than that, I've got a great idea for you here.

We put together what we call the Faithful Money Framework.

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All right, well, let's get right into our first listener question for today.

And this is what we talked about a little bit earlier.

This is an email we received.

So let me read that email right now.

It says, dear Ralph, my husband and I have had 63 on our calendar for years now.

That's our number and that's when we're done.

Now I'm hoping what they mean by done is not checking out, but done working.

And that's what they mean here.

But let me continue.

We both assumed it was pretty much the right age.

We'd heard it enough times that it started to feel like common sense.

But lately I've been second guessing it.

We've got a decent amount saved, but we're not millionaires.

And I keep seeing articles about people outliving their money and it's starting to keep me up at night.

And we wonder if we're wrong to be aiming for 63.

Is there a number we should actually be planning around instead?

And then they close it out with, I appreciate everything you do, Ralph.

We love to hear your thoughts on this.

Thanks again for all you do.

And thank you for sending that in.

This is probably one of the most common questions that I get in my accounting practice.

If you don't know, I've been doing accounting work since I was 8 years old.

I've had my own practice now.

I guess it's about 31 years.

But this is a question I get routinely and it's something as we lean into this a little bit You've built a whole retirement plan around a number that you never actually verified.

And this is not an uncommon situation.

A lot of people feel the same way, oh, I'm going to get to a certain age.

That's when I'm going to retire.

I hear it a lot of times that age 62, that's when people reach that ability to collect Social Security.

But you looked at 63, and now you're all of a sudden into this position where you're worrying about outliving your savings.

But you've never really done the math, have you?

And you don't want to work forever.

I get that.

You know, most of my clients don't want to work forever.

I personally don't want to work forever either, although I don't see myself retiring.

That probably a discussion for another show.

But you also don't want to run out of money early either, because that's a scary thing.

I get that.

You've worked your whole life.

You don't want to be in that position where you can't afford to live.

So first, I want to start by saying this.

That age 63 didn't come out of nowhere.

It feels right because it's close to that 62 years that a lot of people talk about, which is, by the way, the earliest you can claim Social Security.

And a lot of people hear that and think, oh, that's close enough, Ralph.

But it's not close enough.

Here's the problem with that.

If you claim Social Security benefits at 62, that permanently reduces your monthly check.

And here's a number.

Get ready for this.

It's going to reduce your monthly payment by about 30% compared to if you waited till full retirement age now at full retirement age, which is now 67.

And this has been like this time of the last few years where it's been ratcheting up six months at a time.

But the full retirement age now is 67.

It's not 65, it's not 66, it's 67.

So as of 2026, for anyone born in 1960 or later, and this is going to be the rule as it stands for right now.

Anybody born 1960 or later, your full retirement age is going to be 67 years old.

That's the official number from the Social Security Administration.

Now, that shift is final.

If you are aware of this.

This has been going on maybe in adding 66 and seven months.

And it's, it's, it's weird, like this process of turning this in.

But this is final, and it Changes the math of a lot of retirement planes people built years ago.

So here's what that actually means in dollars, and I'm going to give you a very simple example of what this means in real dollars.

Because it's one thing to hear 30%.

It's another thing to hear, well, if I wait till 70.

But let's get down to the actual numbers, and here's what it is.

If you claim your Social Security at 62, your maximum monthly benefit.

Now, I'm using maximum benefit because that is the absolute max.

Your benefit is going to depend on your earnings.

But just for sake of our discussion today, let's talk about the maximum monthly benefit.

So if you claim at 62, you.

Your maximum monthly benefit in 2026 is around $2969.

That's what you would get for the rest of your life starting at age 62.

Now, if you wait till full retirement age, which is 67, that minimum number, that number that you're going to get, the maximum number, I should say, goes up to $4,152.

You see, that's a big difference.

We went from 2969 to 4152.

Now, again, you waited five years, you went from 62 to 67.

Now, a lot of people talk about, well, Ralph, what if I wait a little bit longer?

If you wait until age 70, then your benefit then becomes monthly $5181.

Now, they say with a podcast, never do math, but I'm going to just throw some numbers at you.

So we started off just under three grand, and now we're up over $5100.

That's a big difference.

But again, realize you're waiting an additional eight years from age 62 or five years from age 67.

