Woman looking at mountains

A Proposal to Reduce Widows’ Poverty

A dramatic decline in widow’s poverty over a quarter century has been a positive outcome of more women going to college and moving into the labor force.

Bar graph showing percentage of povertyYet 15 percent of widows are still poor – three times the poverty rate for married women.

A new study by the Center for Retirement Research takes a fresh look at Social Security’s widow benefits and finds that increasing them “could be a well-targeted way” to further reduce poverty.

Widows are vulnerable to being poor for several reasons. The main reason is that the income coming into a household declines when the husband dies.  The number of Social Security checks drops from two to one, and any employer pension the husband received is reduced, or even eliminated if the couple didn’t opt for the pension’s joint-and-survivor annuity.

While one person can live more cheaply than two, the drop in income for new widows often isn’t accompanied by a commensurate drop in expenses.

Another issue begins to develop as much as 10 years before a husband dies. Prior to his death, his declining health may increase the couple’s medical expenses and reduce his ability to work, depleting the couple’s – and ultimately the widow’s – resources.

The irony today for wives who worked is that their decades in the labor force generally improve their financial prospects when they become widowed. Yet, under Social Security’s longstanding design, they receive less generous benefits than housewives – relative to the household’s benefits prior to the husband’s death. …Learn More

Video: How to Talk about College Costs

As the outlines of the student loan crisis were coming into focus, this blog featured a video of new college graduates dazed and bewildered by the size of their monthly loan payments and the intrusion on their lifestyles.

Beth Kobliner, a personal finance speaker and journalist, has a surefire antidote: talk to your teenager early and often so they know what they’ll be getting into if they borrow money for college.

She explains how to do this successfully in a new series of helpful, breezy videos.

She recommends that parents make the early conversations light and easygoing. Have the modest goal of encouraging your freshman in high school to start thinking about college broadly. Ask about his or her aspirations, interests, and the choice of Ivy League or state university.

Your teenager should know, Kobliner says, that they will “make about the same salary either way – turns out it’s more about the kid than the name of the college.”

As high school graduation gets closer, talk in more depth about paying for college. “The most important question often gets overlooked at first: Can we afford it?” she said. I would add that the question often comes too late – after the college applicant has already received their acceptance letters and expectations are set.

In addition to the how-to videos, another set of videos feature four conversations about college between real parents and their children. In one of them (above), a mother doesn’t tell her child not to go into debt for college. But she does explain the bad choices she herself made and that she regrets she is still paying off her student loans.

Many teenagers don’t want to talk about anything with their parents – period – but the videos provide tips for overcoming teen resistance and starting the critical conversation about the cost of college. …Learn More

Avoid scams

Scam Alert: Student Debt ‘Relief’

Despite numerous state efforts to crack down on fly-by-night firms falsely claiming to reduce or eliminate young adults’ student loans, new firms keep popping up.

Their social media pitches and websites promise borrowers things the companies can’t possibly deliver on. They appeal to potential customers struggling to pay student loans with slogans like “Get Rid of Your Student Loans Today!” or “$17,500 in Up Front Forgiveness” – “100 percent guaranteed!”

In a high-stakes game of Whac-a-Mole, attorneys general in numerous states have repeatedly brought legal actions against these so-called “debt relief” companies in cases going back at least four years. Massachusetts resolved one case this past summer, and Pennsylvania filed a lawsuit last fall.  Florida has aggressively pursued several debt relief companies recently. The Federal Trade Commission and the Consumer Financial Protection Bureau have also gotten involved.

Student loan borrowers “are desperate for help, which is how these companies are able to grab them,” said Betsy Mayotte, founder of the Institute of Student Loan Advisors, a Boston-area non-profit she founded to provide free help to people wrestling with college loan payments.

Mayotte described egregious fraud against a client who came to her organization and had been paying her student loans for years, whittling down the amount she owed to $5,000 – but it ballooned to $12,000 after she got involved with a debt-relief firm that took over her loan payments. The company put the loan into the federal government’s forbearance program, where it went unpaid while accruing interest for two years. After the forbearance period expired, the debt relief company neglected to resume the loan payments, despite continuing to collect its monthly fee. The customer defaulted on her debt unwittingly – but never got a notice because her contact information on the loans had been changed. … Learn More

Granny Pods: Financial and Care Solution

JoAnn George in front of her granny pod

JoAnn George

 
Kathy Barker already was having concerns that her elderly father’s dementia made it increasingly difficult for him to manage his life. When his doctor said he could no longer drive, Barker had to do something.

A contractor was hired to build a 448-square-foot cottage in the backyard of her Tampa home. Her father enjoyed it for just 10 days before going into the hospital, where he died. But the house was still a great solution – this time for her mother, JoAnn George. (Her parents divorced long ago.)

Last November, George was moved into the backyard “granny pod,” which has a front porch, living room, bedroom, bathroom, and small refrigerator – but no other appliances. Granny pods, which come in a variety of architectural styles, from Victorian to modern, aren’t cheap. George’s cottage cost $90,000 to build, putting it in the higher end of the price range for these dwellings, according to Home Care Suites, which built it. [Here’s the virtual tour of the house.]

The 88-year-old George had been living in nearby Plant City, Florida, close to another daughter. But as she slowly declined, Barker decided that moving her into the backyard made sense. A flood in her mother’s home, caused by a broken pipe, provided a convenient opportunity to take matters into her own hands.

Now Barker, who runs a web development business with her husband out of their home, can keep a close eye on her mother. Although George is developing cognitive issues, she still takes care of herself, is healthy, and takes no medications.

