May 23, 2019
Student Loan Payments Linked to 401ks
Abbott employee Harvir Humpal
Student loans or the 401(k)?
Young adults have a tough time finding the money for both. Unless they work for Abbott Laboratories.
Employees who put at least 2 percent of their income toward student loan payments will qualify for Abbott’s
5 percent contribution to their 401(k) account – without the worker having to put his own money into the 401(k).
From the company’s point of view, it’s an innovative recruitment tool – and it worked for Harvir Humpal, a 2018 biomedical engineering graduate of the California Polytechnic State University in San Luis Obispo. He joined Abbott’s northern California office in February.
Humpal said his student loans weighed on him after graduation. “It’s very empowering that Abbott is willing to tackle an issue that’s near to my heart,” said the 24-year-old, who works on medical devices used in heart transplants.
He estimates he will pay off his $60,000 student loans about four years early and save $7,000 in interest – without completely sacrificing his retirement savings.
As the cost of college continues to rise and U.S. student loan balances hit $1.5 trillion, an increase in the number of private and even government employers offering student loan assistance is a response to the growing financial burden. An Abbott survey found that 87 percent of college students and 2019 graduates want to find an employer offering student loan relief.
The magnitude of the problem “forces us to focus on our employees’ greatest needs and how we, as an employer, can help them,” said Mary Moreland, an Abbott vice president of compensation and benefits. …Learn More
May 14, 2019
20,000 Savers So Far in New Oregon IRA
About a third of retired households end up relying almost exclusively on Social Security, because they didn’t save for retirement. Social Security is not likely to be enough.
To get Oregon workers better prepared, the state took the initiative in 2017 and started rolling out a program of individual IRA accounts for workers without a 401(k) on the job. The program, OregonSaves, was designed to ensure that employees, mainly at small businesses, can save and invest safely.
Employers are required to enroll all their employees and deduct 5 percent from their paychecks to send to their state-sponsored IRAs –1 million people are potentially eligible for OregonSaves. But the onus to save ultimately falls on the individual who, once enrolled, is allowed to opt out of the program.
More than 60 percent of the workers so far are sticking with the program. As of last November, about 20,000 of them had accumulated more than $10 million in their IRAs. And the vast majority also stayed with the 5 percent initial contribution, even though they could reduce the rate. This year, the early participants’ contributions will start to increase automatically by 1 percent annually.
The employees who have decided against saving cited three reasons: they can’t afford it; they prefer not to save with their current employer; or they or their spouses already have a personal IRA or a 401(k) from a previous employer. Indeed, baby boomers are the most likely to have other retirement plans, and they participate in Oregon’s auto-IRA at a lower rate than younger workers.
Despite workers’ progress, the road to retirement security will be rocky. Two-thirds of the roughly 1,800 employers that have registered for OregonSaves are still getting their systems in place and haven’t taken the next step: sending payroll deductions to the IRA accounts.
The next question for the program will be: What impact will saving in the IRA have on workers’ long-term finances? …Learn More
May 7, 2019
Social Security Benefits Stump Workers
A majority of workers do not know a crucial piece of information about their retirement: how much married couples can expect to receive from Social Security.
The program will one day be the most important source of income for millions of Americans. But they showed their lack of understanding of how benefits work in a recent survey by researchers at RAND.
A previous blog covering the same survey reported on workers’ poor knowledge of the survivor benefit for widows. This blog focuses on the other benefit for couples: the spousal benefit.
Social Security works a little differently for a married couple than for a single worker, whose future benefit check will simply be determined by his or her earnings history.
For the highest-earning spouse in a working couple – usually the husband – the size of his monthly check is also based on his past earnings. But his wife’s benefit is complicated. If she didn’t work, the rules entitle her to a spousal benefit equal to half of her retired husband’s benefit. If she did work, her benefit is based on her work history – with an exception. If her benefit is less than half of her husband’s, Social Security increases her monthly check to half of his check.
Only one in three of the people surveyed understood how this works, probably partly because of the complexity.
Most workers also had misconceptions about other aspects of the program. For example, only about one in four knew that a couple must be married for more than a year for the lower-paid person to receive the spousal benefit. If a couple has divorced, the lower-earning ex-spouse gets the spousal benefit only if the marriage lasted more than 10 years. Again, just one in four workers knew this important rule.
Couples of all ages should know the rules about a program they will rely on – no retirement plan is complete without this information. …Learn More
April 18, 2019
Know the Social Security Survivor Benefit
My divorced aunt did not work while she was raising eight children. After her former husband died, she was pleasantly surprised to learn she could start collecting his Social Security.
She has a lot of company. Nearly two out of three men and women in a new survey by RAND were unaware of this rule: a divorced person who was married for at least 10 years is entitled to the deceased spouses’s survivor benefit. In fact, she would even get the benefit if he remarried.
In the case of couples who were still married when the spouse died, the marriage had to last only nine months for the survivor to get the benefit. Fewer than half of the people surveyed by the RAND researchers were aware of this rule.
The responses were no more impressive for some of the other questions about Social Security’s survivor benefit. This benefit is based on the higher-earning spouse’s work record – typically the husband. Even a wife who used to work and is collecting Social Security based on her work record is eligible to switch to her husband’s benefit after he dies – if his check is larger than hers.
To make the switch in this particular case, the widow must file with the Social Security Administration either online or at a local office. (However, if the wife never worked and is at retirement age, she will automatically start receiving her late-husband’s check.)
Unmarried partners sometimes operate under a misconception too: three out of four think, incorrectly, either that unmarried people can get the survivor benefit, or they don’t know.
