Medicare Advantage Enrollment Doubles

Enrollment in the Medicare Advantage plans that private insurers offer as an alternative to traditional Medicare coverage has more than doubled over the past decade, the Kaiser Foundation reports.

The share of the Medicare population enrolled in these private plans is 30 percent, up from 13 percent in 2005, the non-profit foundation said.

The reason for this dramatic growth: Medicare Advantage became a better deal for older Americans in the wake of a 2003 increase in federal subsidies to insurance companies offering the plans.

The federal government subsidizes insurers through its reimbursements for the care they cover for older Americans enrolled in Medicare Advantage. Those payments were increased in 2003. Insurers responded by reducing beneficiaries’ copayments and cost-sharing in the plans and by providing medical services not always available to people who enroll directly in Medicare and purchase Medigap policies, said Gretchen Jacobson, an associate director of Kaiser’s Medicare policy program.

The extra services include gym memberships, eye glasses, dental care, and preventive medical care. To rein in their overall medical costs, Medicare Advantage plans restrict the hospitals and doctors that patients can use. …Learn More

Cross roads image between work and retirement

Half Say Retirement Saving Is Top Goal

Half of all American adults view their top financial goal as making sure they have enough money to retire, finds a survey conducted in early April and released last week by the National Endowment for Financial Education (NEFE).

That’s barely changed from 47 percent who said so in NEFE’s 2011 survey. These figures are unimpressive if one considers that most everyone eventually retires. Further, fewer than one in five U.S. workers has the luxury of a traditional defined benefit plan that will send them a pension check every month.

Saving for retirement hasn’t gotten any easier either: two of three adults in the NEFE survey identified an inability to save enough as a major financial obstacle. That sentiment may be one reason why only about half of private-sector U.S. workers participate in a retirement savings plan at work. …Learn More

Group of young adults jumping

Money Habits Set Millennials Apart

Millennials, now in their 20s or early 30s, are ethnically more diverse and better educated than any previous generation.  They also demonstrate different financial behaviors that may partly reflect new trends in society and in technology.

Millennials’ financial struggles are a natural consequence of being new entrants to the labor force. Two-thirds of them earn less than $50,000 annually, and they are more likely than Generation X (now mostly in their 40s) to spend more than they earn, according to the FINRA Investor Education Foundation’s newly released survey of some 25,000 adults of all ages.

But FINRA’s survey provides clues to the financial habits that may set Millennials apart from previous generations:

Chart: Millenials and Their Student Loan Debt

  • More than one in three has taken on debt for college.  The share rises to half of Millennials who are either full-time or part-time students.
  • Millennials are slightly more likely than prior generations to be offered financial education and to participate in it. Millennial men have higher financial literacy than their female peers, but this gender gap has shrunk from prior generations. This improvement still might not offset the greater need for financial capability, due to their higher student debt levels. …

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Stress illustration

Stressed Out About Money?

If so, you have a lot of company.

Fully 71 percent of adults identified money concerns as their single biggest source of stress in 2013, according to the American Psychological Association’s annual Stress in America report, derived from surveys by Harris Interactive. The good news is that this money-stress indicator has declined from 76 percent in 2010, in the wake of the Great Recession.

But the runner-up sources of stress are also closely related to money: work caused stress in 69 percent of adults surveyed, and “the economy” was identified by 59 percent.

Women are slightly more stressed than men.  Could it be because women earn less, on average? On the other hand, more men than women still have responsibility for being the primary breadwinner. …Learn More

New Book Spotlights Behavioral Finance

Investor Behavior Book CoverDid you know that an investor may be more likely to hold on to a money-loser if he bought it himself than if he inherited it? That people born with the “warrior gene” will take more risks? Or that trust is essential to whether individuals prepare for retirement?

A new edited volume, “Investor Behavior: the Psychology of Financial Planning and Investing,” is a thorough tour of the research on these and other aspects of behavioral finance.  The book was compiled for financial planners, investment professionals, academics, and finance students and edited by two finance professors, H. Kent Baker of American University’s Kogod School of Business and Victor Ricciardi of Goucher College.

The field of behavioral finance is gaining traction as financial experts increasingly recognize that psychology, sociology, neurology and other fields may have something to say about why people behave the way they do around money.

Traditional theories explaining investor behavior, such as modern portfolio and utility theory, assume that people make “rational” choices.  In contrast, the research covered in this new book tries to explain why financial decisions are not always rational, are often infused with emotion, and can be very predictable.  Or, as 1978 Nobel laureate Herbert Simon once explained, orthodox finance’s “traditional paradigm did not describe the behavior of real people,” the book says. …Learn More

lottery

Lottery-like Prizes Spur Saving

Jessica Smith, mother of four, was never much of a saver.  But a credit union that dispenses prizes has changed all that.

She now saves $150 every month out of her pay and bonus as a restaurant buffet manager.  Each $25 deposited into her account gives her one more entry in a monthly drawing for cash prizes at the Communicating Arts Credit Union in Detroit.

Jessica Smith and her winnings.

By coincidence, she won three times last fall – a total of $100 in prizes. But in contrast to throwing money away on a lottery ticket with bad odds, she earns a little interest on her credit union account.

These so-called prize-linked accounts aren’t a new concept: one of the first appeared in 1694 in the United Kingdom to help people pay off war debts.  Today in this country, nearly 18,000 individuals like Jessica participate in Save to Win programs.  Launched in 2009, they’re offered at more than 60 credit unions in four states.

Michigan handed out $100,000 in prizes last year, including six $10,000 grand prizes; Nebraska, North Carolina, and Washington each gave out between $25,000 and $50,000 in a year. …Learn More

confidence

Confidence Key to Retirement Planning

Confidence can be dangerous. It has led investors into fraudulent deals and businessmen into over-borrowing.

But new research finds one circumstance in which confidence may be beneficial: retirement planning.

Saving and investing can be so overwhelming that workers, judging by the low balances in most 401(k)s, often avoid it. So Andrew Parker, a behavioral scientist in Pittsburgh for the non-profit RAND Corporation, wanted to get at the psychological factors motivating those who do dive in and plan for their future.

Parker and fellow researchers concluded that individuals’ tendency to engage in retirement planning and their self-confidence – how much they think they know – are “significantly and positively correlated with each other.” This was true even after their study accounted for how much people really did know.

“If I feel confident in my knowledge and abilities, I may be more likely to move forward” with retirement planning, Parker explained in an interview. “If I don’t, I may be more hesitant to engage in that process.” …Learn More

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