All Posts in "Personal Finance/Consumers"

Most Americans work throughout adulthood with the hope of retiring from the workforce some day. Ideally, the milestone is achieved when one is young enough to enjoy their work-free lives without worries about finances or debt.

Unfortunately, half of U.S. households can’t maintain their pre-retirement standard of living throughout retirement. Many Americans are forced to tighten budgets and give up luxuries during retirement, partly due to dismal savings and an upward trend in financial struggles among more than 80 percent of households with adults older than retirement age.

That decline in household wealth is particularly concerning during a pandemic that has disproportionately impacted the health of older adults. Infection can lead to unexpected costs related to acute or long-term healthcare, loss of the ability to live independently, and the death of a partner. Many don’t have the means to cover a financial shock, and even fewer have a cushion to fall back on.

The grim financial security for those in retirement begs the question: How are American retirees faring during the pandemic?

To answer this question, Clever Real Estate, a national real estate education platform for homebuyers, sellers, and investors, surveyed 1,500 Americans about their retirement funds, debt, and financial worries. We learned that many retirees are struggling. On average, retirees only have $178,787 in retirement funds and hold nearly $20,000 in non-mortgage debt, with their debt more than doubling in 2020.

Retirees rely on a variety of sources to finance their retirement. The most common sources of retirees’ income include Social security (33 percent), personal savings (32 percent),retirement funds–401k, Roth IRA, etc. (31 percent), company/ employer-funded pension plan (19 percent), other investments, including CDs, stocks, and real estate (17 percent), part-time employment (12 percent), government agency other than Social Security (9 percent), consulting /self-employment (6 percent), inheritance (6 percent), and children (4 percent).

Experts recommend that workers save approximately $465,000 for retirement. The typical retiree in our survey, however, reported having less than $180,000 in retirement funds, despite expecting to have expenses for 20 more years. Two-thirds of retirees have less than $50,000 in retirement funds.

Sparse retirement funds leave many retirees reliant on Social Security to cover their expenses. Nearly 60 percent of older adults’ household wealth comes from Social Security, which is less than ideal considering the benefit is only about $1,514 per month on average — much less than the typical spending of about $3,900 monthly.

Unsurprisingly, many retirees aren’t sure if they’ll be able to leave inheritance to their heirs after their passing; 28% said they won’t have enough money to pass on, while another 29% said they’ll pass on what they have but aren’t purposefully saving to do so.

 

Retirees’ debt more than doubled in 2020

 

According to the U.S. Bureau of Labor Statistics, retirees’ average post-tax income from all sources is about $39,591 annually, which doesn’t even cover typical spending ($47,259). The $7,700 difference between income and expenditures means many are falling behind despite living relatively modestly, as the majority of retirees live below the standard of living they experienced prior to retirement. The average worker, for instance, spends more than $63,000 annually.

Instead, retirees are spending less than they did before retirement while still spending more than they earn. Nearly 60 percent of retirees said they struggle to pay for necessities and bills, including medical, groceries, credit cards, mortgages or rent, insurance, debt repayment plans, car payments, and student loans. In order to cover those bills, retirees are going into debt—an average of about $19,200 in non-mortgage debt.

Although they’re holding on to less debt than non-retirees, who have an average of about $44,000, retired Americans were hit harder financially in 2020. The average retiree took on an additional $9,779 in debt 2020, increasing their overall debt by 104 percent. Non-retirees, on the other hand, accumulated an additional $5,035, only increasing their total by 13 percent. Some of that increase is due to more people carrying credit card debt. In fact, the percentage of retirees carrying credit card debt has increased over the last decade—48 percent between 2019 and 2020 alone.

Only about 3 in 10 retirees retired when they planned. Of those who didn’t retire on schedule, 59 percent retired earlier. Although an early retirement sounds ideal, only 3 percent retired early because they had additional wealth, while the overwhelming majority were forced into retirement because of health issues (65 percent), job loss (22 percent,) or they had to care for a family member (10 percent).

