Archives for September 27, 2019

Employers and workers will shell out more cash for health insurance in 2020.

Large companies predict the total cost of workplace health-care coverage to reach an average of $15,375 next year, according the National Business Group on Health. That’s up from $14,642 in 2019.

This figure combines workers’ and employers’ spending on insurance. Employees are expected to shoulder about $4,500 in costs next year, including out-of-pocket spending, the group found.

The organization, which represents large employers’ perspectives on health-care policy, polled 147 large employers to get their perspectives on health-care trends.

Employees with families face even steeper costs.

In 2018, employers spent an average of $15,159 in premiums to cover a family of four, according to the Kaiser Family Foundation.

Those workers paid a total of $7,726 in 2018. Of that, $3,020 came from cost-sharing, including deductibles, coinsurance and copayments.

“Employer premiums are going up; they pay more each year,” said Cynthia Cox, vice president at the Kaiser Family Foundation. “But so do the employees and their families.”

Paying more

Deductibles — the amount you must pay before the insurance company provides benefits — now account for more than half of workers’ out-of-pocket spending, Kaiser found. That’s up from 26% in 2008.

Indeed, among workers in a plan with an annual deductible, the average for single coverage in 2018 was $1,573, Kaiser found.

The average was even higher for high-deductible health plans: $2,349 for single coverage.

High-deductible plans, however, often come with a health savings account or HSA — that is, a tax-advantaged account that allows workers to save pretax dollars, grow their money free of tax and use the money for qualified health expenses.

Employers have noticed that these deductibles can be steep for employees, leading some to shy away from offering exclusively high-deductible plans.

In 2018, about 4 in 10 of the employers polled by the National Business Group on Health offered exclusively high-deductible plans.

Only a quarter of employers say they will follow this tack next year. They are reintroducing options, namely a preferred provider organization plan.

So-called PPOs allow you to visit any in-network provider without getting a referral from your primary care physician.

What to expect

With employee benefits season around the corner, workers should expect to see a few changes for 2020.

Narrowing provider networks: Depending on the employer’s location, companies may decide to limit the providers a worker can access in a given geographical area. In exchange, employees may get lower premiums and deductibles, Kaiser’s Cox said.

Using accountable care organizations: Employers coordinate with insurers to create a network of primary care physicians and specialists that work together to manage a patient’s care from start to finish.

This is known as an accountable care organization.

Greater use of virtual care: Telemedicine, or virtual care, puts employees in touch with a nurse or doctor for different conditions, allowing them to skip a costly visit to the emergency room.

More than half of the respondents in the National Business Group on Health survey said they will offer more virtual care programs in 2020.

“Virtual care solutions bring health care to the consumer rather than the consumer to health care,” said Brian Marcotte, CEO of the business group.

Can you spare $5 a day? If so, you could become a millionaire — one day.

“If you start in your 20s with a couple of reasonable investments, you can’t avoid becoming a millionaire,” said Michael Taylor, author of “The Financial Rules for New College Graduates.”

However, many young people are delaying or refusing to invest.

The average millennial doesn’t expect to start saving for retirement until their late 30s, while half the generation isn’t invested in the stock market at all, according to a study by TD Ameritrade.

That’s a problem. 

Taylor provided some math to explain why. If you save $5 a day in an account with a 10%  annual return, you’ll have around $30,000 in 10 years, $330,000 in 30 years and $2.3 million in 50 years. (The S&P 500′s annual rate of return over the last 90 or so years has been around 10%. After adjusting for inflation, however, it’s closer to 8%.)

Assuming a more modest 6.5% annual return, you’d have around $26,000 in 10 years, $168,000 in 30 years and $667,000 in 50 years.

“If you start late, you will never catch up to the person who started early with the same amount,” Taylor said.

With slowing global growth, trade wars, and inverted yield curves, it seems everywhere you look someone is talking about a recession. Will we have one? When? Will it be mild or severe?

The only question anyone can accurately answer is the first one. Yes, we will have a recession. Recessions are part of normal economic cycles. When? No one knows for sure. Mild or severe? No one knows for sure.

But most financial professionals want to sound like they know. They study data and post charts and graphs to illustrate their view on why there will or won’t be a recession and how severe it will or won’t be. What does that data do for the average retiree? Not much.