But you have to remember that's every month for the rest of your life.

That's not a small difference.

Now add this.

Here's something a lot of people don't think about, and you didn't even mention it in your question.

But this is one of the things that will trap a lot of people.

Let's talk about Medicare.

Medicare is your insurance coverage once you go to retire.

You may not even be retired, but it's what you get when you hit a certain age.

Well, here's the deal.

Medicare doesn't start until age 65.

So if you decide to retire at 63, you're going to have to have your own health insurance for two years.

And that's a real cost that a lot of people don't factor in when they pick that number.

And here's the hard truth underneath of it all.

I'm going to give you something from the 2024 MassMutual Retirement Happiness Study.

It found that 63 is what most Americans say is the ideal retirement age.

So when you said 63, that didn't come as a shock to me.

That seems to be the going number.

But here's the problem.

This is that 2024 MassMutual Retirement Happiness Study.

35% Of pre retirees were also say their savings are behind.

That's a problem.

34% Believe there's a real chance they'll outlive their money.

Here's the problem.

Both of those things can't be true and be fine at the same time.

That's a huge issue.

If more than a third of the people going to retire are saying that they're behind on their savings and, and they're worried they're gonna outlive their money, that's a real big issue.

Think about it like this.

If you retire at age 63 and you live to be 93, your savings need to last 30 years.

That's just the math.

The window that actually holds up is between 65 and 67.

And the reason that I try to steer clients in that direction is because that's where Medicare and full Social Security both kick.

Those aren't arbitrary numbers.

They're the structural support the whole system was built around.

Now, 63 isn't wrong because it sounds wrong.

It's risky because the number behind it doesn't work all the time.

So you gotta plan with real numbers, not just the popular ones.

And that's really a big deal.

So if you're watching this right now, if you're listening to this after the fact and you can comment, just do me a favor and put right in the comments.

What age are you planning to retire?

And have you actually run this Social Security math on it?

Put that in the chat.

I'd love to hear from you.

But now as we talk about this, we found an article and it was an article written on money wise.

And the article was titled Many Americans think 63 is the perfect Age to Retire.

And then it says something pretty bold.

It says they're wrong.

And we'll put a link to that in the show notes.

But this email connects directly to what money wise covered in this article.

And the headline didn't soften it either.

Most Americans think 63 is the right age to retire.

What does the article say?

They're wrong at that here's the number to actually build your plan around.

This is exactly from the article.

This is like, I could have written this article because it agrees with what I'm saying.

Here's what the research is speaking to people locked into retirement age.

They chose emotionally, not mathematically.

That's the real issue.

A lot of people don't do the math behind this.

They just have this feeling like, I've worked for so many years, Ralph, I just want to retire.

That's an emotional decision.

That's not a mathematical decision.

And that 62 or 63 window is appealing.

I get it.

You don't want to work anymore.

You want to retire.

You want to go enjoy your grandchildren or go enjoy traveling, whatever that looks like for you.

But that is one of the most expensive choices you can make if you're not ready for it.

And what did that massmutual survey show?

34% Haven't saved enough.

35% Are worried they're going to run out of money.

And nobody tells you what you're giving up that monthly income under the until the decision's already made.

I've seen it happen so many times in my practice.

Someone will already gone ahead and gotten that Social Security.

Then they'll come in and meet with me and they'll say, I'm really struggling, Ralph.

I'm having a hard time making ends meet.

And I'll say to them, well, I see you took your Social Security early, because there's other things that impact this as well.

If you take your Social Security early, before full retirement age, there are also limits on how much you can earn.

If you need to go get another job and you lose benefits.

If you go get a job and you're over those things.

Another thing a lot of people don't think about.

Your Social Security could be taxable income to you.

But let's get a little deeper.

This is what the findings actually show.

The number that holds up best is somewhere between age 65 and 67.

Now, when I counsel clients, I tell them it really depends on a crystal ball of how long you plan to live.

If everybody in your family dies at age 70, then I would probably take my benefits early, depending upon your financial situation.

But if Grandmom lived to be 99 and Aunt Sally and Uncle Joe all lived into their mid-90s, you've got a really good chance of having good genetics.

Look at your health, look at your situation.

Now, it's not because that number feels good.

It's because that's what becomes available at those ages.

At 65, you get Medicare.

