11/30/15

Some Retirees Pay Higher Medicare Premiums in 2016

By Emily Brandon, Nov. 20, 2015 US News & World Report

Specific groups of retirees will be charged more expensive Medicare Part B premiums than everyone else. New Medicare enrollees will pay bigger premiums than most existing beneficiaries.

Most retirees will pay Medicare Part B premiums of $104.90 per month in 2016. Medicare payments are prevented by law from increasing faster than Social Security payments. Since Social Security recipients didn’t get a cost-of-living adjustment for 2016, most existing Social Security beneficiaries will continue to pay the same Medicare Part B premium as in 2015. However, the Centers for Medicare and Medicaid Services estimates that about 30 percent of the 52 million Americans expected to be enrolled in Medicare Part B in 2016 will pay higher premiums. Here’s a look at the specific groups of people who will pay bigger Medicare premiums in 2016:

New enrollees. Retirees who sign up for Medicare in 2016 will pay $121.80 for Medicare Part B, $16.90 more per month than existing Social Security recipients. This group includes people who will turn 65 in 2016 and employees who worked past age 65 at a job with group health insurance, but will switch to Medicare in 2016. The Bipartisan Budget Act of 2015 prevented a much higher premium increase to $159.30 for new beneficiaries. This law modified how Part B premiums are calculated for 2016. General tax revenue will be used to cover the costs of the premium reduction, but all Part B enrollees will repay this amount over time through small surcharges added to their premiums until the money is repaid.

Retirees not collecting Social Security payments. If you signed up for Medicare before claiming your Social Security payments, you are not protected from Medicare premium increases. Some Medicare beneficiaries haven’t signed up for Social Security yet in order to collect delayed retirement credits and qualify for higher Social Security monthly payments when they do claim them. There’s also a small group of people covered by Medicare, but not Social Security. These Medicare recipients will pay $121.80 for Medicare Part B in 2016.

Medicaid recipients. Some Medicare beneficiaries are also eligible for Medicaid, which pays for their Medicare premiums. In this case the higher Medicare Part B premium is passed along to state Medicaid programs that pay the premium for people who are dually eligible for Medicaid and Medicare. The Kaiser Family Foundation estimates that dually eligible beneficiaries will make up two thirds of those not protected from the Medicare premium increase.

High income beneficiaries. Retirees with high incomes have been paying bigger Medicare Part B premiums since 2007. Those with retirement incomes between $85,000 and $107,000 ($170,000 to $214,000 for couples) will pay $170.50 in Medicare Part B premiums in 2016. The premium jumps to $243.60 for retirees earning from $107,000 to $160,000 ($214,000 to $320,000 for couples) and $316.70 for those with incomes of $160,000 to $214,000 ($320,000 to $428,000 for couples). People who earn more than $214,000 as an individual or $428,000 as a couple pay $389.80 per month for Medicare Part B. Less than 5 percent of Medicare beneficiaries pay these inflated premiums.

All Medicare beneficiaries will face an increase in their cost-sharing requirements. The Medicare Part B deductible will increase from $147 in 2015 to $166 in 2016, even for existing Social Security beneficiaries paying the lower premium. The Medicare Part A deductible for a hospital stay will also increase slightly from $1,260 in 2015 to $1,288 in 2016.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/23/15

The First-Time 401(k) Saver’s Guide

Huffington Post, June 5, 2015

The Class of 2015 is trading in its caps and gowns for suits and ties, and a wave of college grads are hitting the workforce. This also means a new crop of workers will begin saving in a 401(k) for the very first time. Even though retirement might seem like a lifetime away for most 20-somethings, the earlier you start saving, the easier the path to retirement can be.

Embarking on a new savings plan can be daunting, so I’ve put together a guide to help you navigate your first 401(k) and understand how it can help you maximize your retirement savings:

1) Enroll ASAP. Enrollment eligibility and timing will vary depending on where you work. Some companies will allow you to enroll on your first day, while others will only let you sign up for the 401(k) plan after you have been there for six months or a year, for example. Whatever the case, I’d recommend enrolling as soon as you are allowed. Thanks to the power of compounding, the sooner you start saving, the more money you can have in your account in retirement.

2) Sometimes your employer will take action on your behalf. Some 401(k) plans utilize what’s called auto-enrollment, which means that 401(k) contributions will automatically be withdrawn from your paycheck as soon as you are eligible. This is one way your new employer may be looking out for your financial future. It’s important to know if your company’s plan employs this feature, because if not, you want to ensure you’re proactively signing up as soon as you can.

