Highlights of Recent Webinars

 

It’s that time again! Every so often, I like to review and summarize my notes from recent webinars and classes. Below are some interesting tidbits that caught my attention from recent programs:

Financial Education- Financial educators don’t teach content- we teach human beings- and our authentic self is an advantage. Share stories of your struggles as well as your successes to accrue trust over time. As Dr. Shaun Murphy noted in the final episode of The Good Doctor, “When you touch one life, you don’t just touch one life, you touch every life that that life touches.”

 

Cash Assets- The right amount of cash to hold in an investment portfolio is a personal decision. Ideally, this money is for emergencies and short-term goals. Some people hold much more than that in cash but the trade-off is losing an opportunity for growth. Ultimately, investors need to determine an asset allocation that makes sense for them, track it, and rebalance as needed.

 

Consumer Spending- When people feel comfortable with their finances, they spend more. Consumer spending has been robust because many older adults have paid off mortgages and many other homeowners have low-interest mortgages and are unaffected by current high interest rates.

 

Election Year Finances- The most important influence of Presidential elections on financial markets is policies that result from them (e.g., tax laws and retirement account rules) rather than elections themselves. In addition, financial markets are typically more affected by what Congress and the Federal Reserve do compared to the President.

 

Tax Planning- Run projections of next year’s tax liability and make fourth quarter adjustments, if necessary. SALY (same as last year) is rarely a good strategy. Good times to accelerate income to reduce taxes are early retirement years before required minimum distributions (RMDs) begin, sabbaticals with lower income, years with large losses, and the last year of filing a joint tax return.

 

IRMAA- About 8% of Medicare recipients pay a higher premium called the income-related monthly adjustment amount (IRMAA). There is a two-year income lookback so start paying attention to this at age 63. IRMAA is not a tax, per se, but it is a drag on older adults’ bottom line.

 

Financial “Rules”- Many financial “rules” (guidelines) are too deflating for people (e.g., saving three months’ expenses in an emergency fund). They feel like a failure, throw up their hands, and give up. It is far better for people to have a series of “small step” goals that they can succeed at.

 

Retirement Savings- The more money that people can save for retirement, the more likely they can replicate- or even exceed- their pre-retirement lifestyle. People are often amazed how much they can save when they put some structure in place and save automatically. Just remember that tax-deferred defined contribution plans and traditional IRAs are “a lifelong partnership with the IRS.”

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Spending Money: Insights and Recommendations

 

Recent data from government agencies and retailer organizations indicate that U.S. consumers have continued to spend money robustly in 2024 even with inflation increasing the cost of many goods and services (a.k.a., cost-of-living creep). Not surprisingly, delinquency rates on credit cards have increased, with 8.9% of balances transitioning into delinquency during the past year according to data from the Federal Reserve Bank of New York.

I recently attended a seminar called The Psychology of Spending that delved into emotions and other factors that prompt people to spend money. Below are seven insights and recommendations:

 

Emotional Appeals- Advertising campaigns frequently appeal to people’s fears and desires. Some common examples include: a desire for good health and well-being, a desire to be loved, a desire to project a positive self-image, and a fear of physical decline and financial insecurity.

 

FOMO is Real- Whether it’s called “fear of missing out” (FOMO) or “keeping up with the Joneses,” it is human nature to compare ourselves with others. As a result, people buy things to “fit in” or appear successful. It is important to remember that “you are not what you buy.”

 

Timing is Everything- Studies have found the longer people are in a store, the more likely they are to make unplanned (impulse) purchases. Therefore, solid shopping advice is: create a shopping list, follow the list, and don’t linger in a store or mall. Also, shop alone as much as possible and avoid browsing, free samples, trying on expensive clothes, and talking to salespeople.

 

Spaving Does Not Work- A new financial term, “spaving” (i.e., the practice of spending money to save money to get a perceived deal), made headlines in 2024. Unfortunately, it is simply a trap to entice consumers to spend more (e.g., “Buy 2 - Get 1 Free”). Smart shoppers look for sales on items that they need or were already planning to buy. Otherwise, bargain hunting can be costly. The best “bargain” is actually not to buy something if you do not need it.

