May 31, 2019

How a health care overhaul would cut jobs -- and help the economy

"As calls for radical health reform grow louder, many on the right, in the center and in the health care industry are arguing that proposals like “Medicare for All” would cause economic ruin, decimating a sector that represents nearly 20% of our economy."
"It’s true: Any significant reform would require major realignment of the health care sector, which is now the biggest employer in at least a dozen states. Most hospitals and specialists would probably lose money. Some, like the middlemen who negotiate drug prices, could be eliminated. That would mean job losses in the millions."
"Though it will be economically painful, the point is to streamline for patients a Kafka-esque health care system that makes money for industry through irrational practices. After all, shouldn’t the primary goal of a health care system be delivering efficient care at a reasonable price, not rewarding shareholders or buttressing the economy?"
Yes, there would be economic disruption and job losses...
Economist and health policy expert Robert "Pollin suggests that a transition to Medicare for All should be accompanied by a plan to give those made redundant up to three years of salary and help in retraining for another profession."
"Despite the short-term suffering caused by any fundamental shift in our health care delivery system, reform would ultimately redirect resources in ways that are good for the economy, many experts say."
“I’m sympathetic to the impact that changes will have on specific markets and employment — we can measure that,” Schulman said. “What we can’t quantify is the effect that high health care costs have had on non-health care industries.”
"The expense of paying for employees’ health care has depressed wages and entrepreneurship, he said. He described a textile manufacturer that moved more than 1,000 jobs out of the country because it couldn’t afford to pay for insurance for its workers. Such decisions have become common in recent years."
“Yes, these are painful transitions,” said Baicker, who is now the dean of the University of Chicago’s Harris School of Public Policy. “But the answer is not to freeze the sectors where we are for all time. When agriculture improved and became more productive, no one said everyone had to stay farmers.”
 Read the details from Elisabeth Rosenthal at:
https://khn.org/news/analysis-a-health-care-overhaul-could-kill-2-million-jobs-and-thats-ok/

How long does it take to pay off student loans?

College grads expect to pay off student debt in 6 years—this is how long it will actually take

"Educational services company Cengage surveyed 2,500 recent and upcoming graduates for the Cengage Student Opportunity Index and found that respondents, on average, believe it will take six years to pay off their student loans."
"In reality, it will take closer to 20" as summarized by Abigal Hess.
Get the details and learn more at: https://www.cnbc.com/2019/05/23/cengage-how-long-it-takes-college-grads-to-pay-off-student-debt.html

 

May 27, 2019

Who pays for Trump's tariffs? You do of course!

Here is one example from Planet Money that illustrates the point:

"In early 2018, after the American company Whirlpool complained about foreign competition, the Trump administration implemented tariffs on washing machines imported from all over the world. It’s a 20% tariff on the first 1.2 million washing machines sold a year and a 50% tariff on every one after that."

"While these tariffs were imposed on foreign manufacturers, the study by Flaaen, Horta├žsu, and Tintelnot, like study after study before it, finds it’s ultimately U.S. consumers who pay. New washing machines in America got about 12% more expensive. That’s not too surprising."

"What is surprising is that dryers also got more expensive even though they weren’t subject to the tariff. That’s because washers and dryers are in econospeak “complementary goods.” They are more valuable together and are typically bought at the same time. “Before the tariffs, most manufacturers were pricing paired washer and dryer models at the exact same sticker price,” Felix Tintelnot, a co-author of the study, says. “This pricing strategy was maintained after the tariffs… so the full effect of tariffs on prices is only visible after factoring in the price of the complementary good – dryers.”

"The clear losers in the study are Americans who needed to buy a washing machine or dryer in the last couple years. But, because the tariffs made foreign washing machines more expensive, it made American-made washing machines more appealing — and it convinced LG, Samsung, and Whirlpool to create about 1,800 jobs making washing machines and dryers in the US. Cool, right? Not really. After taking into account the extra money paid for these appliances because of the tariff, those 1,800 jobs ended up costing Americans about $815,000 per job every year."