Maybe you subscribe to Charlie Chart’s point of view and go to cash to protect your money. Or maybe you follow Gail Graph’s newsletter and you decide to go all-in on a market dip, feeling confident there won’t be a severe recession. Some of you will be right and some of you won’t. But all of you are guessing.

Is there a better way? Yes. It’s called having a plan. Businesses have them to manage their cash flow, inventory, expenses and such, and they use them to help navigate the constantly changing economic environments. Retirees and near-retirees need a plan, too. A plan keeps you from making quick and all-too-often misguided emotional decisions that may derail your retirement.

The type of plan you need isn’t one that tries to predict recessions. That’s akin to roulette. It either works, or it doesn’t. Instead, the type of plan you need is one that acknowledges that recessions will come along during your retirement years. Rather than the constant guessing game of trying to avoid them, you make an action plan, so you know how to power right through.

This sensible type of plan models out your income and expenses over varying market conditions and provides indicators on when you may need to reduce spending or adjust investments. You know ahead of time the specific actions you will take if your financial plan metrics fall below predefined threshold amounts.

With a recession-proof plan, it doesn’t mean the recession won’t affect you. It means you know what to do when it comes along. Let’s look at an example.

Suppose you’re three years out from retirement and you’re 62 years old. You plan to retire at 65. You need $80,000 a year to be comfortable. You plan on delaying your Social Security to age 70 at which time you’ll get about $37,000 a year. From age 65 to 70, you’ll need to withdraw $80,000 a year from savings and investments. After age 70, only $43,000 a year. You want to plan for a 30-year withdrawal time horizon.

You could look at the 4% rule and determine that you’ll need $2 million to support your $80,000 a year in your first few years. But you’ll need less after that. So, is the 4% rule the best way to go? Not really.

Instead, you take the present value of the 30 years’ worth of withdrawals. If you assume your investments earn the inflation rate of 3%, you can calculate that by age 65 you’ll need $1,012,268 to support $80,000 for the first five years, then $43,000 for the next twenty-five. Let’s assume you have the needed amount today

Next, you add up your first seven to eight years’ worth of withdrawals, which equals $486,000 and $529,000 respectively. You turn that portion of your investments into a bond ladder, or use other types of safe investments, with the amounts maturing each year matched up to what you need to withdraw that year. You invest the rest in stock index funds. Your allocation will be about 48% to 52% in bonds.

If you are conservative, you might lean toward the 52% in bonds, which covers eight years of withdrawals. You know that if a prolonged recession comes along, you will forego the inflation raises that you built into your plan. The good news is that during a prolonged recession, inflation is usually low. So, the net impact on your lifestyle is likely to be minor.

If you are more comfortable with a long-term outlook for investing, you might lean toward 48% or even less in safer investments. Maybe you want to cover only the first five years of withdrawals, which covers the gap to get you to maximum Social Security benefits. That would be about $400,000 allocated to safe choices, or about 40% of your portfolio.

Now, if a recession or bear market comes along, depending on the number of years you want covered, you have five to eight years of safe investments in place, giving you time for an economic cycle to play out. With this type of plan in place, there is no need to let the latest headlines drive an emotional reaction.

This is a simplified example. It doesn’t take taxes, home equity, account types, or any other sources of income into account. But it does illustrate how a financial plan can be used to align your investments up with the job they need to do for you. And how to structure your investments in a way that gives you time to ride out the normal cycles of expansion and contraction.

And, if you don’t like the idea of a plan, there are always plenty of headlines and pundits you can follow instead.

The marriage vow that usually involves a variation of “for richer or poorer” may no longer apply.

Women may now want to add “as long as you make as much money as me.”

It seems many men aren’t getting up to the income level that women prefer in a potential marriage partner, according to the New York Post.

That has left successful ladies single and disgruntled, according to a Cornell University study.

Cornell sociologists explored America’s declining marriage rate and discovered a lack of financially eligible bachelors in a study published in the Journal of Marriage and Family.

Women want partners whom they consider equals.

In the last decade, women have been outpacing men educationally and topping them in income, according to The Post.

While many marry for love, the lead author of the study Daniel T. Lichter says, “it also is fundamentally an economic transaction.”

A lack of good jobs and the emergence of the gig economy are seen as reasons that single men have fallen economically behind.