Forced early retirement can leave retirees in a tough spot financially, as they simultaneously lose out on time they planned to save for retirement and have longer retirements. That’s even more troubling for those who left the workforce due to illness, as they will have additional medical expenses to cover, as well.

The COVID-19 pandemic has likely contributed to an increase in unexpectedly early retirements and worries about health, considering the virus disproportionately impacts older adults. Unsurprisingly, 1 in 3 retirees said they fear declining health that requires long-term care; its expenses can add up to more than what retirees have saved for their entire retirement.

The high costs associated with healthcare aren’t just a worry for retirees — they’re a reality. Of those who reported having trouble covering expenses and bills, nearly half said they’re struggling to pay medical bills— more than any other type of cost.

Besides medical issues, retirees are most worried about being a burden to their family, losing independence, cognitive decline, isolation and loneliness.

 

Francesca Ortegren, who wrote this article, is the data science and research product manager for Clever Real Estate.

srmedia by — April 29, 2021 in Personal Finance/Consumers
Tax season is a good time to look ahead to next year

With tax time upon us, one message we keep hearing is that you should file as early as possible.

You may recall that last year there were numerous delays in getting tax refunds after the pandemic caught everyone, including the IRS, off guard. If you have a refund coming, the sooner you file, the sooner that refund will make its way into your bank account.

If you’re like most Americans, you also want to do everything you can to reduce your overall tax bill. We all understand that taxes are needed to run the government, but there’s no need for you as an individual to pay more than you owe.

Let’s face it, though. It’s a little late in the game to put into play most steps that can help you reduce your 2020 tax bill. You really need to have done whatever you were going to do before the end of the tax year.

But now is definitely a good time to start thinking about ways you can improve your tax situation for next year. Here are a few areas to consider or understand as you do so:

Funding tax-preferenced accounts. One way to save on taxes is by putting money in a variety of tax-preferenced savings accounts such as an IRA, a 401(k), and others. Depending on the account, you can deduct your contribution each year, defer paying taxes on growth, or take withdrawals tax free. In at least one case – health savings accounts – you can do all three. Since an HSA gives you that triple whammy of tax avoidance, it’s definitely something you want to consider. although there are eligibility requirements you need to meet. Also, unlike retirement accounts, an HSA can only be used for medical expenses. With a traditional IRA or a Roth IRA, you don’t get that triple whammy that comes with an HSA, but there are still significant tax advantages. With a traditional IRA, you don’t pay taxes on your contributions, and you defer taxes on the account’s growth. You do pay taxes on withdrawals you make in retirement. A Roth IRA has different advantages. You can’t deduct your contributions now, but your money grows tax free and you aren’t taxed when you make withdrawals.

Using a 529 for K-12 private education. Many people are familiar with 529 plans, but often they think of these solely as a way to save for a child’s college education. But a 529 can also be used to pay for private school in elementary and high school if you so desire. The big tax advantage with a 529 is that you don’t pay federal income taxes on the account’s growth, but you must spend the money on qualified educational expenses and nothing else. That last point is important to remember and understand because if you use the money for other reasons, you will pay taxes on that withdrawal and you will also pay a penalty. A 529 account is definitely something to consider if you have children or grandchildren and want a tax-efficient way to save either for K-12 or college educations.

Making charitable contributions. Charitable contributions are a powerful tool for reducing your tax bill, and they come with the added bonus of allowing you to make a positive impact in your community or the world. What could be better? Through charitable contributions, you can reduce your income tax, your capital gains tax, and your estate tax. Some people view this in the most straightforward way – you choose a worthy cause that qualifies under the tax rules, and you write  a check. But there are other tax-advantaged ways to approach charitable giving. Here’s just one of many examples: You can establish a donor-advised fund, which is a personal charitable account opened in the name of one or more donors and held in custody by a nonprofit organization. How does that work? Let’s say you sell a stock and, instead of paying the capital gains tax, you place the proceeds in a donor-advised fund. You can claim the full amount as a charitable deduction, but you don’t have to donate the money all at once. The money remains in the fund and can be donated in small amounts over a period of years. All the while it is drawing interest.

