November 24, 2021
Celebrate a Closer-to-Normal Thanksgiving
Last Thanksgiving, my husband and I made two Cornish game hens and zoomed dinner with his two sons and extended family.
What a different world we are living in this year.
Vaccinated people will be able to gather for Thanksgiving or go Christmas shopping without fearing for their lives. But I also wonder whether we will be a little too eager to throw caution to the wind. It would be wise to keep following the Centers for Disease Control’s guidance for the holidays – masks in public, outdoor activities, air circulation indoors, and testing before gathering with family from multiple households.
Caution is still in order. But so is celebrating a return to something closer to normal.
November 23, 2021
Need Help Choosing Your Medicare Options?
This blog is for the procrastinators. The last day of Medicare open enrollment for people who want to switch their Medicare Advantage or Part D insurance plans is Dec. 7.
The hoopla around this open enrollment period can be confusing, because Medigap supplemental plans are on a different schedule. The optimal time to buy a Medigap plan is during a six-month window after your 65th birthday, which is the only time insurers are required under federal law to sell you a Medigap policy. Switching to a different Medigap plan during the current open enrollment is trickier, because you can be denied coverage, though several states have made it easier to enroll or switch from Medigap or Advantage to a new Medigap plan.
Retirees with Advantage or Part D plans can freely change plans during open enrollment but are usually reluctant to shop around. But insurance experts warn that the terms of existing policies can change, and this is the time to see if there’s a better deal out there. The Kaiser Family Foundation said retirees have a record number of Advantage plans to choose from for 2022 – double the number available five years ago. But this can be a double-edged sword if choices sew confusion.
If you haven’t plunged into researching your Advantage or Part D options, the resources listed below can help.
Free counselors. Every state has a counseling program to explain the Medicare options. The counselors are free, and this website lists every state with a link to that state’s contact information. Although volunteer counselors may not be as knowledgeable as insurance brokers who sell the policies, many volunteers are former health care professionals or are themselves enrolled in Medicare and know the system. …Learn More
November 18, 2021
The Economy, Minimum Wage, and Disability
The federal minimum wage is $7.25 an hour and hasn’t budged since 2009. But many states and some municipalities have raised their minimum wages. Today, more than half of the state minimums exceed the federal minimum.
Now a new trend has emerged: 19 states have enacted or approved automatic yearly increases in their minimum wages to protect their residents from inflation. These adjustments just went into effect this year in Arizona, Colorado, Maine, and Washington D.C.
How might higher minimum wages affect applications for disability insurance? On the one hand, the higher pay could prevent some people with mild disabilities from resorting to the fallback option: applying for disability benefits. But if small employers lay people off to cut costs or feel they can’t afford to hire workers at the new higher minimum wage, applications could go up. Facing fewer job opportunities, more low-wage workers might apply for benefits from a program that currently covers some 16 million Americans.
A new study finds that a rising minimum wage does, indeed, increase disability applications to the U.S. Social Security Administration. But the researchers stress that this impact is minimal compared with the increase driven by an economic downturn that throws more people out of work.
In their analysis of nearly 3,000 counties from 2000 through 2015, a one-dollar increase in the minimum wage added some 80,000 more applications to the disability program and its companion, the Supplemental Security Income program for the poor, elderly, and adults with disabilities. That represents a 2 percent increase.
Contrast that to the impact of a rising unemployment rate, which was about three times larger. …Learn More
November 16, 2021
Lifting SALT Deduction Would Help the Rich
Manhattan residents who itemize their federal tax returns pay an average $102,000 in state and local taxes – more than anywhere else. The second highest tax tabs, nearly $50,000, are in Marin County, the home of musicians and movie stars across the Golden Gate Bridge from San Francisco.
Other enclaves with large bills for property, sales, and income taxes include Falls Church, Virginia, a high-income community outside Washington, D.C., and Teton County, Wyoming, where the super-wealthy buy property on the open range surrounding Yellowstone and Grand Teton National Park.
In 2017, Congress put a $10,000 cap on the amount of state and local taxes – or SALT – that all homeowners could deduct on their federal income tax filings. The proposed reconciliation bill being hashed out in Congress might increase or remove that cap.
The Brookings Institution argued that lifting the cap would “massively favor the rich” at a time U.S. inequality is already at historic levels. There is no shortage of evidence to back that up.
High-income Americans on both coasts and in major cities like Chicago and Dallas would save thousands of dollars from lifting the cap on SALT deductions. In Santa Clara County, home to Silicon Valley, for example, the average high-income taxpayer who itemized reported that they paid nearly $47,000 in state and local taxes in 2018, according to the bipartisan Tax Foundation’s analysis of IRS data.
But due to the current cap, the IRS permitted county residents to deduct only about $9,000 for their SALT taxes. (The number is slightly below the $10,000 cap because some itemizers take smaller deductions if, for example, they are renters and don’t pay property taxes.)
One proposal gaining currency in the House would increase the cap on deductions from $10,000 to $80,000, as an alternative to eliminating it entirely. Garrett Watson, author of the Tax Foundation report, said that either raising the cap or another idea – limiting the cap to the nation’s top earners – would still mainly benefit the top 5 percent.
But, he added, preserving some type of cap, even if it’s more generous, “will be less regressive than eliminating it altogether, because the folks at the very top – the multimillionaires and billionaires – would still face that curtailed SALT deduction.”
