October 5, 2017

Many Americans Feel Financial Distress

The unemployment rate is an incredibly low 4.4 percent, and a Federal Reserve survey released last week shows that American households’ net worth is increasing.

Yet all is not well.

One in three Americans say they are suffering financial hardships, and another third report they are making it but aren’t exactly thriving. One in five struggles to cover what is most basic: food, housing and medical care. These new findings, which came out of a report by the federal Consumer Financial Protection Bureau (CFPB), aren’t about economists’ traditional, objective measures of security, income and wealth levels. This is about how people are feeling about their financial state of affairs.

The common, everyday financial distress expressed in the report is one marker of the familiar socioeconomic chasm that persists in this country. The CFPB highlights the most significant – and unsurprising – differences separating the secure from the struggling: education and income levels, the presence of health insurance, and how much of one’s budget is consumed by housing costs. “Access to jobs, benefits, sufficient income, and family resources likely play a major role in a person’s financial well-being,” the CFPB said.

But it’s also more complicated than that. For example, some lower-income people might, despite their challenges, be able to find their comfort level, CFPB said, while not all higher-income people do. One thing the survey can’t get at is the extent to which feelings of financial security or insecurity are being influenced by how Americans are doing relative to co-workers or people in their communities.

The agency used answers to its 2016 survey to assign financial well-being scores, ranging from 0 to 100, to nearly 6,400 participants. The findings are summarized in a new report.

Myriad factors influence how individuals feel, sometimes leading to surprising results in the CFPB report: …Learn More

September 28, 2017

Medicare Advantage Shopping: 10 Rules

Janet Mills is a veteran in the Medicare Advantage marketplace.

At Florida’s SHINE program for 13 years, Mills has provided unbiased counseling to thousands of seniors trying to make difficult choices about their Medicare coverage.  Now an area coordinator, she also fields questions from volunteer counselors at SHINE – the Serving the Health Insurance Needs of Elders program – in Pinellas and Pasco counties, which include St. Petersburg and Clearwater.

It can be difficult for retirees with multiple Medicare Advantage options to distinguish one plan’s benefits from another plan’s and pull the right one off the shelf. But based on her experience, Mills said, the decision retirees make during open enrollment for Medicare Advantage plans is crucial to controlling their health care costs. One in three Medicare beneficiaries is now enrolled in an Advantage plan, according to the Henry J. Kaiser Family Foundation. Their growing appeal centers on premiums that are lower than Medigap premiums.  But retirees in Advantage plans also face the potential for up to $6,700 in out-of-pocket costs annually, the legal maximum allowed in the plans.  The out-of-pocket U.S. average is $5,219, according to Kaiser.

“You really don’t want to sleep through the annual enrollment period,” Mills said.

Here are her pearls of wisdom for those preparing to launch into their comparison shopping for Medicare Advantage plans, which go on sale Oct. 15: …
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September 26, 2017

Help Navigating the College Debt Jungle

A new report laying out loan data per student at more than 1,000 U.S. colleges can be useful to parents and future students.

From the California Institute of Technology and the California Institute of the Arts to the Massachusetts Institute of Technology and Bridgewater State University (also in Massachusetts) – data on debt levels for the 2016 graduating class at public and non-profit institutions are contained in a newly released report by the Institute for College Access & Success (TICAS).

TICAS has put together a handy interactive map summarizing the data. An individual college’s data can be found by clicking the state where it’s located and scrolling through the colleges in that state.  Not all colleges are presented, because very few for-profit colleges report their students’ debt data.

Diane Cheng, associate research director of TICAS, walked through the most important things to look for when considering where to attend.  But the bottom line is, “When students see colleges where a large share of students borrow, and they take out a lot of debt, that can be a red flag,” she said.

It’s virtually impossible to generalize about how much a prospective student will have to borrow, because every student has a unique combination of academic accomplishment and socioeconomic status. Also factoring into borrowing is each college’s sticker price and unique tuition policy. Tuition at public colleges is also affected by state funding, which remains 16 percent lower than before the recession, Cheng said.

She recommends starting with the following four indicators in the map:

• Average dollars of debt after graduation: Click on a specific state or states on the map where the teenager is looking at colleges. Scroll through the colleges displayed for each state.
  What to look for in the data:  Compare the average dollar debt level per student for each of the colleges your teenager is considering.  If eight colleges are in the mix, compare average debt for all eight. Parents might even want to make a spreadsheet comparing average debt levels and the other data below for each institution of interest. …

Learn More

September 21, 2017

The 411 on Roth vs Regular 401ks

Traditional 401(k) or Roth 401(k)?

Workers usually don’t know the difference. Yet employers increasingly are asking them to choose. Nearly two-thirds of private-sector employers with Vanguard plans today offer both a traditional and a Roth 401(k) in their employee benefits. Just four years ago, fewer than half did.

For tips on navigating the traditional-vs-Roth decision, we interviewed two members of the American Institute of CPAs: Monica Sonnier is an investment adviser in the Salt Lake City, Utah, area; and Sean Stein Smith is an assistant professor in the economics and business department at Lehman College in New York.

The difference in the two types of plans is the timing of federal income taxes:

• In a traditional 401(k), a worker who contributes to his or her account will see taxable income reduced by the dollar amount of the contribution. For example, contributing 6 percent of a $30,000 annual salary ($1,800 per year) means the worker pays federal income taxes on just $28,200. The taxes will be paid decades later, when the IRS will require the retiree to pay income taxes on the amounts withdrawn from the traditional 401(k).