These are just a few examples of strategies you can consider as you seek ways to reduce that tax bill. Certainly, all of this is complicated, but your financial professional should be able to help you work your way through the IRS weeds and find what works best for you and your personal situation.

Your future tax-filing self will thank you.

 

Jim Braun, who wrote this article, is president of Tri-State Retirement (www.tristateretirement.com). He advises clients about Social Security, Medicare, and create retirement income strategies.

srmedia by — April 12, 2021 in Personal Finance/Consumers

Seventy percent of American couples have had a disagreement with their partner about finances in the past year, resulting in problems in their relationships, according to recent research by The Harris Poll on behalf of the American Institute of CPAs (AICPA).

“If left ignored, financial stressors can tear through a relationship and ruin more than just your bank balances,” said Gregory Anton, chairman of AICPA’s National CPA Financial Literacy Commission. “It’s important to talk and have a strong sense of financial familiarity in a relationship. When you share your money values and set joint-financial goals together, you help set your relationship up for success.”

The survey found that disagreements about finances usually revolve around needs versus wants, spending priorities, and making purchases without discussing them first. Paying off debt and saving for larger purchases round out the top five.

Only 56 percent of married or cohabitating Americans said they are “very comfortable” talking to their partner about finances. Lack of communication and financial problems are both common issues that contribute to divorce. Couples looking for help strengthening their financial compatibility can visit 360FinancialLiteracy.org/Love.

Financial infidelity is enough for some couples to throw in the towel, whether it’s a large amount of debt, assets that have been hidden, or a secret bank account. The survey found that 41 percent of Americans who are married or living with their partner would be at least somewhat likely to end their relationship if they discovered their partner was dishonest about their finances.

Older adults (65 and over) are least likely to end their relationship over financial infidelity; younger adults are most likely.

Throughout 2021, AICPA will explore the impact of COVID-19 on consumers, businesses and the accounting and finance profession through a series of surveys and reports, Anton said.

 

srmedia by — March 24, 2021 in Personal Finance/Consumers

The healthcare organizations of CHI Franciscan and Virginia Mason have united to form Virginia Mason Franciscan Health.

As part of CommonSpirit Health, the non-profit, Catholic parent company of Virginia Mason Franciscan Health, the new integrated system will increase access to care with hundreds of sites across western Washington, officials said.

Virginia Mason Franciscan Health will operate 11 hospitals and nearly 300 care sites overall, including primary and specialty-care clinics, same-day surgery centers, Benaroya Research Institute (autoimmune disease research), Bailey-Boushay House Bailey-Boushay House (the first skilled-nursing and outpatient chronic-care management program in the U.S. for people with HIV/AIDS patients), and Virginia Mason Institute (training for healthcare professionals). The organization has more than 18,000 employees, including nearly 5,000 physicians and affiliated providers.

Patients will continue to use their same site of care and their current insurance plans. If there are any changes, patients will be informed “well in advance,” a spokesman said.

Previously, CHI Franciscan and Virginia Mason partnered on obstetric and women’s health – opening a new birth center and women’s health clinic in Seattle last year –and had a radiation oncology partnership at St. Anne Hospital in Burien and St. Francis Hospital in Federal Way. Those partnerships demonstrated the positive impact when the two systems work together and will serve as the model for their new, expanded integration, officials said.

Other hospitals in the new venture include Virginia Mason in Seattle, St. Anthony in Gig Harbor, St. Clare in Lakewood, St. Elizabeth in Enumclaw, St. Joseph in Tacoma, St. Michael in Silverdale, and Wellfound Behavioral Health Hospital in Tacoma.

CommonSpirit Health, created in February 2019 by Catholic Health Initiatives and Dignity Health, has a national headquarters in Chicago and operates 137 hospitals and 1,000-plus care sites in 21 states. In fiscal year 2019, Catholic Health Initiatives and Dignity Health had combined revenues of nearly $29 billion and $4.4 billion in charity care and unreimbursed government programs.

srmedia by — March 8, 2021 in Personal Finance/Consumers