That's a big deal.

Full Social Security happens at 67.

Those two things alone change the financial picture significantly.

And like I said earlier, claiming early at 62 cuts your benefits by 30% for life.

Now again, if you wait till age 70, that increases it by 24% above that full retirement age amount.

That range from 62 to 70 represents a monthly income gap that compounds over decades.

The 2026 change to the full retirement age is worth understanding as well, because a lot of people are confused by this In 2026, like I said, if you were born in 1960 or later, everyone's full retirement age is 67.

It was a little bit strange for a while because we had people that were 66 and a half, 66 and nine months.

There was this process of building then what people were already in the system.

That phase in actually started back in 1983.

But now there's no more transition rules or partial ages for anyone in that group.

And the cost of retiring before 65 is more than just the Social Security reduction.

As I said, think about that Medicare cost.

Two or three years of private health insurance can run you thousands of dollars a year.

Thousands of dollars, sometimes more, depending upon your health situation.

And that's money coming out of the savings before retirement actually even starts.

Now, there were some great quotes in this report.

This is right from the Social Security Administration.

It says if you retire at full retirement age in 2026, as we talked about, your full benefits will be about 4,152.

If you retire at age 62, your benefits will be 29.69.

So you see the big difference there.

That's not a small amount of money.

It also mentions in there the full retirement age is 67 for anybody that reaches that age.

Now, here's my take on this holding.

This is why you tuned in, right?

You want to hear what is Ralph's take on this?

The number 63 got popular the same way a lot of bad financial habits do.

I hear these things all the time.

Someone said it.

It was on TikTok, it was on Reels, it was on YouTube.

And somebody heard it and they just repeated it and they repeated it and it started to sound like wisdom at that point.

But wisdom and repetition aren't the same thing.

Your retirement age is one of the biggest financial decisions that you'll ever make.

It's huge.

It's going to shape your monthly income from the rest of your life.

It's worth running down actual numbers before you commit to a date you picked Years ago.

I understand you want to return to retire at 63.

I get that.

That's fine.

But knowing what you can afford, that's the part that matters.

So that's really a tough situation.

And thank you so much for sending in that question.

I hear 63 a lot of times, and it really depends on your situation.

This is a great time to talk to somebody like myself, meet with a professional, and let's look at your budget, let's look at your financial situation, let's look at your savings.

There's a whole bunch of other little nuance things that go into that.

But don't just assume because you heard it somewhere.

63 Is the way to go because it's not always the case.

Well, let's move on to our second question.

I'm just going to check and see if we've got any questions in the chat.

I do not see any.

So let's move on to our second question.

This is what we call the frozen bank account question.

This was another email we got from a listener said, ralph, I have to share what happened to our family recently because I don't want it to happen to anyone else.

My sister's husband passed away last month.

Let me just stop there for a second.

I want to just share my condolences with your family.

Never easy when that type of situation happens.

But let me continue.

So my sister's husband passed away last month.

It was sudden.

There was no warning, no time to prepare.

When she went to the bank to access their joint account.

Now, she said, joint account.

She wanted a joint account.

Her and her husband's name was on it.

She was trying to pay funeral costs.

The bank had frozen it.

She had no idea that this was even possible.

Watching her go through that in the middle of grief, scrambling for money she thought she already had was hers.

It shook me.

My husband and I have a joint account, but I honestly had no idea what type it is or whether we have the same problem.

What do we need to know and what should we do now to protect ourselves before something like this happens to us?

Ralph, I would love to hear your thoughts on this.

Thanks for all you do.

What a terrible situation.

I could put myself in the same situation.

Your husband or your wife passes away, you've got a joint bank account that you've used every day throughout your marriage.

And all of a sudden you go to the bank and they're like, oh, no, you can't have access to this money.

What a terrible situation.

You've watched a family member and now you're writing in for as a sister, you watched a family member face a financial crisis in the middle of a loss and she wasn't prepared for it.

And now you're thinking yourself, I don't even know how my accounts are set up.

Ralph, could I have the same problem?

That vulnerability of not finding out until a crisis has already started has resulted in your sister having a bad situation.

But I want to get to an answer today because this is a question a lot of people don't think about.

I don't actually get this one too often, but this one was great when I got this one.

I've had it happen a few times.

