Your Biggest Financial Decision

What’s the biggest financial decision you’ll ever make? Going to college? Buying a house? Maybe, but it may also be true that the biggest financial decision is the decision about when to claim Social Security. And that is a decision where you’ll hear people give opposite advice – some will recommend claiming early, and others encourage you to wait.

Because it’s a big decision, it’s worth exploring your options carefully using readily available online tools. Tool #1 is well-known, but read on to tool #2, as well, because it offers a bonus.

Tool #1: Set up your account at www.socialsecurity.gov and check out your options. Notice how your monthly Social Security income changes depending on your age at claim. You’ll notice that it’s not just what year, but also what month, that matters. For example, if you turn 67 in November, but really don’t have any plans until summer, working an extra 5 or 6 months will give you a higher monthly income.

Tool #2: Check out the Social Security Estimator from the Consumer Financial Protection Bureau (CFPB).  Although this tool is not personalized to your individual history of work and earnings, it does something the Social Security tool does not. It shows the cumulative impact of your decision about when to claim. 

Here’s how the CFPB tool works: You enter your birthdate, and type in how much has been your highest annual earned income in your career. Based on that, it estimates what your social security retirement benefit would be at your full retirement age, and at other ages between 62 and 70. When you select an age, it shows what your monthly income will be, AND (in the left margin) it shows the total amount you will receive from Social Security if you live to the average life expectancy of 85.

graphic depiction of output described.
Combined graphic showing calculator results at ages 62 and 70

I ran an example for a person born in 1960 whose highest earning level was $50,000/year. If they claimed at age 62 and lived till age 85, they would receive a monthly benefit of $1,112 and would have received a total of $305,800 from Social Security during their life. By contrast, if they claimed at age 70 and lived to age 85, their monthly benefit would be $1,958 and their total by age 85 would be $352,440. Note: all these figures would actually be higher, because of adjustments for inflation.

There is no “right” age to claim Social Security; your choice depends on your situation – your needs, other sources of income, health situation, and more. But using available tools, including the CFPB calculator which enables you to easily see the total impact of your decision at age 85, will help you make a well-informed decision. Find more retirement planning information our retirement resource page.

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Managing Someone Else’s Money – Being a Financial Caregiver

Today’s guest blogger is Sandra McKinnon, Human Sciences Specialist in family finance serving southwest Iowa.

Are you managing money or property for a loved one who is unable to pay bills or make financial decisions? According to the Consumer Financial Protection Bureau, 40% of those over 60 years old have a power of attorney. That amounts to over 26 million people in the U.S. with this responsibility.

Being legally designated as power of attorney is one of 4 different types of financial caregivers, also known as a fiduciary. You must be trustworthy, honest and act in good faith.

Other types of fiduciaries include: a court-appointed guardian of property (known as a conservator); a government fiduciary (such as a Social Security representative payee); and a trustee under a revocable living trust. Each of these is a separate responsibility.

Each has duties, powers and responsibilities. In general, there are 4 basic legal duties of a fiduciary:

  1. Act only in best interest of your family member or friend
  2. Manage their money and property carefully
  3. Keep their money and property separate from your own
  4. Keep good records and report as required

Another role of a financial caregiver is to watch out for financial exploitation and be on guard for consumer scams. If you suspect exploitation of an older adult, call the Eldercare Locator 1-800-677-1116 or visit www.eldercare.acl.gov. They will assist you in finding the state or local agency that investigate.

For more information, visit https://www.consumerfinance.gov/consumer-tools/managing-someone-elses-money/ or seek guidance of an appropriate legal professional.

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Currency Exchange Cautions

Last month I took a vacation to Ireland. It had been years since I’d traveled outside the US and Canada, so I did some “homework” before I left.  One key step was to talk with my credit card carriers. Two purposes:

  1. Let them know I was going to be traveling (always a good idea, even when traveling in the U.S.).
  2. Find out what their currency conversion fees are.
Dollars becoming Euros

When exchanging U.S. Dollars for another currency, there is always an exchange rate, because U.S. Dollars and Mexican Pesos and Euros and Indian Rupees are not equivalent. Currently, it takes about $1.10 US to buy one Euro, which is the currency used in Ireland.

Beyond that, however, there MAY be another cost: the bank that is converting the money may charge a fee for converting the funds. When I called my credit card companies, I got good news: two of my cards charged no conversion fees! My third card did charge a fee (3%), so I didn’t use it at all.

So far it sounds like I did a great job, right? But no – not completely. My mistake came in a situation I hadn’t anticipated. Sometimes when I was paying for a purchase in Ireland, the store gave me a choice: would I like to have the transaction charged to my credit card in US dollars or in Euros? A few times, caught by surprise, I said “US Dollars.”