3) Make the most of your match. You’ll want to highlight this one. One of the biggest advantages of saving in a 401(k) is that many companies offer a matching contribution in some form. For example, it might be a match of 50 cents for every dollar you contribute, up to six percent of your salary. If your employer does offer a match, I strongly encourage you to contribute enough to take advantage of it in full. The match is like an automatic return on your investment that you can’t get anywhere else. In fact, I always say this should be your number one financial priority, even before paying down debt.

Just keep in mind that receiving an employer match can sometimes be dependent on your length of service, which is commonly referred to as “vesting.” Your employer will be able to tell you the specifics of your plan.

4) 401(k) plans will likely offer several investment options. Typically, your 401(k) menu will consist of a wide selection of funds across several asset classes, such as large-cap stocks, international stocks and bonds. When choosing from among these options, keep in mind how much risk you’re comfortable taking on, which tends to correspond with the amount of time you’ll be in the workforce. Generally speaking, as a younger worker, you’ll want to allocate most of your portfolio to stocks, and over time, gradually move the balance towards more conservative bond and other fixed income investments.

5) Low-cost options may be available. I highly encourage you to check for any low-cost investment options, like index mutual funds and exchange-traded funds, that may be a part of your plan’s lineup. These kinds of funds have lower operating expenses, so investing in them can mean putting less of your savings towards management fees and putting more into your account.

6) Professional advice is often available. Setting up and continuing to manage a 401(k) can be tricky for workers of all ages, but it’s an especially tall order for those who are brand new to the process. Fortunately, many 401(k) plans offer some form of third-party, professional financial advice. If your plan includes these managed services, you’d be wise to take advantage of them. Our data shows that people who took advantage of independent, professional 401(k) advice tended to increase their savings rate, were better diversified and stayed the course in their investing decisions.* All of that can go a long way towards beefing up your account balance.

7) 401(k)s offer tax planning opportunities. If you’re new to 401(k) planning, you may not realize that traditional 401(k) plans can help lower your annual tax bill because you make your contributions with pre-tax money. Some companies also offer what’s called a Roth 401(k), which offers a different kind of strategic tax planning opportunity. A Roth 401(k) is funded with after-tax money, which means the money you withdraw from your account in retirement is then tax-free after you meet certain requirements. This is an option that makes sense for a lot of young workers, who anticipate retiring in a higher tax bracket than when they began their careers.

If you still have questions about your new 401(k) plan, you can take advantage of the myriad online resources available. Armed with all of this knowledge, you’ll be well on your way to starting a retirement savings plan that will help you have the lifestyle you want when you eventually “graduate” from your career.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/16/15

Gen X Getting in a Retirement Tizzy

USA TODAY, June 6, 2015

As far as finances go, Rose Cronin is in better shape than most Americans her age. The 40-year-old has been socking money away into a retirement plan since she got her first job out of college. An insurance quality evaluator from New York’s Long Island, Cronin also has two pensions (one from a former company). Her husband, Bill, also has a pension from his teaching job.

They’ve always had an emergency fund. And they set up college savings for their kids, ages, 5 and 7, soon after they were born. “We’re more prepared than most,” said Cronin. Still, she’s worried about their retirement. “I know we’re going to have to set aside more or we won’t have enough,” she said. “It makes me nervous.” That’s an increasingly common concern among members of Generation X as they edge closer to their 50s.

Much of the research on retirement readiness has focused on Baby Boomers, who are turning 65 at a rate of 10,000 a day and seem woefully ill-prepared as a group. (A GAO analysis released this week found that among households with members age 55 or older, nearly 29% have no retirement savings or pension plan.) But in a new multi-generational survey by Northwestern Mutual, Gen X respondents reported the highest levels of financial insecurity of the four generations. Their number one concern: having enough savings to retire comfortably. Two-thirds said they expect to have to work past traditional retirement age out of necessity, and 18% believe they’ll “never retire.”

“There’s an increasing shifting of financial responsibility onto individuals’ shoulders,” said Rebekah Barsch, vice president of financial planning at Northwestern Mutual. “And Generation X will be the first generation to really feel the effect of that.” And without some major changes, advisers say, it could be painful.

Gen X, which includes those born between 1965 and 1980, is the first generation to experience the shift from traditional pension plans to 401(k)s and individual retirement plans. And they’ll hit retirement age just as the Social Security program’s trust fund is projected to run dry, around 2033. Not surprisingly, a whopping 80% of Gen Xers in the Northwestern Mutual study said they don’t expect Social Security to take care of their needs. (The study was conducted by Harris Poll and included responses from 813 Gen X members.)