The Tax Policy Center, an affiliate of the Urban Institute and Brookings, estimates that repealing the cap on SALT deductions would increase after-tax income for households earning more than $100,000 by between 1 percent and 2 percent. Families with lower earnings would be unaffected. …Learn More
November 11, 2021
Parent PLUS Debt Relief: the Good and Bad
Some 3.6 million parents are paying off more than $100 billion in debt used to fund their children’s college education. For many parents, the federal Parent Loan for Undergraduate Students (PLUS) was the only way they could afford college, but many are now struggling to make the monthly payments.
In a Harris poll in July, nearly one in three said they regret the decision to borrow. If these parents need relief, they have two basic options: enter into the government’s repayment plan for PLUS loans or refinance their federal student loans through a private lender such as a bank. Both options have significant downsides.
Anna Helhoski, a student loan expert with the financial website, NerdWallet, explained the good and bad in the federal government’s income-contingent repayment program for parents overburdened by college debt.
Before we get into the details of this option, how big a problem is this?
We do know that parent PLUS borrowers are one of the fastest growing groups of people with student loans. With any student loan, you borrow to afford the degree so you can earn the money to repay the loan. But the conflict with parent PLUS loans is that you get the debt, but you don’t reap the higher earnings that come with a new degree. PLUS loans were originally meant to provide liquid funds for families with higher assets. But when it was opened up to more borrowers in 1992, it became a lot easier to take on more debt, and college costs were going up, so it became more of a necessity to access it.
Parents can easily rack up six-figure debt. The only requirement is that they don’t have adverse credit histories. PLUS loans are really easy to get and difficult to pay back. Repayment for parents – it’s probably the No. 1 question I get from anyone around repaying student loans.
Wouldn’t this be a particular concern for parents close to retirement age?
We know that is happening. Parents are putting off retirement because they can’t simply afford to retire because they have this debt looming.
Parents can get help from the federal government in the form of an income-contingent repayment plan (ICR). Generally, how does it work?
The standard repayment plan for new student loans is 10 years. But if parents are struggling to pay that debt, they have only one option: income-contingent payments over 25 years. The payments are set at 20 percent of their adjusted gross income on their tax filings, also known as discretionary income. And they can only get that if they first consolidate and then apply for the ICR program.
It’s not means-tested, so any parent PLUS borrower can qualify for ICR, but they are required to combine all of their PLUS loans first into a federal consolidation loan. If you don’t want to consolidate, you can’t access ICR.
What are the downsides of consolidation?
Your payments may be lower when you consolidate but you’re going to be paying the loans off over a longer period of time, which means you’ll pay more in interest over time. If you consolidate but don’t go into the ICR program, your term will be between 10 and 30 years – the larger the loan balance, the longer the term. The other downside of consolidation is that any outstanding interest on your existing loan balance will be added to the principal of your consolidation loan. You’ll be paying interest on your interest. If you consolidate and then enter the ICR repayment plan — the only option if you want to pin your payments to how much you can afford based on your income — your new term length will always be 25 years.
Given the downsides of ICR plans, what is the profile of the parents who could benefit? …Learn More
November 9, 2021
Social Security Stabilizes Local Economies
Social Security’s great achievement for retirees is a guarantee that they’ll get a check every month, without fail. Less appreciated is the stability the program brings to local economies and businesses.
Retirees use their Social Security benefits to patronize establishments that sell goods and services locally such as restaurants, car repair shops, banks, and hospitals. That steady supply of spending in good times and bad helps to stabilize economies, according to research conducted by the Center for Retirement Research and funded by the U.S. Social Security Administration.
Between 2000 and 2018, working-age adults’ employment levels and earnings were less affected by the ups and downs in the state unemployment rate in counties where Social Security provides a higher percentage of residents’ total income.
During the Great Recession, for example, when unemployment rates surged across the country, earnings and employment did not decline as much in counties that were more reliant on the federal retirement benefits.
The researchers’ analysis of U.S. Census data produced similar results when they tested Social Security’s stabilizing effects on specific industries that sell locally. Businesses in several industries – retail and entertainment, healthcare, education, financial services, and other services – had more stable employment and earnings when county residents got a higher percentage of their total income from the program. Manufacturers, which tend to sell their products nationally or internationally, were excluded from the industry analysis.
Social Security’s regularity and reliability set it apart from the countercyclical federal programs that were designed to ease the pain of recessions, such as unemployment benefits or food assistance distributed through the Supplemental Nutrition Assistance Program.
Social Security, the researchers concluded, serves as a valuable “stabilizer for the local economy, above and beyond its direct value to beneficiaries.”
November 4, 2021
How to Pick (or Be) a Retiree’s Financial Ally
If you need help managing your finances in old age, it’s a lot of work to find someone – and not a very pleasant task to think about.
But it’s crucial that retirees plan for this. As to when or whether you might need help, it really depends on your individual circumstance.
Attorney and researcher Naomi Karp cites a variety of studies that provide some clues to the different ways this process can play out. People who develop dementia obviously need what she calls a financial advocate. This might be a trusted friend, family member, lawyer or professional financial adviser.
But roughly a third of aging Americans who are experiencing natural cognitive decline are prone to making poor decisions about their money, she explained during a recent webinar sponsored by the federal Consumer Financial Protection Bureau (CFPB) where she used to work.
Financial acumen actually peaks well before retirement – at 53! – but wisdom makes up for some of that, she said. During one’s 70s and 80s, financial literacy declines, but unfortunately confidence about one’s abilities remains high. “That’s a risky situation,” Karp said.
She and other financial experts have put together an interactive website – the Thinking Ahead Roadmap – with six steps to follow to find an advocate. Each step has tips, tools, and information to guide you through the process. An adult child or caregiver could also use this website if they feel the need to assume more responsibility for an elderly parent’s finances. …Learn More