I used to run a credit union.

I was an executive vice president of a credit union and I dealt with this there.

But this is one of the things nobody talks about until it happens to someone you know.

And usually when it happens, it's the worst possible timing.

Like I said, you're already dealing with loss.

You're standing there at the bank window, you're in grief and somebody's telling you you can't access money that you thought was yours.

But here's what's actually happening when this occurs.

I'm going to get into some details.

Now, I am not an attorney.

I'm not giving legal advice when I give you some advice based on the banking system.

Most joint accounts won't freeze when one owner dies.

The good news of today's show this particular question.

This doesn't happen most of the time.

Most of the time, the surviving spouse usually retains access.

But I'm going to key on that phrase I just used usually.

Here's what determines that.

Whether your account has something called and we're going to get real fancy here.

We're going to talk about a very intentional.

It's called joint tenancy with right of survivorship.

Now you might have heard, may have seen this written JTROS but again, that's joint tenancy with the right of survivorship.

If that's the way the account is structured, then the money transferred to you automatically when the other person passes.

It's like that's what happens.

If you think about it, joint tenancy means you joined, you own it together with right of survivorship.

So you are the survivor.

So that becomes your money, no questions asked.

It's simple, it's yours.

The bank may take your, your partner off the off the statement or make off the account, but it's your money, no questions asked.

But if it's not set up like that, the bank may freeze the account until probate sorts things out.

Now, probate is what happens when someone passes away.

But here's the problem with probate.

It takes time.

There's also something else that gets people tripped up here.

And I've seen this personally, and that's a power of attorney.

A lot of people have heard of the term power of attorney.

Somebody gives you a power of attorney to act on their behalf.

This happens a lot with married couples.

A lot of married couples set up one of these and assume it protects them in a situation just like this, but it doesn't.

A lot of people don't know this.

A power of attorney only applies while the person who granted it is still alive.

A power of attorney is great.

It's a great thing to have.

I have one.

My wife and I have them with each other.

Our attorney set those up.

They are great things to have.

But the moment that you pass away, your power of attorney ceases to be of any consequence.

I remember working at the credit union.

One day somebody came in, they had just lost their wife, they wanted to do something on their account, and they said, well, Ralph, I've got this power of attorney.

And I had to tell them, listen, that power of attorney doesn't mean anything because as soon as your wife passed away, that authority ended.

And what happens in that case is the executor of the estate, the executor of the will takes over, not the power of attorney.

Now, using a power of attorney to access accounts after a death can actually create more legal problems.

So I want to answer your question directly now.

Here's what you need to do right now.

If you're listening to my voice, you're watching this on YouTube or rumble or on Facebook or LinkedIn.

And by the way, we are in all those places.

Here's what you want to do.

Call your bank or your credit union, your financial institution, and ask them three very simple questions.

And we'll put these in the show notes, but three questions.

Number one question, does your joint account have right of survivorship?

Is it that jtwros joint tenancy with right of survivorship?

Just ask them the question.

Go ask them to say, hey, my bank account that I have with my spouse, does it have that right of survivorship?

Second question, when I asked them, do you have a payable on death beneficiary on any individual accounts?

What I'm talking about here is if you've got an ira, if you've got a money market account that's only in a particular person's name, and if it's an ira, it can only be in a person's name.

Make sure you've got what's called a payable on death beneficiary.

Because if you don't, that's a problem.

If you do have it, the benefit to that is that designation.

If you've got that on your account, it transfers directly without probate, which is a fantastic position to be in.

That's the second question.

Do you have a payable on death beneficiary?

Here's the third question.

Is there anything else you need to set up to make sure your spouse would have immediate access if something happened to you?

This is a question you ask the bank, ask the credit union, ask your financial institution, because that one phone call can make an enormous difference in your family.

The danger here isn't someone passing away.

It's being unprepared for what comes after that.

And I feel so bad for your situation because your sister didn't know, but now you do know, and that's the difference.

So if you're checking this out, I want to ask you to put in the chat.

Do you know what type of joint account you have and whether it has right of survivorship?

A lot of people don't know this question.

You got to know the answer to that, and it's great.

We found an article.

This was in Investopedia, and it says widow and shutout of your joint account.

And we'll put a link to that in the show notes.

But this email connects directly to what Investopedia recently covered.