“It used to be, keep your nose down and keep working and you’ll be taken care of,” said Andrew W. Ferraro, a certified financial planner with Strategic Wealth Partners in Columbus, Ohio. “For Gen X, it shifted to: Keep working hard, but it’s on you to take care of your retirement because it’s not our responsibility to take care of you anymore.”

Having the discipline and foresight to set money aside throughout your career is challenging enough; but with longer lifespans and growing health care expenses, even estimating how much you’ll need to fund your retirement can be a challenge. In the Northwestern Mutual survey, 34% of Gen Xers said they have no idea how much income they need to retire.

There are general benchmarks to guide them, but most savers are falling short. The Center for Retirement Research at Boston College, for example, estimates that in order to maintain their lifestyle in retirement, households need about 70% of pre-retirement income on average. Under current laws, Social Security can replace about 36% of retirees’ final inflation-adjusted earnings. In order to make up the difference, the center estimates savers need to set aside about 15% of their pay over the course of 30 years to retire comfortably.

But only 12% of Gen Xers are putting more than 15% of their income into savings, according to a Bankrate survey released in April. Nearly 4 in 10 were putting aside 5% or less of their incomes. For them, it could be particularly challenging to catch up. The Center for Retirement Research estimates that those who start saving at 45 and hope to retire at 65 will need to save a whopping 27% of their income each year. That drops to 10%, though, if they can put off retirement until they’re 70.

That may be more realistic for many Gen Xers, as they’re often facing more immediate financial needs. Many are not just taking care of themselves but children, and sometimes aging parents, as well. And they tend to carry more debt than other generations — in particular, student loan balances. Those in their 30s and 40s have the highest average student loan debt among borrowers, according to the Federal Reserve.

“Aside from weathering a number of economic cycles, this group is juggling home mortgages, educational debt and lifestyle needs,” said Barsch. “Figuring out how to plan for the future can be daunting.” Indeed, another recent survey by the New York chapter of AARP found that Gen Xers are even more nervous than their predecessors about funding their retirements. More than 6 in 10 said they’re somewhat or very anxious about having enough money to live comfortably once they retire, and a quarter said they weren’t confident they would ever be able to retire.

Cronin, who participated in the survey, and her husband each put about 5% of their income into retirement accounts annually. “But we know that’s not going to be enough,” she said, even with their pensions. The challenge is that they’re simultaneously paying off more than $30,000 in student loan debt and saving money for their kids’ education. “I’d put more money aside in our retirement if I didn’t have that debt, but it’s there,” she said.

She and her husband are diligently chipping away at the loan balance and hope to have it paid off in the next three to five years. Then, she said, they can start boosting their retirement savings—assuming other major expenses don’t crop up.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/9/15

Only about half of savers think they might actually have enough money in retirement

By Jonnelle Marte, Washington Post June 2, 2015

Slightly more than half, or 52 percent, of savers feel like they might actually have enough money to live comfortably in retirement.

That’s not a striking vote of confidence. But it’s an improvement from last year, when 47 percent of people surveyed said they thought they would have enough income in retirement, according to a study released Tuesday by Spectrem Group, a market research firm specializing in retirement and investing.

People are generally feeling better about their finances — including retirement — as they watch the unemployment rate drop, the stock market climb and the economy generally improve, says George Walper, president of Spectrem Group. Many people are seeing their 401(k) balances increase, which can make them feel more prepared overall, he says. Savers still had plenty to worry about, however, especially when it came to retirement. Savers concerned about running out of money cited health-care costs as their No. 1 fear, more than spending too much or losing savings to high tax bills.

The findings show that people are worried about how expenses that are difficult to predict, such as health care, might hurt their finances, Walper said. But two of the biggest factors affecting their retirement readiness — how much people spend and save — are very much in their control, he says. Indeed, a separate report on retirement readiness from the Employee Benefit Research Institute found that people’s confidence levels were directly related to whether they were saving.

Workers who had an Individual Retirement Account or were participating in a retirement plan through their job were more than twice as likely to be “very confident” of their chances of having enough money in retirement than those without a plan. (Confidence jumped to 28 percent for those with a retirement plan from 12 percent from those without one, according to the institute.) Of course, some people want to save more for retirement but feel they can’t afford to. About 50 percent of workers said they weren’t saving more because they were struggling to keep up with day-to-day expenses, according to the institute. The good news is that many of the people with dismal views about retirement have some time before they need to start freaking out. About two-thirds of the savers surveyed by Spectrem were 10 years or more from retirement.

