Prescription drug costs are getting a lot of media attention these days, sometimes leaving consumers unsure who to trust. One question raised by news coverage is the question of how much we should trust our insurance plans to get us the best deal. According to a recent study, nearly one-fourth of all prescription purchases would be less costly to consumers if they paid cash rather than having their insurance cover the purchase. In other words, their co-payments were more than the actual cash cost of the medication.
The report said it is common for this overpayment to occur with generics. A news report gave an example where the difference was dramatic — a $285 copay compared to a $40 cash price. It seems unthinkable, yet it happens!
Consumers have told stories about this problem for years, but the recent paper from the Schaeffer Health Policy Center at USC was the first known systematic study, so only now are we learning how widespread the problem was; the study, which examined 2013 data, indicated that 23% of all prescriptions involved this kind of overpayment. A few states (not yet Iowa) have passed laws against this practice, but anecdotal reports suggest that it is still widespread.
I’m reminded of the classic consumer advice: “Let the buyer beware;” when in doubt, we need to check things out carefully, gathering information on our own rather than trusting an outsider’s guidance. In fact, the report mentioned that pharmacists’ contracts often include gag rules which prevent them from telling patients about this, unless they ask.
SO – next time I fill a prescription, I’m going to ask: how much would this cost if I just paid cash? If it’s cheaper to pay for it outright, then I’m happy to leave my insurance out of the equation.
In Iowa, this coming Friday and Saturday (Aug 3-4 2018) offers a chance to buy qualifying clothing items without paying any sales tax. For most Iowans, (depending on local sales tax), that’s a savings of 7% — not a huge windfall, but still an advantage. That savings is magnified by the many retailers who offer clothing sales on the same weekend.
Sounds like a winning proposition, right? It can be. But like anything else, it requires consumers to use good judgment! Why?
Well, if you’re like me, you’ve had experience with the risks involved in shopping simply because there’s a sale. Who among us hasn’t made a purchase because it was such a “great deal” and then never (or rarely) used it? Hopefully we learn from those experiences, but it always pays to exercise caution when shopping sales. Here are some ideas to help us avoid regrets:
- Have a list and prioritize.
- Plan a dollar limit that lets you fit your purchases into your budget without borrowing. When purchases are paid off over months of credit card payments, the benefit of the sale price quickly disappears.
- Know what the “regular” prices are, and consider whether items will be on a bigger sale later in the fall. In other words, ask yourself “Are they just giving a small discount to tempt me to buy now rather than waiting for later when bigger discounts will be offered?”
- Keep all receipts. If you pick something up and later decide it wasn’t that important or that great of a bargain, you’ll simply be able to return it! Be sure to have the self-discipline to follow through on that… it may be “only” $10 or $20, but that adds up over time.
- If you are buying for people other than yourself (especially growing children) check out their current clothing stock before you make your list — find out what fits and what doesn’t. This will help you make sure that the items on your list are the most important items.
Iowa’s Sales Tax Holiday applies to most clothing and footwear items priced below $100. Most accessories are not exempt (such as jewelry or watches), but some items do qualify for the exemption (such as scarves). Certain specialty clothing items, such as clothing specific to a particular sport, are excluded as well. For a full list of items that are taxable vs. exempt, go to https://tax.iowa.gov/iowas-annual-sales-tax-holiday.
Happy shopping! Good planning means no regrets!
I read an article last week in the popular press (based on a legitimate research brief) that offered encouragement for those who are worried they haven’t saved enough for retirement. The research project demonstrated that if you delay retirement 3-6 months, it provides the same benefit as if you had saved an additional 1% of your income for 30 years.
If you are: a) wishing you could save more, but really can’t; or b) wishing you could go back in time and start saving more, sooner, this research is encouraging because it says you can partly make up for a savings shortfall by delaying your retirement date. To be clear, delaying a few months doesn’t “magically” double the balance in your 401(k) or IRA account. The delay affects your retirement income security in several ways:
- It means additional months of contributions to your retirement account.
- It gives your money more time to grow.
- It reduces the number of months you’ll need to support yourself in retirement.
- Delaying Social Security benefits beyond full retirement age results in a larger monthly benefit. (under current law).
The fourth benefit accounts for most of the mathematical advantage of delaying retirement, but all four factors contribute. The first two actually DO increase the size of your nest egg; the third one means your money doesn’t need to be stretched so thin.
Wherever you are in your pre-retirement saving journey, it always pays to save more starting now if you can. But even a modest delay of retirement can provide a retirement lifestyle as if you’d saved more all along.
Several years ago I wrote a MoneyTip$ post extolling the virtues of dry milk. Since June is Dairy Month, it occurred to me that now would be a good time to revisit that topic, because things have changed. Dry milk is no longer the same bargain that it used to be. I’m sure this varies regionally, but where I live I can no longer buy the bargain-sized (20-quart) box of dry milk, and the store-brand liquid milk is so inexpensive that it’s usually a cheaper product per quart compared to dry milk.