Unfortunately, that was the wrong answer, as I learned when I looked closer at my receipts. Because when the store or restaurant ran the transaction in US Dollars, then they charged me a conversion fee (3.5% in one case). The right answer to the question would’ve been to have them go ahead and process the transaction as Euros, since I knew my credit card wasn’t going to charge me a fee.

Was this the end of the world? Absolutely not. It was a small expense, since I only did that a few times before I noticed the fee, and luckily not on any large purchases. But I was still a little disappointed in myself. After preparing to be a smart traveler, I undid the benefit by making a poorly-informed decision on the spot.

I’ll do better next time. And maybe YOU will have a chance to benefit from the lesson I learned!

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Sports Betting Tips

Today’s guest blogger is Kalyn Cody, ISU Extension Human Sciences Specialist serving the DesMoines metro region. Kalyn Cody photo

Last week, I, like many Iowans, walked into my local casino to set up a profile for online sports betting. 

After a law passed in May and final rules were approved in July, sports betting began on August 15th at many casinos in Iowa.  The law allows for both in-person and online bets, but everyone must first check in at a casino to verify their age and identity. With this new opportunity to gamble in Iowa, it is important that we remember some key tips to bet responsibly and not get in over our heads. 

First, always gamble with a plan.  Pick an amount you are comfortable losing.  Does this amount fit into your budget?  Will you have to sacrifice things you need if you lose?  Additionally, pick an amount you are comfortable winning.  Set a dollar amount at which you will walk away.  It is very common to see a stack of chips or winning tickets and continue playing, only to look down again a bit later with nothing left.  Whether you are winning or losing, have an exit strategy.

Second, never borrow money to make a bet.  Think of sports betting as entertainment.  Would you take a loan to watch the headliner at the State Fair?  To go out to a 4-star dinner?  Every gambler has a bad beat story—probably many—and taking a loss on borrowed money can easily spiral out of control. 

Finally, if you do find yourself struggling with a gambling problem, be aware of resources that are available to help.  The Iowa Department of Public Health has set up a website with a risk assessment, hotline, live chat, and more.  You can also call the ISU Extension Iowa Concern Line at 800-447-1985. 

Enjoy your new options, but remember to stay in control of your bets.

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Who needs an emergency fund?

jar of coins

If you’ve gotten along for years without any money in the bank, you might scoff when people suggest that establishing an emergency fund should be a priority. Perhaps you respond with: “I always find a way to deal with emergencies, even without money in the bank!” You are not alone. A recent survey found that 4 in 10 Americans could not cover an unexpected expense of $400; that might be the cost of replacing an appliance that died or an unexpected car repair.

If you’re one of those 4 in 10 Americans, you’ve probably paid a price for your lack of savings. 

  • Perhaps your landlord or the utility company has lost patience with you, and will no longer give you any leeway; they may even threaten to evict you or disconnect your services. 
  • Perhaps family members avoid your calls because they’re tired of you asking for money. 
  • Perhaps you pay tens (or hundreds) of dollars a month in late fees and interest because of unexpected expenses have put you behind on bills.

Here’s the hard truth: living with no savings creates real problems for individuals and families. Savings is essential for financial stability. It can also reduce family arguments and help you sleep better at night.

So the question is this: HOW does a person build up savings? There are lots of “tricks” people use to save money. For example, they may save all their change, or every $5 bill they receive in change; or they may have a “frugal week” each month, in which they give up extras like coffee, soda or eating out, and then save the money they would’ve spent on those things. I love hearing about the variety of strategies people use!

When it comes right down to it, though, there are two core elements of any savings plan:

  1. You must treat your savings like a bill, and pay yourself FIRST. If you wait, planning to save “whatever is left,” the saving probably won’t happen. Make your spending plan for the month (or the week), figure out how much you can save, and do it first. That is the best way to succeed with saving.
  2. You MUST be saving because it is important to YOU. If you try to save just because I told you that you should, it won’t work. You have to want to save in order to be willing to make the changes required for saving. So think about WHY you want to have some savings built up. Maybe you’ll think back to the stress and drama you experienced the last time an unexpected expense occurred; avoiding that stress might be your reason. Setting an example for your children might be your reason. Keeping the utility company happy might be your reason. Note: It helps if your partner and family also agree that saving is important.

How much should you have in your emergency fund? That’s up to you, but I encourage you to set a realistic goal for the short term. If money is tight, it might take a couple of years to get to $1,000. You need some success sooner than that, so a goal of $100 might be a good place to start. When you reach that goal, you can celebrate! (And then start toward $200).

How have you succeeded with saving? We’d love to hear your stories!