And the headline says exactly what the experience felt like a nightmare.

Now, it's not because the rules are unfair, but because most people didn't know the rules existed.

Well, they were standing inside of the problem.

And I'm going to reiterate a few things here.

This is what the research is speaking to.

Joint account holders who assume they'd have automatic access were wrong.

They just didn't know that.

And see, the bank subscribes to services that they find out about someone passing away and they lock down the account.

They do that to protect you.

It happens all the time.

But just think about this.

The bank could freeze your account in the middle of grief and you've got bills due immediately.

You may need to pay things right away.

And so many people don't have this survivor designation.

There's no payable on death beneficiary.

There's no backup plan because nobody thought to ask those questions.

So here's what the findings actually show us.

Whether a joint bank account freezes after death comes down to how it was set up.

Like we talked about, when you're setting up an account, if you've already got the account set up, find out what I talked about those three questions.

But joint tenants with the right of survivorship account pass directly to the surviving owner and they skip the probate entirely.

You don't have to wait for that probate process.

It's your money.

I tell clients this all the time.

If you have a joint account and it's joint tenancy with right of survivorship, that money is your money.

The other side of this we're talking about is what's called a tenant in common.

That is a different type of thing.

That's where each owner share becomes part of their estate.

So the bank can freeze it while the court sorts out who gets what.

And the problem is most people don't know what they have.

They don't know what type they have.

They just know they open a joint account.

And the truth is, most banks and financial institutions, credit unions, never tell you what that is.

You just assume, hey, I've got this joint account with.

And it doesn't just happen with spouses.

This happens with mothers and fathers sometimes.

I see this all the time in my practice.

Somebody will come in and say, well, my mom put me on her account to make things easy, make sure it's set up the way that you want it set up.

Because sometimes it works and sometimes it doesn't.

And you don't want to find this out when somebody passes away.

You don't want to find this out in the middle of the crisis.

Because when an account does freeze, think about the domino effect of this.

Any automatic payments you have stopped, Any direct deposits that are coming in, stop.

So maybe you've got Social Security coming in, maybe your husband or your wife, Social Security is going to get that final deposit.

All those things stop.

But guess what doesn't stop.

The bills don't stop.

Your need to put food on the table doesn't stop.

And that's the part that turns a grieving family situation into a financial emergency.

And the best part of this is the fix is simple and it's available right now.

As I said, call your bank, ask about that right of survivorship, add that payable and death beneficiary to your individual accounts and consider.

Here's another thing I'm going to tell you.

Here's a great Ralph takeaway for today.

Write this one down, we'll put it in the notes.

But consider keeping a small separate account in your own name with just a Few months of expenses, just in case.

One of the things I tell my clients all the time, it's great to have a joint account.

I think it's a great idea also to set aside maybe a savings account or a high yield savings account in another person's name, in your own name.

That way, if you need to, if something wacky happens with the bank, you can go to that.

Now, if you do that, just make sure that you've got a beneficiary named on that account so you don't cause a problem for your children or whoever else would be inheriting that.

Now, there were some great quotes in this one.

This one comes from savingadvice.com it says, Joint tenants with the right of survivorship usually pass directly to the survivor owner, avoiding probate like we talked about.

But tenants in common accounts still freeze as each owner's share becomes part of their estate.

What we're really saying here is in those cases, you are a joint tenant, there's no right of survivorship.

So the courts are going to have to figure out who gets what.

And we also mentioned here, this is from B and Gillins.

This is a law firm.

It says a power of attorney only has authority while the person who granted it is alive.

A lot of people don't know this.

This is a real thing.

But once the individual passes away, the power of attorney's legal authority sees it is not worth the paper it's written on.

My friends, that's just the way it is.

So that power of attorney is great while you're alive, but the second you pass away, guess what?

That power of attorney does nothing for you.

Well, here's my take on the whole thing.

And what gets me about this is how avoidable this is.

These aren't hidden rules.

The paperwork here isn't complicated.

You just have to know it needs to be done.

Nobody needs to be standing at a bank window in grief trying to access money they thought was already theirs because of some detail that nobody ever mentioned to you.

And one phone call changes all of that.

Again, this is a tough one.

I totally get it.

Not an easy situation.

Now, I'm just going to check and see if we've got anybody in.