One thing to note about this study is that Americans of all ages were surveyed, and it is not surprising that young adults would have little knowledge of program benefits intended for widows. But age doesn’t seem to bring wisdom: the results were equally dismal in a similar earlier survey of individuals who were at least 50 years old.
April is National Social Security Month. Couples should celebrate by learning more about how Social Security works – it’s critical to a widow’s standard of living. …Learn More
April 9, 2019
Retirement Saving – Latinos Get an App
Amid a growing awareness that many Americans aren’t properly prepared for retirement, various efforts have ramped up to push the non-savers to save.
A notable initiative is occurring in state government. California, Illinois, and Oregon have started IRA savings programs that require private employers to offer the state-sponsored IRAs to workers if the company doesn’t already have a 401(k).
Cell phone apps are also popping up to make saving easier. One such app – Finhabits – is being marketed directly to Latinos, who financial experts say are particularly unprepared for retirement. Two out of three Latino workers aren’t saving in a retirement plan, often because they work in low-wage restaurant and hotel jobs that don’t offer one.
The Finhabits app offers both traditional and Roth IRAs, which can also be set up online. The IRA regularly deducts an amount, designated by the customer, from his bank account and invests the money in low-cost exchange-traded index funds managed by Vanguard or BlackRock.
Carlos A. Garcia created the app – in English and Spanish – to confront a barrier to saving that he experienced in his own family as a child growing up in the border towns of El Paso, Texas, and Juarez, Mexico. Saving “is not part of [Latino] culture,” he said. “Everybody’s working so hard. But you never talk about retirement.”
He carried this sentiment into his first job at Merrill Lynch after college graduation. He turned down the 401(k) option, because “I had no clue what a 401(k) was.”
This blog doesn’t recommend financial products, and Finhabits has advantages and disadvantages over competing apps. The app’s management fee is slightly higher than some, according to expert reviews. Nevertheless, Finhabits follows sound principles, such as investing in low-cost index funds. The Washington state government chose Finhabits as one of its vendors to provide a retirement plan through the state’s Retirement Marketplace for small businesses. …Learn More
March 19, 2019
Boomers Cope with Real Financial Pain
We really appreciate readers opening up about their personal experiences in the comments section at the end of each blog. It’s important to stop occasionally and listen to what they have to say.
Aging readers reacted strongly to blog posts in recent weeks about two of the biggest challenges they face: spiraling prescription drug costs and a so-so job market for older workers who aren’t ready to retire.
Here are summaries of their comments on each article:
High Drug Prices Erode Part D Coverage
Readers expressed anger about rising prescription drug prices in response to a blog featuring a diabetic in Arizona who, despite having a Medicare Part D plan, spends thousands of dollars a year for her insulin. She resorts occasionally to buying surplus supplies on eBay from private individuals.
Dr. Edward Hoffer in Boston responded that Americans pay five times more for Lantus than diabetics in the rest of the world. “The same is true for most brand name drugs and most medical devices. It is an embarrassment that we pay double per capita what comparable western countries pay for health care with worse national health statistics,” he said.
Bill MacDonald shared his story in a Tweet and follow-up messages. This North Carolina retiree on a fixed income has paid $6,000 annually out-of-pocket – a third of his income – for two drugs he’s taken since an automobile accident caused medical problems and depression that led to other issues. He spends $3,200 for one of the drugs, a cholesterol medication called Repatha – that’s his tab after his insurance company pays for most of it. (Last year, Amgen slashed Repatha’s price from more than $10,000 per year to $5,850, which MacDonald hopes will reduce this expense.)
Steve B. was thrilled about a new generic on the market to replace his Rapaflo, a prostate medication. Then he learned that the generic is not much of a bargain either.
Careers Become Dicey after Age 50 …Learn More
March 14, 2019
Drug Discounts, Other Help Available
Consumers are powerless to control spiraling medication prices, but low-income, uninsured and under-insured individuals can often get help paying for their drugs.
The help, in the form of subsidies or prescription price reductions, comes from four sources. The first is exclusively for seniors on Medicare, but the rest are available to everyone.
Medicare’s Extra Help program provides up to $4,900 to subsidize retirees’ drug copayments and Medicare Part D premiums. Individuals are eligible for this assistance if their income is less than $18,210 and the value of their investments, bank accounts and other assets is under $14,390. The limits for couples are $24,690 in income and $28,720 in assets. Retirees who own their homes do not have to include the property’s value in this limit. Social Security’s website explains what does and does not count as assets.
Social Security takes the applications for this Medicare program. Applications can be submitted either online (SSA form 1020) or in person by making an appointment at a local Social Security office. Social Security also notifies seniors about whether they qualify.
Price discounts in an app
If your drug is not covered by your health insurance, Consumer Reports suggests trying two cell phone apps (or go online) to search for the lowest-cost prescriptions at various pharmacies in your area. On the apps – GoodRx and BlinkHealth – search your drug name and dose and enter your zip code to find the discounted prices, which can vary dramatically. These companies act as middlemen between consumers and Pharmacy Benefit Managers, which buy generic and brand-name medications in bulk from manufacturers and pass the volume discounts on to consumers. GoodRx provides a coupon that can be saved on a phone or printed out for the pharmacist. BlinkRx requires consumers to pay for the drug on its website and provides a voucher for the pharmacist. These cash prices will not be run through insurance – and won’t count against your deductible – said Lisa Gill, Consumer Reports deputy editor and a specialist in medication pricing.
Walmart also offers discounts on generic drugs, and Costco has very low retail drug prices. Which option is best for you? “It’s going to depend on which medication you take and probably where you live,” Gill said. Not everyone will have success in reducing their costs but, she added, “if the drug’s not covered by insurance, it’s worth trying.” …