Get more details and examples at: https://www.npr.org/sections/money/2019/05/21/725135293/more-tariffs-on-china-more-head-scratching-from-economists?utm_source=npr_newsletter&utm_medium=email&utm_content=20190521&utm_campaign=money&utm_term=nprnews

Bottom Line: Trump's Tariffs hurt U.S. consumers! 

Investing $5,000 a year results in $1.2 million in 40 years so start now!

Wait... $5,000 x 40  $200,000. How did you get $1.2 million? The extra $1million is due to compounding.
Writing for MarketWatch, Mitch Tuchman explains compound interest.

“Shark Tank” star Kevin O’Leary has some simple advice for anyone who finds investing scary: Just do it. Now.
“When you’re 21 years old, or 20 or 18 or 19 and you start putting aside 10% of what you make, you’ll [have] over $1 million by the time you’re 65,” O’Leary told CNBC.
“If no one else is going to worry about your retirement, I want you to worry about it.”

https://www.marketwatch.com/story/kevin-oleary-this-easy-math-trick-helps-you-crush-retirement-goals-2019-03-28?mod=cx_picks&cx_navSource=cx_picks&cx_tag=mw&cx_artPos=7#cxrecs_s

Of course, investing never provides a guaranteed annual return but the example should motivate you, whatever your age, to convert your daily impulse spending into future financial security....even if you have less than 40 years until your "financial freedom" goal.

Wealth inequality is bad and getting worse


Writing May 5, 2019 in The Washington Post, economist Robert J. Samuelson explains how the gap between rich and poor is getting worse in America. It's not about income... it's about the incredible growing wealth disparity.
The $100 trillion question: What to do about wealth? and... what is the current administration doing about the problem?
Summarizing data from a recent Federal Reserve board study, Samuelson concludes: "The study’s most striking feature is how gigantic the numbers are."  source: https://www.washingtonpost.com/people/robert-j-samuelson/?utm_term=.551849e3978d
The distribution of  wealth is highly skewed and getting worse:
"In 2018, the net worth of the wealthiest 10 percent of Americans represented 70 percent of household wealth, up from 61 percent in 1989, the study’s first year. Even among this upper crust, wealth became more concentrated. Over the same years, the share of the top 1 percent went from 24 percent to 31 percent."
"The bottom 50 percent of U.S. households had virtually no net worth, the difference between assets and liabilities, mainly loans. Their wealth share tumbled from 4 percent of total wealth in 1989 to 1 percent in 2018."
"The big losers over the past 30 years could be termed the broad middle class: those with wealth starting at the median (the midpoint of all wealth) and going to the 90th percentile. Their share of household wealth, though still sizable, has dropped from 35 percent in 1989 to 29 percent in 2018."
"The truth is that we still don’t fully understand the surge in economic inequality of the past three decades. The populist temptation is to blame greed, but this is not a satisfactory explanation because greed is hardly new. It seems virtually certain that, sooner or later, taxes on the well-to-do and wealthy will go up. That’s where the money is, and that’s where the biggest private gains have been."
Maybe it is time to revisit the recent tax reform legislation. 
How did you fare under the new income tax law?

May 25, 2019

Impact of student loans on women

Women are at a crucial disadvantage when it comes to student loans

"Researchers surveyed 1,000 college-educated adults across America and found that 37% of women did not understand the basics of student loans — which are things like timelines, monthly payments, interest rates, tax implications, refinancing and evaluating lenders, before they borrowed — versus only 20% of men."
 
Overall, less than half of millennials (44%) surveyed fully understood when and how they needed to repay their student loans before taking on the debt and more than a third admitted that they didn’t comprehend the basics of student debt.
 
Aarthi Swaminathan
Writing for

https://finance.yahoo.com/news/student-loans-women-194505040.html

Trump's tariffs cost US consumers $106 billion per year. Your cost: $831/year

"US tariffs recently imposed on goods from China will cost American households $106 billion annually, according to a report from the Federal Reserve Bank of New York. These tariffs likely will reduce overall tariff revenue collected by the US and will "create large economic distortions," the report said." 
Tariffs are a hidden tax on consumer purchasing power.