The beauty of separate living quarters, Barker said, is that her mother can “keep [her] own independence.” …
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Brick wall with one small and one large door

Medigap Premiums Differ by Thousands

  • A 65-year-old woman in Houston can pay $5,300 a year for Medigap’s Plan C policy or she can buy a policy with exactly the same coverage from another insurance company for $1,700 a year.
  • A 65-year-old Hartford, Connecticut, man can spend anywhere from $2,900 to $7,400 annually for the most popular and comprehensive Medigap policy – Plan F.
  • The price disparity for Plan A for a 75-year-old man in Manchester, New Hampshire, is also large: anywhere from $1,820 to $6,301.

These are fairly typical of the enormous differences in the premiums that consumers across the country are paying for their Medigap policies.

The price disparities are “extraordinary and unable to be justified purely by the coverage that they’re offering,” said Gavin Magor, director of ratings for Weiss Ratings Inc., a consumer-oriented company that assesses insurance companies’ financial stability.

A nationwide analysis by Weiss shows that the premiums vary widely within each group of plans – Medigap Plans A, B, C through N – despite the fact that the coverage in each group is dictated by the federal government and does not change from one insurer to the next. Every company selling a Plan F policy, for example, must offer exactly the same coverage. (The exceptions are Massachusetts, Wisconsin, and Minnesota, where the states regulate their Medigap plans.)

If two people are buying a Chevrolet Camaro in Houston, “you would not expect one person to pay two or three times more than the other one,” Magor said.

Medigap is an added layer of insurance to supplement Medicare for people over 65. The additional coverage helps them with the copayments, deductibles, skilled nursing, and other charges that Medicare does not pay for.

Weiss supplied the data for this article by comparing Medigap premiums sold in each zip code and separately for men and women and for different age groups. The company based the analysis on premiums at more than 170 insurance companies.

There are a few viable explanations for the disparity in premiums. Urban and rural zip codes in the same state may be priced differently, in part because medical costs tend to be higher in the cities. And some insurers might be able to offer lower premiums, either because they are more efficient or are trying to be more price competitive to gain market share.

But Magor said that none of these explanations can fully account for the enormous price differences within zip codes. Many insurers are overcharging for their Medigap policies, he said.

A spokeswoman for America’s Health Insurance Plans, which represents health insurers, said she could not comment on Weiss’ information without the organization doing its own analysis of the data.

Paying too much for a Medigap plan can have a material impact on a retiree’s life. …
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Health in Old Age: the Great Unknown

cartoonThis cartoon, by Vancouver Sun cartoonist Graham Harrop, hits on one of retirees’ biggest mysteries: their future health.

The elderly live with the anxiety of getting a grave illness that isn’t easy to fix, such as cancer or a stroke.  And despite having Medicare insurance, they also have to worry how much it would cost them and whether they would run through all of their savings.

They’re right to worry. Health care costs increase as people age from their 50s into their 60s and 70s. About one in five baby boomers between 55 and 64 pays extraordinary out-of-pocket medical expenses in any given year. But by 75, the odds increase to one in four, according to a report summarizing the reasons that some seniors’ finances become fragile.

Large, unexpected medical expenses are one of two major financial shocks that threaten their security – widowhood is the other. A small and unlucky share of retirees will find it difficult to absorb a spike in their medical costs, forcing them to cut back on food or medications, the report said.

Harrop’s cartoon is the product of his cousin’s inspired suggestion that he fill a book with cartoons about the humorous accommodations made between couples who’ve lived together for decades. The book – “Living Together after Retirement: or, There’s a Spouse in the House” – reveals his personal knowledge of the subject. Harrop, who is 73, has lived with his partner, Annie, for more than 20 years.Learn More

Social Security Mistakes Can be Costly

Karen Dobson

Kay Dobson is 68, and it’s time to retire from her job as the jack of all trades at the Augusta Circle Elementary School in Greenville, South Carolina.

But she isn’t quite as ready for her June retirement as she could’ve been. She recently learned that an admitted unfamiliarity with Social Security’s arcane rules cost her about $31,000 for two years of foregone spousal benefits based on her husband’s earnings.

“I had not the vaguest idea that I would be eligible for that,” she said.

Dobson is hardly the first person to make a painful mistake like this. People have all kinds of misconceptions about Social Security, or they lack a basic understanding of how it works – that the government calculates benefits using their 35 highest years of earnings, that the size of the monthly checks depends on the age the benefits start, and that working women, like Dobson, are often entitled to a spousal benefit based on their husband’s work record and earnings.

Two years ago, Dobson could have applied for this benefit, because she’d reached her full retirement age – 66.  But since she didn’t know this at the time, Social Security recently sent her a check for $7,800 for only six months retroactively – typically the maximum period for retroactive spousal benefits.

Her $1,300 monthly checks are starting to come in now too.  When she turns 70, she’ll start collecting a larger benefit based on her own earnings from a long-time career in the school system.

This particular strategy – file for spousal benefits and delay your own – is now available only to people who turned 62 prior to Jan 2, 2016.  The unintended loophole was eliminated, because it subverted the original intent of the spousal benefit, which was designed with an eye to retired households with a low-earning or non-working spouse. (The spousal benefit, in and of itself, remains intact and can be a big help to older households in which a working wife earned less than her husband. If that’s the case, her Social Security benefit would be increased until it is equal to half of his full retirement benefit if she claims at or above her own full retirement age.)

The central point here is that ignorance of program rules can mean substantial losses for retirees.  For low- or middle-income retirees, the consequences can be especially dire since they’re already scraping by. …
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