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Medical Bill Mysteries: New Tool

Stethoscope with a $100 bill

For the past year-and-a-half I have joined others in being surprised, frustrated and horrified by the “Bill-of-the-Month” news stories presented cooperatively by National Public Radio (NPR) and Kaiser Health News (KHN). The NPR/KHN team receives real bills from real people across the U.S., for treatments ranging from a cat bite and a knee brace to spinal surgery and stroke.

In every case, the consumer submitted the bill because it either seemed outrageously high or it just didn’t make sense. The investigative reporters dug into the issues, usually gathering information from the medical provider and the insurance company as well as the consumer. Sometimes they found errors that could be corrected to reduce the bill; more often, they uncovered prices that were simply inexplicably high. Sometimes, but not always, shining the light of publicity on the situation led to a reduction or elimination of the bill.

Last month Kaiser Health News launched “Your Go-To Guide to Decode Medical Bills.” This new tool includes three components: 1) Pro Tips for Navigating Surprise Medical Bills; 2) a helpful Glossary; and 3) an example of a medical bill and corresponding insurance documents, with notes highlighting key items to pay attention to. The guide is not a magic wand – it doesn’t make navigating difficult medical bills easy. But it does point consumers in the right direction, so we can get started advocating for ourselves and our loved ones.

The guide reminds us that our consumer options begin even before we seek medical treatment – with a set of items to check on before going in or making an appointment. If, despite advance preparation, you end up with a surprising medical bill, a key step is to request an itemized bill. Medical providers are required by law to provide this if consumers request it. Along with other tips, the guide identifies two websites that can help you compare the price you were charged with prices of other providers: Health Care Blue Book and Fair Health Consumer.

As consumers we need to be our own advocates. It helps to have some guidance on how to do that effectively!

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Retirement: Longevity vs Life Expectancy

When planning for retirement, we often look up our life expectancy. One good source of life expectancy information is the Social Security Administration.   Among the many tools they offer is a life expectancy estimator. I looked up my own life expectancy.  Assuming I live to retirement age (67), the average life expectancy for a woman my age is 87. So that means I should plan for retirement to last till 87, right? Not so much. Remember: life expectancy information gives the average.  (I might not be average – what about you?)

I recently discovered a tool called the Longevity Illustrator, offered by the Society of Actuaries.  Why is this different than a life expectancy estimator? Because longevity is not the same as life expectancy! Longevity is broader — it addresses the likelihood that a person will live to various ages.

The Longevity Illustrator provides insight into possibilities — what are the “odds” that a person will live to extremely advanced age, for example? Again, I used myself as an example; remember that my life expectancy, assuming I live to age 67, is about 87. The longevity illustrator points out that there is nearly a 50-50 chance I’ll live to age 90, a 28% chance I’ll live to age 95, and a 10% chance I’ll live to age 100!!

What does that mean for our retirement planning? The longevity illustrator explains that each of us needs to decide what level of certainty is important to us. For me, they pointed out that:

  • If I am comfortable with a 25% chance that I might run out of money, then I might plan for a 28-year retirement.
  • If I want more security — perhaps only a 10% risk that I would outlive my funds, then I should plan for a 33-year retirement.

Anytime our decisions involve unknowns, like retirement does, we need to prepare for some complex thinking. We need to consider a variety of possibilities, and recognize that there will be no certainty; instead, we need to think in terms of probability. We also need to be prepared to be flexible. It’s a challenge, but having good tools can help.

Check out the Longevity Illustrator from the Society of Actuaries and see how it can inform your retirement planning decisions!

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Insurance Claim Denied? Appeal!

Stamp: Denied They are words we hope we’ll never hear: “your health insurance claim is denied.” It happens, though – millions of times each year. Sometimes a denial is legitimate – the treatment truly is not covered by the insurance policy. But at other times the claim was denied in error.

A recent study by the Kaiser Family Foundation revealed that, when faced with a denied health claim, fewer than one percent of consumers appeal.* The study did not explore why consumers don’t appeal. It is likely that sometimes they don’t appeal because they are so busy dealing with all their health problems and don’t have the energy to deal with it. In addition, I can imagine that consumers may be intimidated by the complexity of the insurance world; I can also imagine some people may not even realize that appealing is an option.

When I read how few people appeal, I was concerned. I want consumers to know they can appeal, and that they should appeal if they believe a medical treatment should have been covered by their policy. NOTE: insurance companies generally allow a specific window of time in which to appeal – probably 2-4 months – so try to deal with it fairly speedily.

Knowing you have the right to appeal is the first step. Contacting the insurance company to request a written statement explaining the reason for denial is step two.

From there, options vary. You may be able to enlist support from your medical provider to justify the medical necessity or clear up any coding errors. Beyond that, ask the insurance company to outline its appeal process, and follow it carefully, keeping copies of all correspondence. If your appeal is denied by the company, ask about an external appeal process — some types of plans include provisions for external review.