Trump's China tariffs hike will cost average U.S. family $831 a year

  • Higher U.S. tariffs on Chinese goods are "likely to create large economic distortions and reduce U.S. tariff revenues," according to economists at the New York Federal Reserve. 
  • The latest round of 25% tariffs on $200 billion in certain Chinese imports will cost U.S. households $106 billion a year, or $831 for the average family, New York Fed researchers found.
  • Tens of billions in recent stock-market losses reflect worries that U.S. trade friction with China isn't going away soon.  https://www.cbsnews.com/news/trumps-china-tariffs-hike-will-cost-typical-u-s-family-831-a-year-fed-economists-say/

Invest that $800 each year for 10 years in an Individual Retirement Account (IRA) or 401(k) at a modest 4% return for a total of $11,173. Use an online calculator to make your own estimates:
http://moneychimp.com/calculator/compound_interest_calculator.htm

May 22, 2019

Hundreds of financial professionals pose a risk to their clients!

"A proposed rule from the Financial Industry Regulatory Authority that would impose restrictions on firms employing high-risk registered representatives and financial advisers may apply to 61 financial-services companies, said FINRA CEO Robert Cook. John Salerno, who manages the high-risk representative program, said hundreds of individuals have been identified as presenting risk to clients."
https://www.investmentnews.com/article/20190517/FREE/190519929/finra-makes-its-list-to-target-hundreds-of-rogue-individuals 
ALWAYS ask a financial salesperson/adviser if they are a fiduciary... which means they must put the client's interests first. 
Check related blog posts on fiduciaries. The Obama administration proposed regulations requiring financial salespersons and advisors who deal with retirement accounts to be fiduciaries but the trump administration shot down that consumer protection. 

Check the background of investment professionals at https://www.finra.org/ using Broker Check.

May 20, 2019

So you thinkk your mortgage is saving you on income taxes... think again

From my favorite financial guru, Jonathan Clements:

"Mortgage interest is tax deductible, but the tax savings are often less than we imagine—and there may be no tax savings at all. Suppose we’re married and our itemized deductions—including $13,000 in mortgage interest—total $26,000 in 2019. Sound impressive? Remember, we could always claim the $24,400 standard deduction for a couple filing jointly."

"In other words, that $13,000 of mortgage interest is reducing our taxable income by a mere $1,600—and perhaps saving us just $352 in taxes, assuming we’re in the 22% federal income-tax bracket. The standard deduction was claimed by an estimated 88% of tax filers in 2018, which means these folks got no tax benefit from their itemized deductions, including any mortgage interest they paid."

Check out his Humble Dollar website: https://humbledollar.com/

Hybrid Long Term Care Insurance

Actuaries miscalculated when insurance companies first started selling Long term care insurance (LTCI). As insurance company losses mounted many purchasers faced unaffordable increases in their annual premiums. Rather quickly the number of companies offering LTCI shrunk from about 100 to a dozen as it became clear that the product was not properly priced.
Now a variation combines annuities or whole (or universal) life insurance with LTC protection. These hybrid policies are worth considering.

A blog with reliable, understandable information about LTCI and the new hybrid policies is: https://www.insuranceandestates.com/long-term-care-insurance/
The site explains the pros and cons of buying LTCI vs. combining LTC protection with an annuity of whole life coverage. One of the main drawbacks of the hybrid policies is that they typically require a single, large, upfront premium compared to a yearly premium for traditional coverage. The disadvantage of the lower annual premium is that companies can raise the premium whereas a one time payment provides cost certainty.

Hybrid policies offer: Life Insurance with Long Term Care Rider or Chronic Illness Rider
https://www.insuranceandestates.com/long-term-care-rider-vs-chronic-illness-rider/

The site provides information on the 10 best (highly rated by independent raters) insurance companies and plenty of information that consumers should read before talking to any sales persons.  Be sure to read through the entire website for in depth information and check out AARP info. Due to the large upfront premium for hybrid LTCI policies, thorough due diligence is essential. Keep in mind that insurance agents are sales people working on commission. 