Why is this blog-worthy? Two reasons:
- It’s a valuable reminder to re-examine your consumer habits periodically. I resisted giving up dry milk — it was a habit ingrained from childhood, built in to how I work in the kitchen. I kept buying it for a while even after I realized it was no longer the cheapest deal.
- It’s also a reminder that cost is not the only consideration when shopping. After being without dry milk for several weeks, I realized it was a product I still wanted in my pantry, for several reasons.
I’m back to using dry milk, though not as much as before; these days, if I’m making pudding or pancakes I’ll probably use liquid milk, unless my supply is running low. I still use dry milk though, for more reasons than I could possibly include here; I’ll list a few to give you a general idea:
- I can add milk nutrients without adding liquid. By adding extra dry milk to casseroles, meat loaf, soups, baked goods, and mashed potatoes, I can boost my intake of calcium and other key nutrients without making my product too runny.
- It doesn’t need to be stored in the refrigerator. At holidays or with company, frig space is at a premium; by using dry milk for cooking, I can make extra space for refrigerated foods – after all, an extra gallon of milk takes a lot of space!
- If you make yeast bread (I know not many people do), using dry milk means you don’t need to “scald” milk before adding it to the bread dough. (Scalding deactivates an enzyme that interferes with yeast action – with dry milk that enzyme is already gone).
The main reason for this post is not to let you in on all my kitchen habits, even though that is fun to talk about. The main reason was to share one story of how things that are true at one time may not stay true indefinitely. This applies to specific products we buy, and it also applies to questions like how high should an insurance deductible be, or how much to keep in a savings account.
What habits, beliefs or assumptions affect your consumer decisions? When is the last time you revisited them to make sure they were still on target?
As a financial educator and as a volunteer income tax preparer I sometimes hear from people who wish they had been better informed before making decisions. During this past tax season I talked to an unusually large number of people who face really big tax bills that could have been prevented if they had been better informed ahead of time.
While taxes have been the recent topic, there are plenty of other situations where people face problems that might have been prevented if they’d had more information. Examples:
- A person who discovered (too late) that her medical providers weren’t in her health insurance network.
- People who retired early, but went back to work when they realized they were not financially prepared to retire.
- A couple who bought a car that proved unreliable, discovering later that Consumer Reports had rated that model’s reliability as poor. (The next time they bought a car, they reviewed the reliability ratings first.)
Stories of financial regrets are endless. I have my own stories, too – no one makes perfectly-informed decisions 100% of the time. Happily, I also frequently talk with people who have success stories, both large and small. Those successes usually result from careful thought and good information!
We never want to get complacent about our money knowledge. Even if you’re already well-informed, it takes on-going attention. Why? Because the financial world changes (new products, new risks, new scams), and our lives and our needs change too.
Staying Informed. As you know, not all information found on the Internet is trustworthy or accurate. Consider the source of the information.
- Sites with a .gov or .edu address are considered trustworthy. These are sites hosted by a government agency or an educational institution. Examples: www.investor.gov; www.consumerfinance.gov; www.extension.iastate.edu
- Many private organizations are identified by a .org address. These sites may or may not provide trustworthy information. It’s important to investigate its mission, and evaluate information carefully. Examples of trustworthy sites include www.extension.org and the National Endowment for Financial Education www.nefe.org, and the additional sites NEFE hosts.
- Commercial sites use .com and commonly promote or sell a product. You will want to evaluate information on these websites carefully.
It’s best to seek information from several sources. Also note that trustworthy websites include information on how to contact them.
I have often talked with people who were excited about turning age 62. Why? So they can claim Social Security retirement benefits. I understand that excitement, especially from people whose jobs are causing them problems.
In those situations, however, I hold an internal debate about whether to put on my “educator” hat and make sure they understand all the factors involved in their decision about when to claim Social Security. Note: sometimes I do provide information, and other times I do not – it depends on the situation!
Claiming Social Security before your full retirement age means a permanent reduction in your monthly benefit. Having the income now will be nice, but if you live to be 90 and use up your other retirement accounts, you might wish you had waited. Here’s an example of how the benefit amount is affected by the age you claim:
- Mike’s full retirement age is 66. At age 66, his monthly benefit would be $1,496.
- At age 62, the earliest age he could claim, his benefit would be $1,060.
- On the other hand if he waits till age 70, his monthly benefit rises to $2,044.
There’s not a “right” age for a Social Security claim. Your choice depends on your situation, your priorities, and what other resources you have available. If you would ask me, I wouldn’t be able to tell you what to do – only you can decide.
What I would tell you, though, is to make sure you understand all the implications of your decision. One resource to inform your planning is an ISU Extension recorded mini-lesson on Social Security Choices (20 minutes). It is one of many retirement planning resources on our “Retirement: Secure Your Future” page.
When you near the actual decision point, the best way to gather complete information about your options is to contact the Social Security Administration.
I often talk with people who don’t have health insurance. Mainly that happens when I’m volunteering at a VITA (Volunteer Income Tax Assistance) site, because people without insurance generally need to pay a “penalty” as part of their tax return. What I hear from many of them is this: “Paying the penalty costs a lot less than paying insurance premiums, and I never go to the doctor anyway, so why bother?”