Thank you.

I see Rose said hello and someone said, I hope to retire at 60.

Abby, great point.

Thanks for giving us advice.

Thank you.

I appreciate all of that.

Well, let's move on to our third question.

We call this one the HSA tax bomb.

Bombs are not good.

And taxes aren't good either.

But let's talk about this one.

So hsa, as I said earlier, is what's called a health savings account.

These are great vehicles.

We're going to talk a little bit about how great they are.

I have one.

I recommend all my clients have them.

But let's get right to this listener email.

Listener writes this Ralph I've been pretty proud of my hsa, honestly.

I've been maxing it out for years and I'm investing the balance instead of spending it.

I've been letting it grow like a backup retirement account.

I heard you use it that way and it felt like a smart move.

That's what he said.

I had someone mention to me recently that if I die and leave it to my kids, there could be a huge tax problem.

He continues on My wife passed away two years ago, so my adult children would be the only ones inheriting it.

Is it true?

And what am I missing here?

I want to make sure what I've built actually helps them and doesn't come with a surprise bill attached.

I'd love to hear your thoughts on this.

Thanks for all you do.

You're welcome for all I do.

And thank you for sending in this question.

It's a question I don't get often, but it is a big deal because you've built something you genuinely proud of and what you've done is fantastic.

This will pay dividends for the rest of your life.

But now you're worried about what happens for the people that inherit this money.

You're worried about, is it going to hurt the people you're trying to help?

And yes, you followed the right advice to treat this HSA like a retirement account your entire life.

Fantastic thing to do.

But you never heard of the other side of this.

And here's the problem.

As a widower, your kids are the beneficiaries, which puts them directly in the line of fire.

Like you said, your wife has passed away, so the only person that's going to inherit this is you.

And you're right to be concerned.

And I want to say this first, the strategies that you're using, maxing out the hsa, investing the balance, letting it grow, that is a legitimate wealth building move.

That is a fantastic thing to do.

I give you a high five on that one.

That's fantastic.

The HSA is one of the best tax advantaged accounts out there.

It has what we call a triple benefit.

Let me take a minute and talk about that.

It's got a triple benefit like this.

Contributions that you make are tax free.

They come off of your taxable income.

The money that's in there grows tax free.

That's a fantastic thing.

You're not paying taxes on any of the earnings.

And here's the best part of it all, the triple threat of this.

Withdrawals from medical expenses are tax free.

There is no other account that you have that does all three of those things.

Again, contributions are tax free, the growth is tax free, and the withdrawals are tax free as well.

That's the only account that does that.

But here's the downside to this.

There's a side of this that almost nobody mentions.

And that's exactly what you've heard about.

That's exactly what you're describing.

Here's what happens if your spouse inherits an hsa.

They can take it over as their own.

They basically can move it from spouse A to spouse B.

There's no taxes, there's no penalties, and it just becomes their HSA money.

That's a great scenario.

But if a non spouse, somebody that is not your spouse, inherits it, whether that be a child, a grandchild, a brother, sister, the account stops being an HSA the moment that it's transferred.

It just ceases that pay.

If it's not your spouse, it's no longer an HSA and that entire balance becomes taxable income for that person and in the year they receive it.

So unlike, which I'm gonna talk about here in a second, unlike an inherited ira.

Let me go down this rabbit hole a little bit.

When you inherit an IRA, you generally have 10 years to take the money out.

So let's just say simple example, you had hired an IRA with $100,000 in it.

That $100,000, I mean, you can take it all in one year.

Not the best smart, tax wise thing to do, but you could.

And, and that will be all income, all in one year.

But in an inherited IRA, you can spread that over 10 years, which is a beautiful thing because now you're not going to put all that income in a particular year.

It's not all taxed at once.

But with this hsa, you don't have that option.

So if you inherit an hsa, so I'm going to play the role of your son.

You pass away.

This is the listener sentence.

You pass away.

Sorry to hear you passed away, dad.

And now you find out you've got this money in the hsa.

Your son's only option is to take all of that as income in the year that he receives this.

And think about this, in 2026, I don't know what your beneficiary's income looks like.

But the tops federal income tax rate is 37%.

That's not a small number.

So think about this.

Let's say it's a $50,000 HSA HSA inherited by an adult child.