Another reliable source providing an overview of the new hybrid policies is AARP: https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html

5 Things You SHOULD Know About Long-Term Care Insurance

Retirees Regret Claiming Social Security Early

Many Retirees Wish They Had Delayed Taking Social Security Benefits

"MassMutual says a married couple that lives into their 90s but decides to begin their Social Security benefits at age 62 as opposed to age 70 could be leaving as much as half a million dollars on the table, or forfeiting $2,000 to $4,000 a month for life."
By Lee Barney
 
"MassMutual says a married couple that lives into their 90s but decide to begin their Social Security benefits at age 62 as opposed to age 70 could be leaving as much as half a million dollars on the table, or forfeiting $2,000 to $4,000 a month for life. Furthermore, a surviving spouse will receive $1,000 to $2,000 less a month if the couple filed at age 62."
 
Check out the many posts on this blog about deciding on when to claim Social Security Retirement benefits using the search function. 

May 17, 2019

Asset Based Long Term Care Insurance

A new development in the long term care insurance (LTCI) industry is "asset-based" policies  that link long term care (LTC) coverage with a whole life insurance policy or a deferred annuity. Huge premium increases in the early years of LTCI often caused insured to drop their policies because they simply could not afford the much higher premiums. Premium increases were a result of lack of experience in the early years of the industry and projections by actuaries that were too conservative.

Keep in mind that most mid to old age Americans simply cannot afford any type of LTCI because they have so little saved for retirement. They will have to rely on Medicaid or relatives if they need nursing home care. The wealthiest Americans can afford to self-insure and pay any LTC expenses out of their extensive assets. It's the folks in the middle who need to decide how to prepare for potential LTC costs.

New developments in the LTCI industry include "asset-based" insurance. This means that coverage for LTC is linked to a whole life (NOT term) insurance policy or to a deferred annuity (a tax advantaged way to invest for retirement). The primary advantage to asset-based policies is that typically there will be assets left over after paying for LTC for children or other beneficiaries.

While insurance covers the insured in the event of a loss, one may pay decades of premiums and never collect on a homeowners or auto insurance policy. That's how insurance is structured and most consumers understand that they paid for protection against possibly devastating losses but may never collect on a policy. Traditional LTCI is the same way. You may never need care and may die suddenly of a heart attack or stroke and never collect on a policy. However, because LTC is different from an auto accident or house fire, and because premiums often skyrocketed making them unaffordable, the industry has devised ways to make paying premiums more palatable by guaranteeing some sort of payout to heirs in the event there is not LTC claim.

Another factor is that far too many Americans think that Medicare will pay for LTC. It won't. Or they assume they will be eligible for Medicare paying for their care without understanding how the system works.

So welcome to "asset-based" LTCI, a way to make paying premiums more palatable.
"Asset-based long-term care (“ABLTC”) is an innovative insurance strategy that provides coverage for long-term care expenses without running the risk of “wasting” premiums if you don’t need long-term care."
ABLTC insurance links coverage to a whole life insurance policy or a deferred annuity.

"The beauty of ABLTC is that, if you don’t need long-term care, the annuity or whole-life policy retains its value and pays out to your designated beneficiary.  And many people who might not qualify for traditional LTCI due to preexisting conditions may still be able to obtain coverage."

Get details and lots more info from:
https://www.insuranceandestates.com/asset-based-long-term-care/

May 8, 2019

Mom doesn't need flowers or a new kitchen gadget for Mother's Day!

Mom needs an Individual Retirement Account (IRA)!
Whether employed or not, as long as a spouse is earning income, Mom can open an IRA to help provide financial security/financial freedom in later life. Typically one must have earned income to fund an IRA but not if a spouse has earnings.
Typically dad is accumulating credits toward Social Security retirement benefits and may have access to an employer sponsored retirement account through his work but many moms, whether employed or not, are building very little in the way of financial security for later life. Sure they may be eligible for Social Security retirement equal to half of their spouse's benefit but that's not much.
So show mom you are financially savvy and get dad to help open and contribute to a Roth IRA for mom.
Lot of info on IRAs on this blog; use the search function for details.

May 5, 2019

Don't Delay Investing for Retirement!

