September 18, 2018
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
September 13, 2018
College Debt Can Limit 401(k) Saving
The share of students borrowing money to pay for college increases year after year, and they’re borrowing more every year. Total student debt, adjusted for inflation, has tripled in just over a decade.
The loan payments, which can be a few hundred dollars a month, take a big bite out of young adults’ still-low levels of disposable income. The debt makes them more prone to bankruptcy and lower homeownership rates.
A key question is whether this pressing financial obligation might affect their preparation for a retirement that is several decades away. Here’s what researchers Matt Rutledge, Geoff Sanzenbacher, and Francis Vitagliano of the Center for Retirement Research learned about student debt:
- By age 30, the college graduates who are loan-free have saved two times more in their retirement plans than the graduates who are paying off debt. (Perhaps surprisingly, the presence of student loans do not seem to affect the amount saved by students who didn’t graduate, though they do have substantially less in their 401(k)s than the graduates.)
- The amount owed by college graduates with loans does not matter. The mere existence of the debt is enough to constrain saving. …
September 11, 2018
Personality Influences Path to Retirement
Only about a third of the older people who are working full-time will go straight into retirement. Most take zigzag paths.
These paths include gradually reducing their hours, occasional consulting, or finding a new job or an Uber stint that is only part-time. Other people “unretire,” meaning that they retire temporarily from a full-time job only to decide to return to work for a while.
A new study finds that the paths older workers choose are influenced by their personality and by how well they’re able to hold the line against the natural cognitive decline that accompanies aging.
Researchers at RAND in the United States and a think tank in The Netherlands uncovered interesting connections between retirement and cognitive acuity and, separately, and a variety of personality traits. To do this, they followed older Americans’ work and retirement decisions over 14 years through a survey, which also administered a personality and a cognition test.
Here’s what they found:
- Cognitive ability. The people in the study who had higher levels of what’s known as fluid cognitive function – the ability to recall things, learn fast, and think on one’s feet – are much more likely to follow the paths of either working full-time or part-time past age 70.
The probable reason is simply that more job options are available to people with higher cognitive ability – whether fluidity or sheer intelligence – so they have an easier time remaining in the labor force even though they’re getting older. …
September 6, 2018
Personal Finance Videos for Young Adults
PBS Digital Studios is producing an excellent video series to guide 20-somethings who are starting their careers and want to get a handle on their finances.
In “Two Cents,” financial planners Julia Lorenz-Olson and her husband, Philip Olson, will make you laugh as they convey their very solid advice about personal finance. “How to Ask for a Raise” is perhaps the most relevant video to young adults – especially the ladies. Only one in three women believe that their pay is negotiable. Nearly half of all men do.
The potential for pay raises is highest for employees when they are in their late 20s and early 30s. But the boss isn’t likely to volunteer to increase anyone’s pay, the hosts explain – you have to ask. This is a scary thing to do, and the couple eliminates some of the anxiety by explaining how to prepare for that meeting with the boss.
The “Love and Money” episode asks the questions that are crucial to a successful partnership: how much does he or she earn and how much does this person owe? In “How Cars Can Keep You Poor,” the Olsons advise against buying a new car, which depreciates 63 percent in just five years – they compare it to investing in an ice cream cone on a hot day. A used car is a much better deal and the only sensible option for someone who’s already juggling rent and student loan payments. And the answer to “Should I Buy Bitcoin?” is, uh, no. Nearly half of all bitcoin transactions are illegal, Olson says.
For future-minded young adults, “How Do You Actually Buy a House?” walks through the entire process, explaining why it’s critical to get preapproved for a mortgage, how to choose a realtor, and what to expect in the closing. “Insta-Everything lays out the few pros and many cons of paying for on-demand services such as Grub Hub, InstaCart, and Task Rabbit.
Lorenzo-Olsen explains that the goal of their “Two Cents” videos is not to help young adults get more money (though a raise would be nice), “but to be happy with the money you have.”Learn More
September 4, 2018
Granny Pods: Financial and Care Solution
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.” …
August 30, 2018
Why US Workers Have Lost Leverage
A 1970 contract negotiation between GE and its unionized workforce is unimaginable today.
A strike then slowed production for months at 135 factories around the country. With inflation running at 6 percent annually, the company offered pay raises of 3 percent to 5 percent a year for three years. The union rejected the offer, and a federal mediator was brought in. GE eventually agreed to a minimum 25 percent pay raise over 40 months.
“They said we couldn’t, but we damn sure did it,” one staffer said about his union’s victory.
Former Wall Street Journal editor Rick Wartzman tells this story in his book about the rise and fall of American workers through the labor relations that have played out at corporate stalwarts like GE, General Motors, and Walmart.
Critics use examples like GE to argue that unions had it too good – and they have a point. But that’s old news. What’s relevant today is that the pendulum has swung in the opposite direction, and blue-collar and middle-class Americans seem barely able to keep their heads above water even in a long-running economic boom.
New York University economist Edward Wolff in a January report estimated that workers lost much ground in the 2008 recession and never recovered. The typical family’s net worth, adjusted for inflation, is no higher than it was in 1983 and far below the pre-recession peak. Granted, workers’ wages have gone up recently, though barely faster than inflation, but they had been flat for 15 years. Workers are also funding more of their retirement and health insurance.
Wartzman’s theme in “The End of Loyalty: the Rise and Fall of Good Jobs in America” is that the system no longer works for regular people, because companies have weakened or broken the social contract they once had with their workers.
The loss of employer loyalty is one way to look at the state of labor today. The loss of workers’ leverage against global corporations is another. …Learn More
August 28, 2018
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. …