You know what the tax bill would be on that?

$18,500.

So of that 50,000, $18,500 is going to Uncle Sam.

It's due that year.

That's not a small surprise.

For many families, that's a crisis.

Now there is one partial workaround.

Non spouse heirs can use their inherited HSA to pay any outstanding medical bills of the deceased within 12 months of the account holder's death.

So at least you have that option.

So if you pass away and there's medical bills, then that non spouse heir can use that money to pay the outstanding medical bills without that being taxable income to you.

Those withdrawals come out tax free, but only what's left after those expenses get taxed.

But let's talk about the bigger fix to this.

And it's a simpler fix.

If you right now have an HSA balance that's large and your kids are your beneficiaries, you here's what I'm going to tell you to do.

Start using the account for what it was built for.

You've done all that saving.

Start using it for those medical expenses you pay for anyway.

Those doctor visits, the prescriptions, the dental, the vision, the hearing.

See a lot of people put these monies away and they're like they're so scared to spend it.

But every dollar you spend from the HSA on those things comes out completely tax free.

The benefit is retained and your kids don't inherit that bill.

And also check your beneficiary designation again because here's a lot of things, a lot of people don't think about that sometimes your spouse is still listed.

You need to change that because if it's not, it's going to end up going to probate and then your kids are going to have to go through all kinds of rig them and roll to get to that money.

So update that now.

So two things.

Number one thing, update your beneficiary.

Number two thing, intentionally spend that money down so you don't have this inheritance issue.

Now I'm not saying leaving an inheritance is a bad thing, it's a good thing.

But try not to make sure it comes with a 37% tax bill attached.

That's just good stewardship that we're talking about here.

Now we found an article about this one, too.

This one's kind of harsh.

This was from cnbc.

It says dying with an HSA can leave a tax bomb for errors.

That's why we use the word tax bomb.

And we'll put a link to that in the show notes.

But again, this email that you sent connects directly to what CNBC published earlier this month.

And tax bomb is not an exaggeration.

It says in this article financial planners are calling this a huge problem that almost nobody talks about until it lands again.

Here we are in the middle of a grieving family.

It's like the grieving family Friday.

Here's what the research is Speaking to people using HSAs as stealth retirement accounts, which is smart, a very smart thing to do.

No financial planner is telling you not to do this, but you've got to understand what happens to that balance when you're gone.

As we've mentioned, non spouse heirs get hit with a tax bill in a single year, sometimes pushing them into the highest bracket possible.

And think about this.

The more you save the net hsa, the more you were able to put away, the bigger the tax burden is.

And nobody mentions this part that money grew quietly.

But those consequences arrive like a bop, bop, bop at the door.

Here you go.

I'm Uncle Sam.

I'm here for my money.

Now, these findings do show the triple advantage of the hsa.

Like we've talked about.

Tax free contributions, tax free growth, tax free medical withdrawals.

That's real and it's one of the best deals in the tax code.

But I said it before, it ends at the death for anyone who isn't a spouse.

And think about this.

The tax treatment for this is actually harsher than what applies to inherited IRAs, because like we said, those inherited IRAs, even for a non spouse, you typically get 10 years to empty out the accounts.

You don't have to dump all that income in one year and cause this huge tax bill.

But with an inherited hsa, the entire balance is taxable income in the year they receive it.

All of it.

Like we talked about, let's just say you had $100,000 in HSA inherited by an adult child, which is not an unusual number for somebody who's been maxing it out for 20 years.

That could easily push your child into the 32, 35, or even 37% tax bracket.

Here's one financial planner gave a specific example.

$100,000 Inherited HSA resulted and ready for this one.

$33,700 In federal income tax in a single year for that heir I haven't talked about state taxes.

A lot of states will tax this as well.

Add another 8%, another 7.

Depends on your state.

You could be looking at up to 45% in a single year of the money you squirt away, put away so hard, and it's just gone.

So there are really two things you got to do here.

First, like I said earlier, start spending the HSA on qualifying medical expenses during your lifetime.

Do that intentionally.

I know a lot of people say, well, I'm pulling it off because maybe I have to go into a rest home.

I get that.

But be intentional about that and use it for those healthcare costs you pay for every day.

Now, here's one thing a lot of people don't mention.