It's so easy to justify procrastinating retirement savings... once I pay off the mortgage, when I finish helping my kids pay for post-secondary education, when I get a raise...
"Most retirement calculators are optimistic to a fault. They assume our incomes will rise throughout our working lives, or at least stay roughly the same.
In reality, our incomes are likely to peak years — and sometimes decades — before we retire. Consider this:
— People’s biggest wage increases tend to happen in their 20s and 30s, with more modest increases in midlife followed by declines, according to a 2016 analysis of Social Security earnings records underwritten by the Federal Reserve Bank of New York.
— Most people’s incomes peak by age 45, the researchers found, although the top 20% of earners peaked in their 50s.
More than half of those who enter their 50s with a stable job are laid off or otherwise forced out the door, and the vast majority don’t recover financially, according to analysis by ProPublica and the Urban Institute." Liz Weston writing for the AP News.
So... what to do:
Save early and avoid "lifestyle creep"
Remind yourself about the time value of money and compound interest which illustrate how much more valuable is a dollar invested a decade ago compared to a dollar invested today.
Get the details at: https://www.apnews.com/3ae0c46014564b82bbdd55f4d7facd4b

May 2, 2019

Retire Early? Work Forever? Both Are Wildly Unrealistic

Writing for Barron's, Sarah Green Carmichael interviewed Teresa Ghildarducci, the Irene and Bernard L. Schwartz Chair in economic policy analysis in the economics department at the New School, and the author of How to Retire with Enough Money: And How to Know What Enough Is.

Regarding the FIRE (financial independence retire early) movement, Ghildarducci said: 
"The person who says, 'I want to retire early,' should probably talk to a therapist, because behind that is probably an uncertainty about what they want to do with their life, or they don’t like their job. But just financially, it doesn’t make sense unless you’re very, very rich, and if you’re very, very rich, you probably have expensive taste. For most people to quit work for 40 or 50 years, it’s just not a plan that can be sustained for anybody, except for people on TV."

What about the people who say, “Oh, I’m never going to retire. I’m just going to work until I’m 90”?
"There’s two kinds of people who say that. There’s the rare pediatrician who loves their work and wants to see a couple of kids a couple of times a week until they’re 90. That’s rare; that’s why you see them in the newspaper"
"The second group are people who are engaged in what’s called cognitive dissonance. They know they don’t have enough money, and so they engage in another kind of fantasy, which is, 'I can work until I die. My employer will want me.' We find in our research that there’s a [level of] enormous age discrimination and that there are a lot of jobs that are so fast-paced in terms of technology skills required that an older worker will just not be able to keep up." There is also the physical requirements of some jobs that cannot be sustained into advanced age.

Research shows: "Most people will stop work before 65 and collect Social Security before 65."
"They were pushed out, or they were laid off, or they had to take care of their spouse or had to attend to their own illness. Most people do not retire when they want to. They retire earlier."

So what is a realistic goal and game plan for retirement planning?
"Here are some rules of thumb. If you’re 30, you should be out of debt, and you should have about half of your salary in the bank. By the time you’re 40, you should have a little more than your annual income in the bank sequestered for your retirement in either a 401(k) or an IRA. By the time you’re 45, you should have two times your annual salary. By the time you’re 50, you should have three.
By the time you’re 65 or so, 63, you should have about eight times your annual salary, if your annual salary is about what you want to live on...."

Read the interview at: https://www.barrons.com/articles/retire-early-or-work-forever-51556397683?shareToken=st1b1d6680257d4fb7ab3787524708bd0c&reflink=smartbrief
 

Single Premium Immediate Annuity vs. "Safe Withdrawal" Strategy

"Economist and mathematician Michael Edesess compares a "safe withdrawal" strategy from a 60/40 stock-and-bond retirement portfolio with a single premium immediate annuity of the same value. He found the SPIA offers retirees a bigger monthly payout and decreases their chances of running out of money."

Author/researcher Michael Edesess explains:
"A safe withdrawal rate is the percentage of your assets you can withdraw each year without danger of running out of money, no matter how long you live. The seminal work on the subject was written by financial planner William P. Bengen and published in the Journal of Financial Planning in October 1994."
Bengen asked the question, with a portfolio of 60% stocks and 40% bonds, “What percentage of your starting assets can you withdraw yearly for the rest of your life without fear that you will run out?”
"His answer, based on simulations using past history, was that you can withdraw 4% a year (adjusted for inflation)."