If you are not satisfied with how your appeal is handled, consider a complaint through the Iowa Insurance Division. ISU Extension’s Iowa Concern Hotline (800-447-1985) is another resource when you don’t know what steps to take next; their staff attorney provides legal education and may be able to help you identify additional options.  

*Note: the data used in the KFF study was limited to plans offered through the healthcare.gov Marketplace; it is possible that appeals rates might be different for other plans, including employer-sponsored plans.

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Measles and Money??

global information sourcesThe current widespread measles outbreak results from too many people remaining un-vaccinated. But the underlying cause is deeper – the true cause is misinformation. There are some people who don’t get vaccinated because of an existing health problem. But most people who have not been vaccinated based that choice on information that was inaccurate and/or misleading.

Misinformation abounds in today’s world, and not just in health care. As a consumer educator, I am constantly reminding people to make sure they base important decisions on sound information. That means:

  • Not relying solely on the opinion or experience of a few friends. Aside: it’s perfectly appropriate to choose a dessert based on recommendations from friends; that’s a situation where there are no costly consequences if you later regret your choice.  Your friends’ insights can be useful, but they should not be the ONLY reason you make an important decision. Examples of important decisions include where and how much to invest your money, whether and where to get a loan, major purchases (house, car, …), college selection, and so on; these are all decisions that could have substantial long-term costs (financial costs and opportunity costs) if an unfortunate choice is made, OR significant long-term benefits (financial or otherwise) if a productive option is chosen.
  • Reading and learning from on-line product reviews, but not assuming they are 100% accurate or unbiased. One source of product reviews that are generally unbiased is Consumer ReportsStaff there purchase products as ordinary consumers and conduct rigorous scientific testing to assess product performance and reliability. Most libraries carry the magazine, and some material is available on-line even to non-subscribers.
  • Considering the possible motives behind the information you receive, whether it be from a website, a salesperson, an advertisement, or any other source. Advertisements clearly have a goal of selling their product, but a sales goal can also be somewhat hidden. An “informational” website or article might actually be owned by a company that sells investments, for example. In general, you can trust information from websites with a “.gov” or “.edu” URL (including Iowa State University Extension and Outreach). When it comes to “.org” sites, it can be more difficult to discern whether the organization is a credible source. A couple of reliable non-profit organizations are:
  • In many cases, commercial sources of information are a necessary part of your information-gathering. This includes articles in commercial magazines and commercial websites, because there is always a possibility that the information provided may be influenced by their advertisers. When using a commercial source, be sure to seek out multiple sources to see if the information is corroborated elsewhere.
  •  Taking enough time to gather information from a variety of sources. Avoid succumbing to sales pressure suggesting that a decision must be made now.

Just as with measles vaccinations, relying on unbiased, accurate and complete information about consumer decisions will have a positive impact on your well-being!

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Shopping for People

It’s a rare person who buys a car or a refrigerator without comparing several different options, probably from several different sellers. Yet we humans have a lot of trouble shopping around and comparing our options before we hire a professional. That doesn’t make sense when you think about it — our professional advisers may have a much greater impact on our well-being than our refrigerator!

I’m guessing that maybe there are two reasons we don’t shop around for professional advisers: a) we didn’t learn how from our parents (who may have taught us how to shop around for products from groceries to vacuum cleaners); and b) we feel awkward asking a lot of questions and interviewing professionals, especially when they are the experts and we may not know very much about the topic for which we are seeking an adviser.  This applies to attorneys, tax preparers, investment advisers and a wide range of other professionals. It probably applies to experts like plumbers and electricians, too.

I’m going to focus here on financial advisers, but the principles are the same for all professionals. Our financial advisers have a huge impact on our lives, so we need to get over our discomfort, and “just do it.” (forgive me for relying on a phrase made famous in commercials back in the 1970’s or 80’s).  Really. This is a time to suck it up and force ourselves to take on something even if we’re nervous about it.

Here’s some good news: reputable financial professionals will understand and support our desire to choose an adviser that fits our needs. They will generally be happy to schedule an appointment (maybe 30 minutes) so we can learn more about them – how they do their work, how they are compensated, what experience they have, and how they stay current in their field. Our job will be to go in prepared with questions we want to ask.  (Don’t worry — some resources are identified below!). And then our job is to finish the interview, thank them, and leave without making any decisions. That allows us to interview other individuals, check references, consider what we have learned, and follow up with additional questions before choosing the professional we trust to guide our financial future.

For ideas on what to look for and what kinds of questions to ask, I suggest you begin with information at the following links: FINRA (the Financial Industry Regulatory Authority); Investing for Your Future (national Extension system); Investor Bulletin (from the Securities and Exchange Commission).

Add  your ideas here — what are YOU looking for in a financial professional?

 

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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