I would not use it until you reach age 65.

And I'll tell you why I say that.

Once you reach age 65 and you're on Medicare, you can no longer contribute to the HSA.

So putting that money in before age 65, be aggressive in putting it in and less aggressive in using it because once you hit 65, you can't put anything else into it.

And then once you hit 65, though, really look at the hard cost of your medical expenses and use it.

So use it for those health care costs.

And second thing, don't forget about this.

Check and see who's listed as the beneficiary on that account and update it if anything has changed.

A lot of people don't think about this.

You go through grief, you go through losing a spouse.

You've got to get those accounts out and make sure you've got beneficiaries listed on all those things.

It is absolutely imperative.

Now, here's some quotes from the article.

Ryan Greaser is a CFP that's a certified financial professional.

He co owns and he's a founder of Opulous.

He says it can be a huge problem for people and rarely talked about.

I agree.

This is one of those things where I don't hear about this talked about much.

And Carol McClanahan, she's also CFP, she's a founder of Life Planning Partners.

She says if you know you have that big nhsa, start spending it.

I agree, Carolyn, good point.

And then one of the things it says here is shimmerlink Financial Group owned, hypothetical.

This is the one that we talked about.

That 100,000 person ended up paying $33,700 in federal income tax on that distribution.

Well, here's my take on all this.

The HSA is generally one of the best tools in personal Finance.

I'm not telling you not to use it.

It's a great thing to do.

It's a great way to put away money for the future and to plan for your medical expenses.

Because the one thing is certain, I see this in my practice almost every single day.

As you get older, your medical expenses are going to increase.

My retired clients, that's where a lot of their money goes.

So it's a great tool.

But the thing about good tools and great tools is they have to be used correctly now, letting it grow indefinitely because it feels like the smart move.

That's the right instinct for the account holder because you want to make sure that money's there.

But it becomes the wrong outcome for the family if nobody ever sat down and thought through the inheritance side.

So this is where you can put together a good plan that covers both of that.

Because an inheritance that comes with a 37% tax bill is still an inheritance.

But maybe you can do a little better with a little planning.

I know.

Again, tough calls today, tough situations today.

Three questions today, three very different situations.

But if you think about it, it's the same thing underneath of all of them.

And I just want to go through that a little bit right now.

For the couple with 63 on the calendar, go look at your Social Security statement this week.

Run the numbers at age 62, at 65, 67, run those side by side.

Even look at 70.

Look at your health situation, all those type of things.

Because when you do that, you might change your date.

But make that decision with real numbers, not some popular guess.

Now let's talk about the listener watching where her sister's account was a frozen account.

I'm going to encourage everybody.

Call your bank today.

Call them this week.

Find out how your account is set up.

Ask if your joint account has the right of survivorship.

That's a big deal.

And make sure you're updating those payable and death designations.

That one phone call, it's really.

That's all.

That's all you got to do.

Your family will thank you later.

And finally, for the man who built something real with his HSA and wants you to actually keep for his kids friends, start spending it on medical costs.

You're going to pay anyway.

If you're going to pay the medical cost now anyway, hear me on this.

Use the HSA to do that.

That's the only way you get the true tax benefit for yourself.

Don't leave this big tax bill for your family.

So today, just take one step.

That's it.

You're not failing in what you're doing.

That's the great part about all of these things.

You're showing up, you're asking the right questions and you're making choices.

And this show is all about making choices and keeping that momentum and keeping movement going.

Now, before I let you go, I want to tell you about my daily show.

The Financially Confident Christian drops every single morning.

It's a short episode.

We have real topics, just like we talked about today.

We don't go in as much detail.

There's no fluff and you can find that at our website.

We'd love for you to join us on that one.

It's financiallyconfidentchristian.com and again, like I mentioned earlier, if you want that faithful money framework, it's free.

Listen, I'm not going to charge you a thing for it.

Eight steps, one page practical and you can get that@financiallyconfidentchristian.com join really simple.

And that's what I encourage you to do this week.

So don't forget to join me next Friday, same time, 1pm Eastern.

Your financial situation doesn't define who you are, but your willingness to change it does.

So make sure you tell everyone about the show and bring your questions to participate next week.

I love questions.

Send them to me.

Join us in the live chat.

Either way, I'll see you again next week.

You take care.