Well… there’s another way to look at that. I recently had a conversation with an administrator of a large employer health plan. He commented that in any given year about 15% of the plan participants never go to the doctor – never use their (employer-provided) health insurance. However, as he looks at the usage data, he has observed that it is very common that when those folks start using their health insurance, they become big users. In other words, they go to the doctor often.
That bit of information struck me as SO important. People who don’t seek health care on a regular basis are likely to miss opportunities for prevention, early detection or early intervention. As a result, they end up with bigger (and costlier) health problems.
When we do outreach to help folks make informed health insurance choices, one of the major points we explore reflects exactly that reality: having health insurance is good for…
- Your finances (by minimizing the financial impact of major health events), and
- Your health (since people who have insurance are likely to have better long-term health outcomes).
So if we have health insurance, let’s ask ourselves: are we making good use of it?
Down the road, we’ll probably be glad we did!
Happy America Saves Week! We’ll be celebrating all week with special posts focused on ways to make saving happen for real.
One key is to have a PLAN. While I could write more, I want to focus on just 3 parts of a savings plan that can make a big difference.
- Save with a clear REASON in mind. And make sure it’s a reason you care about. If you’re just saving because someone said you should, it may be difficult to succeed. After all, finding money to save means letting go of something else you used to spend money on. It will be a lot easier to give up that “other thing” if the reason you’re saving is truly important to you.
- Figure out in advance HOW you are going to come up with the money to save. If you simply say “I’m going to save $20/week” and don’t answer questions about when, where and how, then it probably won’t happen. (Not sure how? stay tuned the rest of the week for more ideas!)
- Plan for MOTIVATION. Most savings goals take time; you might need a morale boost along the way, especially when obstacles arise. Think about what motivates you, and plan to build that motivator into your life. Maybe it’s a graph that shows your savings growth. Maybe it’s a cheerleader – an encouraging friend you recruit to your “team” – someone who will remind you of your positive progress even in a week when you did not succeed in making a savings deposit. Maybe it’s a special reward for when you reach certain milestones, or for each week or month you take a step forward; low or no cost rewards like bubble baths, or coffee with a friend, or an evening of reading can help keep your enthusiasm up.
Starting any new habit can be challenging. If you want to start (or increase) a savings habit, making a plan will help you succeed!
We generally budget by the month or by the week — we plan our spending in relation to our income, and that’s how we meet our regular expenses. It makes sense.
A tax refund is different, however. It’s a “bonus” that only comes once a year; it’s often the biggest single chunk of income we receive during the year. If you expect a sizeable tax refund, I suggest you consider the whole year as you plan how to use it. Here are a couple of ways you might do that:
- In a typical year, are there some big expenses that throw a wrench into your financial routine? Perhaps your tax refund can help you be ready for those expenses. Examples: holidays, back-to-school time, car maintenance (planned and unplanned), summer weekends away,… it could be anything. Setting aside part of your refund to help cover those costs can be a great way to remove stress and unwanted drama from your financial life.
- Tax refunds are often the way families make special purchases, such as furniture, a computer, or new appliances. Your refund can help you meet an important family goal. Again, though, it makes sense to consider the whole year before deciding. That might mean thinking ahead to all the possible special purchases you might want to make during the year, and prioritizing which of them is/are most important. An example from my imagination: I can imagine getting to summer and realizing you need a new lawn mower, and really wishing you had used your tax refund to buy a lawn mower! Thinking about the whole year can help you get the most value from any special purchases!
No one can foresee the future, and trying to plan for the year doesn’t guarantee you’ll think of everything that might come up. However, if you make an effort to consider the needs of the coming year, you are more likely to be satisfied in the long run!
What are your plans for your tax refund? We’d love for you to share!
Filing a tax return is an annual necessity for most Americans, and to a lot of people it feels complicated. That’s why they pay someone else to do the work for them. It’s just like how I pay someone else to work on my car, because I don’t have the needed knowledge or skills.
Even if you are not highly skilled, however, it may be possible for you to get your tax return filed for free! The IRS trains and certifies volunteer tax preparers through VITA (Volunteer Income Tax Assistance) and through AARP. Volunteers have to pass several tests in order to serve. If you have moderate or low income and if your return is fairly ordinary in complexity, you may be eligible to have those volunteers file your return for you.
To find a free tax site near you, call 211 or go to www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers and search by zip code! Most people can file through the VITA or AARP programs if they have income from a job, pension, social security, investments and other typical sources. The tax volunteers will also make sure you get the tax credits and deductions you are entitled to.
There are a few types of tax issues volunteers are not allowed to address, including: rental income; farm income; certain types of business income (if you need to use depreciation, or deduct business use of your home, or if you keep an inventory of products or supplies).
Another way to file your tax return for free is through IRS Free File. This lets you do it yourself on-line using user-friendly commercial software. You don’t need to be a tax expert to do this, either!
Whether or not you expect a tax refund, if your tax situation is not too complicated, it’s smart to think twice before you pay $150 – $400 to have someone else do your taxes for you!
What have been your most positive experiences with filing your tax return?