Most people feel like they can spare to save a little more, according to the Employee Benefit Research Institute. About 70 percent of workers said they could probably save about $25 more a week than they are currently saving for retirement. Even those small steps can add up, financial advisers say. People who aren’t saving as much as they want to can consider signing up for auto-escalation, which increases the contribution rates to their retirement accounts by one or two percentage points each year.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/2/15

Millennials Know They Should Be Investing. So Why Aren’t They?

By Motley Fool.com, June 2, 2015

It seems millennials have a healthy awareness of the need to invest for retirement, but their actions don’t reflect this. According to a recent survey by E*TRADE Financial (NASDAQ:ETFC), millennials understand the importance of investing for retirement, taking on a healthy level of investment risk, and planning for the costs they will face when they reach retirement. However, despite the fact that they know what they should be doing, too many millennials aren’t actually doing those things. So what’s getting in the way, and what can millennials do to change this situation?

Mixed data

Some of the data looks rather promising. For example, millennials are more likely to worry about saving for retirement and how to invest smartly than any other age group. And the vast majority understand the concept of taking investment risks while they’re younger, with 91% saying they plan to invest aggressively over the next five to 10 years. Finally, more than 80% said that in order to have a successful retirement, you need to save and invest in addition to your 401(k). So it seems that millennials understand the importance of saving for retirement and know what they should be doing.

However, the data also reveals that millennials’ behavior is not necessarily reflective of their knowledge. For example, millennials are more likely than any other generation to have made an early withdrawal from their 401(k). And many did so for silly reasons, like funding a large purchase for themselves. Further, 39% of millennials have not sat down and written a savings and investment plan to help them achieve their goals.

According to Lena Haas, senior vice president of retirement, investing, and saving at E*TRADE, there are several reasons for this. For example, many millennials surveyed cited “wanting to live for today” as a major barrier to saving and investing. Many just aren’t willing to make trade-offs and reduce their current level of consumption. Others believe they don’t have enough money to start investing, and some think it would take too much time out of their lives. And, some don’t know where to get started, or which investments to choose.

What can be done?

So how can millennials overcome these barriers to investing and get started? First and foremost, they need to make it a priority to save money. From dining out less to avoiding bank fees, there are hundreds of ways to potentially cut back on current expenses. Of course, your present lifestyle may suffer a bit as a result, but the changes may not be as dramatic as you’d expect.

And despite the popular misconception, you don’t need thousands of dollars to start investing. Most major brokerages don’t have a minimum initial deposit requirement for opening an IRA, so you could get started for a few dollars. Even if you can’t invest much, one of the best things you can do is to make the process automatic so that you contribute small amounts on a regular basis. You can set up an auto-debit from your bank account, so start by contributing whatever you can afford.

Once you’ve started setting money aside, the next challenge is knowing what to invest in. The idea of choosing individual stocks intimidates many new investors, and understandably so. If you’re not confident in your investing abilities, a portfolio made up of a few high-quality ETFs (exchange-traded funds) could be the best solution for you. I often refer to ETF investing as “investing the easy way,” because ETFs allow you to spread out your money over an entire index of stocks (like the S&P 500) or a particular sector, like technology, without having to choose individual companies. There are plenty of good ETFs to choose from.

Finally, use the tools at your disposal to make your investing easier. For example, many online brokerages offer free or low-cost services that will help you decide how to allocate your capital. And retirement planning calculators like the many offered at Bankrate can help you determine how much you should set aside now in order to meet your long-term goals. Tools like these can make the process take minutes, not hours or days.

A generation of savers?

All that said, millennials have done a better job of saving than previous generations had by this point. After all, this is the generation that watched their parents’ portfolios evaporate and their homes foreclose during the financial crisis, and data suggests this has scared millennials into saving more. However, saving and investing are two entirely different concepts. Many savings accounts pay virtually no interest, with some paying as little as 0.01%. If you stick $10,000 in a savings account at that rate, after 30 years, you’ll have $10,030. This is unlikely to keep up with inflation, let alone provide for your needs in retirement.

On the other hand, if you invest $10,000 in an S&P 500 index fund, it could grow to $152,200 in 30 years, based on the S&P’s historical rate of return. Now, I realize that savings interest rates aren’t likely to be stuck at such low rates forever, but there’s still a huge difference in the rates of return. Millennials are saving, but they need to invest and put their money to work. The tools are out there, and it only takes a few minutes (and a few dollars) to get started. If you’re among the millennials who want to start investing, there’s no time like the present.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®