• In a Roth, a worker pays income taxes on his or her full $30,000 salary, as usual. The 6 percent is an after-tax contribution that does not reduce the tax bill. The benefit will come decades later, because a Roth does not require the retiree to pay income taxes when the savings – including the Roth account’s investment earnings – are withdrawn.

If a retiree is taxed at the same rate as he was taxed as a worker, there is no difference in the after-tax retirement income the two 401(k) plans provide. However, traditional 401(k)s have generally been viewed as more advantageous, because people typically have lower incomes – and lower tax rates – in retirement than when they were working.

But things might also be changing. Over the long-term, increasing federal deficits due to increased spending pressures from popular programs to support aging baby boomers are expected to push up individual income tax rates. When that occurs, many retirees might be better off with a Roth so they won’t be taxed when they withdraw their savings.

Of course, each individual’s or couple’s tax situation is unique. Given all these caveats, here are the accountants’ rules of thumb for deciding between a traditional and Roth 401(k): …Learn More

September 19, 2017

Unaware and in Need of Flood Insurance

Millions of U.S. homeowners may not realize they’re at risk of flooding, due to outdated flood plain maps and even less information about dam and levee “failure zones” and urban storm-water hazards like the river running through downtown Miami during Hurricane Irma.

Hurricanes and floods tend to be low-probability events with enormous consequences.  When they slam our coasts and waterways, they randomly take aim at one of middle-America’s largest financial assets: their houses.  Double-barreled hurricanes in Texas and Florida over the past month underscore just how vulnerable this asset can be to storm surges and the unpredictable effects of climate change.

“Someone on the coast of New Jersey or New York says their home is part of my retirement plan. It’s worth $400,000” – or so they think, said Larry Larson, senior policy adviser for the Association of State Flood Plain Managers in Wisconsin.

“What we’re going to see happening, especially in Florida in areas very close to the ocean, is that with the sea level rise, the value of these structures are probably going to go down 30 percent,” he predicted. The Northeast is also at risk, as Hurricane Sandy reminded homeowners in 2012.

A lack of accurate information about flooding is an issue for people who want to properly insure themselves. For example, the flood plain maps compiled by the Federal Emergency Management Association cover only about one-third of the 3.5 million miles of waterfront property located in low-lying flood plains, according to a study by the Association of Flood Plain Managers.

Most oceanfront property has been mapped, but the crux of the problem is that FEMA can’t keep up with rapid urban sprawl, said Chad Berginnis, the association’s executive director.  “Today’s cow pastures and corn fields are tomorrow’s residential subdivisions and commercial growth areas,” said Berginnis, a former flood plain manager in rural Ohio.

Further, some sections of Houston that flooded, post-Harvey, when water was released from local dams are not mapped as areas where FEMA requires flood insurance.  In northern California, thousands of homeowners around Lake Oroville were unaware they were in a failure zone until they were evacuated last winter for a dam-water release.

Larson sees homeowners make three major mistakes: no or inadequate flood insurance, no contents insurance, and no replacement coverage. …Learn More

September 14, 2017

Moving? Check the State Taxes First

New Jersey’s retirement income exclusion for couples leaped from $20,000 to $100,000 in 2016.  Minnesota and South Carolina now have income tax deductions for retired military. And Rhode Island started exempting the first $15,000 of retirees’ income from the state’s income tax.

State taxes are one piece of the financial puzzle to consider when retirees – or Millennials – are thinking about moving to reduce their living costs, find a job or friendlier climate, or be close to the grandchildren.

The Retirement Living Information Center recently compiled a nice summary of tax rates for all 50 states on its website. The information comes from sources like the Federation of Tax Administrators, The Tax Foundation and the National Conference of State Legislatures.

State taxes vary dramatically. Alaska, Florida, and Texas are among the states boasting no personal income taxes, though some offset this with relatively high property or sales taxes. A few states – yes, Alaska again – have no sales taxes.  Tax deductions and exemptions for retirement income are the norm, but they vary widely from one state to the next.

Full disclosure: the Retirement Living Center is a company that makes money by referring retirees to senior communities listed on its website or by arranging residents’ reviews of these communities. But the state tax website is free and publicly available.Learn More

September 12, 2017

Livestream: Financial Empowerment

Today, an ambitious financial education program operated by Delaware state government and the United Way of Delaware is bringing a message of financial empowerment for working people to a national stage.

The organizations have partnered with Ted Talk in Wilmington, Delaware, to film 15 financial education videos. The videos will be livestreamed on Sept. 12 starting at 10:30 a.m. Eastern time.

Since 2011, the state program, known as Stand by Me, has provided one-on-one financial coaching to some 16,000 Delaware residents, said Mary DuPont, who runs it. Today’s Ted videos grew out of DuPont’s 2016 presentation for Ted-X Wilmington.

The videos feature various proponents of financial education, including Javier Torrijos, chair of the Delaware Hispanic Commission, who will tell his personal story about the trials and aspirations of growing up as a child of Columbian immigrants, DuPont said.

Kevin Gilmore, executive director of Habitat for Humanity in Delaware’s Sussex County, will speak about his realization that preparing people financially to buy homes is just as important as building the physical structures.  And “Why a Steady Job is No Longer Enough to Feel Financially Secure” is the title of a talk by New York University professor Jonathan Morduch, who has been featured on this blog.

The 15 videos will be archived on the Ted website and on standbyme.org, probably in November. If you don’t want to wait, here’s the livestream. …Learn More