Out-of-Pocket Medicare Costs Bite Deep

The bite taken out of Social Security checks to pay Medicare premiums and co-payments for doctor visits has more than doubled, from just 7 percent of benefits in 1980 to 15.5 percent currently.

People born on the tail end of the baby boom wave are suddenly waking up to retirement, which is barreling towards them. While many have no idea how Medicare works or how much they will pay for health care, the program’s future has emerged as a key issue in a presidential campaign with competing notions of how best to slow Medicare’s growth to a more sustainable level.

Whatever your political stripe, the costs of retirement health care are rising “significantly,” according to a forthcoming report by the Center for Retirement Research, which sponsors this blog.

Medicare covers a large portion of health costs, but retirees must pay Medicare premiums, which are deducted from their monthly Social Security checks, as well as copayments for doctor visits and other medical services such as some tests. These additional expenses are often, though not always, covered by employer-sponsored or private “Medigap” insurance policies, which smooth out these expenses for retirees…Learn More

Social Security Advice That Harms Wives

Most financial advisers give troubling advice to married couples about when to claim their Social Security benefits, advice that can substantially reduce the wife’s income during retirement.

Social Security rules generally make it more beneficial for the higher-earning spouse – usually the husband – to delay signing up for his benefits well past age 62. By delaying, he boosts the size of his monthly Social Security check, automatically increasing his wife’s “survivor benefit” after he dies. This holds true for most couples, whether the wife works or not.

A new survey of U.S. financial advisers provided them with hypothetical couples’ situations and asked how they would advise them on when to start receiving Social Security. For the couple in excellent or average health, only 20 percent recommended “that the man delay claiming as long as possible.” This advice leaves most widows with a substantially smaller monthly benefit for years or even decades.

The survey’s finding demonstrates “the lack of understanding of both the benefits of delaying and the compounding factor it can have on the spouse,” said Lisa Schneider, research director for Greenwald & Associates, a private research firm that conducted the study with researchers at the University of Pennsylvania. …Learn More

Fourth of July Quiz

Just over two-thirds of Americans were able to answer the questions below correctly. Given their “simplicity,” Annamaria Lusardi and Olivia Mitchell called the results “discouragingly low” in their 2011 research published by the National Bureau of Economic research.

Women did worse than men: 59 percent of women got it right, compared with 71 percent of men.

Take the test to see how you do.

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
e. Refuse to answer

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account?
a. More than today
b. Exactly the same
c. Less than today
d. Do not know
e. Refuse to answer

To see the answers, click “Learn more” below. And happy Fourth of July!Learn More

Employers Try New 401(k) Strategy

Employees apathetic about their 401(k)s are not saving enough. Some employers are bringing in reinforcements to push, cajole, or entice them.

Employers and employees share the blame for the low rate of retirement savings nationwide, consultants say, but the common practice of employers handing their new workers a 401(k) sign-up form and investment materials from the mutual fund manager clearly isn’t working. A few employers are trying a different tack.

One such initiative, by the Foundation for Financial Wellness in Colorado, trains and certifies CPAs, estate planning attorneys and financial advisers to educate its clients’ employees. NASA was the foundation’s first client, and they now include hospitals, city governments, oil companies, unions and churches, said Brent Hines, founder.

The foundation’s educators “are unbiased and don’t have a dog in the fight,” Hines said. “We’re not the 401(k) provider, and we don’t have the bias of wanting to put more money into your 401(k) or invest in a product.”

Separately, a program to educate credit union employees is expanding from four pilot states to an additional six and Washington, DC. And the American Nurses Association recently teamed up with a non-profit to train 10 nurses in five initial states to run workshops; to date, more than 700 nurses have gone through the financial workshops.Learn More

National park entrance

Couple Reach Across Financial Divide

Meet Shannan Schmitt, 40: She cannot resist $200 Via Spiga pumps, hickory hardwood floors, or the fancy soaps and gourmet goodies at the farmers market where she likes shopping with her toddler son.

Meet her husband, Randy Nauman, 36. His penny-pinching ways are dictated by the numbers and his bachelor’s degree in finance. Her Internet shopping drives him to distraction.

“Opposites attract,” said their financial coach, Kelley Long.

Married five years, the Cincinnati couple’s willingness to discuss their finances publicly, for this article, is rare. But their marital discord over money is not: A recent survey found that the typical American couple argues about money three times a week, and past academic research has found that the more couples argue about money the greater is their risk of divorce.

Nauman said money “is the biggest issue,” and he worries it may be severe enough to jeopardize their marriage. “It leads into other stressful situations and arguments that don’t need to happen,” he said.

But Long, who owns KCL Financial Coaching in Chicago (formerly Cincinnati), said Schmitt and Nauman are like other couples who marry at a later age. “It’s harder to combine your finances if you’ve already had a chance to establish your financial habits” before getting married, she said.Learn More

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Financial Perils of the Single Woman

Being a single woman is serious stuff – financially that is.

One website recently published a humorous list of the advantages of being a single woman today.  “You don’t have to be worried about not getting a special gift from Him on your special day because there is no Him.”  Or: “There is no argument about where or when to go on vacation.”  Toilet seats were also mentioned.

This may not amuse 30-something women with serious concerns about whether they’ll marry and have children.  But face it: single women of all ages have more difficult money issues than their married friends.  When two incomes are coming into the household, a couple shares the rent or mortgage.  Fixed expenses can add up over a single woman’s life or during long bouts after, say, divorce.

“Single women are far more at risk,” said Wendy Weiss, a former financial adviser who writes a blog on her website, Hot Flash Financial.  “If we make 77 cents on every dollar [men earn], men have 23 percent more discretionary income, and that’s usually the amount we advisers recommend you put away,” she said.  Women also live longer and need more money to get through retirement, she said.

Prior to retirement, the rule of thumb is that single people need well more than half, possibly as much as 70 percent, of a childless couple’s combined income to afford the same lifestyle.  It is higher for the poor (whose fixed expenses consume more of their total income) and for single mothers (for obvious reasons). …Learn More

Pennsylvania Strong in Fin Ed – For Now

Talking to teenagers taking personal finance at Panther Valley High School in Pennsylvania made me wonder why these classes aren’t a top priority everywhere.

These kids are even teaching their parents a thing or two about money. Jordan Kulp saved her mother $30 by finding a scooter for a cousin’s baby that her mother had wanted to buy on a shopping channel. Now that Jake Gulla’s mother sits in on his personal finance class, she is “spending [money] a little more wisely.”

And William Digiglio’s father wanted to sell a shield for $100 that Chris Evans apparently carried in the “Captain America” movie. William put it up for sale on eBay and snared $20,000 for the shield, which his father had won in a contest. For class projects, “we had to research rather than taking them for face value,” he explained.

statesThese Panther Valley students have helped make Pennsylvania, for a third year running, the state with the highest number of students scoring in the top 20 percent on the federal government’s 2012 test for the National Financial Capability Challenge (NFCC), according to Mary Rosenkrans, financial education director for the state’s Department of Banking.

Pennsylvania also had the highest number of students who took the test (7,404) and the highest number of participating schools (123). (Oregon had the highest average test score: 79.5 percent, compared with 69 percent nationwide.)Learn More

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