"But in recent years, stock and bond market conditions have changed. Interest rates are historically low. This has caused some researchers to argue that 4% is not a safe withdrawal rate anymore.
In 2013, three researchers found, using their revised stock and bond market parameters, that as low as a 3% withdrawal rate would still mean a 10% chance of running out of money — too big a chance for comfort."

Edesess compared the "safe withdrawal rate" strategy to buying a Single Premium Immediate Annuity (SPIA):  A SPIA "is a financial instrument that guarantees you a consistent monthly income as long as you live."  Don't confuse a SPIA with the "more complicated, expensive, and much less useful annuities with other names, such as variable annuities or fixed-income annuities."

According to Edesess, "My own calculations show that for an investor to be 95% certain of not running out of money with a safe withdrawal strategy from a 60%/40% stock-bond portfolio, the strategy would be to withdraw 3.5% of the initial investment in real (inflation-adjusted) dollars each year."
"If the portfolio started with $500,000, for example, the average annual lifetime income would be $23,000. With the SPIA, the average annual lifetime income would be $33,500, and the certainty of achieving it is greater than 95%."
"Thus, both the certainty of not running out of money, and the lifetime income, are much greater with the SPIA than with the 'safe withdrawal' strategy."

By purchasing a SPIA you are creating your own pension

Read the full article at: https://www.marketwatch.com/story/this-one-investment-move-can-give-you-lifetime-yearly-income-in-retirement-2019-04-29

Consumer Financial Protection Bureau head more interested in helping corporations than protecting consumers

"Kathy Kraninger gave her first speech as director of the Consumer Financial Protection Bureau (CFPB) at the Bipartisan Policy Center in Washington, D.C., in April. We were alarmed to hear Kraninger voice an overall vision for the CFPB that appeared antithetical to its core function of “enforcing federal consumer financial laws.” Kraninger stated that she was concerned with the CFPBs’ role in creating a “regulatory burden” for the companies under its supervision. She conveyed her intent to focus the Bureau on “prevention of harm” through consumer education, while limiting its powerful examination and enforcement tools to “purposeful” uses.
“Given Director Kraninger’s announced focus on education over consumer protection, consumer advocates are determined to educate the new director about the need for robust Bureau oversight and enforcement to hold financial companies accountable for harmful practices,” Consumer Action’s Deputy Director for National Priorities Ruth Susswein said." Source: Consumer Action
https://www.consumer-action.org/news/articles/consumer-action-insider-may-2019/?eType=EmailBlastContent&eId=c4ee986f-51de-4c8a-a008-0d1eaef48ad2#Topic_08

Another example of the value of government regulation: The Card Act of 2009

Beside the obvious everyday advantages of vehicle safety regulations like requiring seat belts and air bags in vehicles, many federal laws protect consumer privacy and financial transactions.

"May 22 is the 10th anniversary of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. The game-changing CARD Act, which was passed by Congress during the Obama Administration and has since been enforced by the Consumer Financial Protection Bureau, has saved consumers billions of dollars in credit card fees and predatory “penalty rates,” despite industry predictions that it would kill the credit card market. Sadly, nearly half (47%) of consumers surveyed by CompareCards, a Lending Tree company, said they’d never heard of the CARD Act. Now’s your chance to learn more about what the CARD Act has done (and continues to do) to protect consumers like you." source: Consumer Action Insider.

Here's a reminder about how banks and credit card companies used to take advantage of consumers and how the world changed for the better 10 years ago.

What the Credit CARD Act of 2009 Means for You

You might not know it, but the Credit CARD Act of 2009 changed your life in a powerful way.

By Beverly Harzog , Credit Card Expert |Feb. 20, 2019,
https://creditcards.usnews.com/articles/what-the-credit-card-act-of-2009-means-for-you?eType=EmailBlastContent&eId=c4ee986f-51de-4c8a-a008-0d1eaef48ad2
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