 

Impulse Buying is Costly- Average Americans spend $315 monthly (over $3,700 per year) on impulse purchases, which feel exciting, especially when combined with spaving (i.e., the thrill of a deal). An example is “retail therapy,” where people get a temporary “rush” by shopping to cheer themselves up. Experts recommend free mood-boosting activities (e.g., walking outdoors) instead.

 

Spending Habits Can Change- It is not easy, but it can be done. For example, research shows that people spend more when they use credit so leaving credit cards home may help. Also, waiting 24 hours for purchases over, say, $50 or $100. Another habit that I wrote about in my book, Flipping a Switch, is that deeply ingrained values of frugality are also difficult to change.

 

Hard Questions- Self-evaluation can help people analyze spending habits and emotional triggers. Good questions to ask yourself are: what do I enjoy spending money on and why?, what are my best spending habits?, and what spending habits do I want to change and how can I do it?

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Inflation Impacts and Financial Clawback Strategies

Unless you’ve been living under a rock during the past three years, you know that inflation- i.e., an increase in the cost of goods and services- has been a major concern of U.S. households as their dollars purchase less than they did prior to the pandemic. While virtually no household purchase has been exempt, areas of highest recent concern are food, vehicles, insurance, and housing.

As a result of inflation, Americans have faced a number of challenges including the following:

 

¨   Eroded Savings- Cash accounts lose value if interest earned is less than the inflation rate

¨   Increased Cost of Living- Essential expenses are more expensive, straining household budgets

¨   Retirement Challenges- People with fixed incomes find it especially hard to cover expenses

¨   Debt Burden- Mortgage and credit card interest rates have risen in an effort to fight inflation

¨   Wage-Price Spiral- Workers get higher wages, increasing prices and perpetuating inflation

 

What to do? Try to claw back the extra money that inflation is costing you so you don’t feel like you are falling behind. Below are ten specific strategies:

 

No Nonsense Budgeting- Create and stick to a detailed spending plan that includes realistic numbers for income and expenses and puts a priority on essential needs.

 

Reduce Discretionary Spending- Cut back on non-essential expenses such as dining out, beverages (except water) for restaurant meals, paid entertainment, and luxury items.

 

Cut Utility Use- Enact energy-saving actions to reduce electric, gas, and water bills. Example:  turn the thermostat up 1-2 more degrees (summer) and down 1-2 more degrees (winter).

 

Shop Secondhand- Visit thrift and consignment shops, flea markets, and/or online sales websites (e.g., Facebook Marketplace, Craigslist, eBay) to save money versus new purchases.

 

Food Shop Carefully- Take advantage of sales, coupons, and reward/discount programs to lower food costs and consider bulk buying at warehouse stores if the math works to save money.

 

Increase Savings Rate- Save a higher percentage of income, by freeing up cash through reduced spending, to build a financial buffer against rising expenses.

 

Diversify Investments- Purchase investments in different asset classes (e.g., stocks, bonds, cash equivalents, real estate) to hedge against both inflation and investment risk.

 

Raise Your Income- Request a meeting with your boss to discuss a salary increase based on your productivity and value to the company. Another option: a “side hustle” income source.

 

Shop Secondhand- Visit thrift and consignment shops, flea markets, and/or online sales websites (e.g., Facebook Marketplace, Craigslist, eBay) to save money vs. new purchases.

 

Negotiate Bills- Contact service providers to negotiate lower costs on utilities, a cell phone plan, insurance premiums, credit card interest rates, and more.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 

Strategies to Reduce Homeowners Insurance Premiums

The last three years have not been kind to U. S. homeowners renewing their homeowners insurance policies.

As noted in a Wall Street Journal article, “For many Americans, getting insurance has gone from a routine, generally manageable expense to a do-or-die ordeal that can strain household budgets” amid sharply rising premiums and fewer choices of insurers. Another WSJ article said home insurers are using drones to check the life expectancy of roofs and spot yard debris and undeclared pools.

 

There is a “perfect storm” of reasons for premium hikes including an increased cost of building materials and labor, fraudulent claims, fewer insurance companies writing policies, and climate change effects (e.g., wildfires, coastal flooding, hurricanes, and tornadoes) resulting in increased claims payouts.

 

What to do? Below are nine strategies that may save money on homeowners insurance without sacrificing robust protection for your home:

 

Obtain Multiple Quotes- Get quotes from at least three different insurance companies using online comparison tools to facilitate this process.

 

Use an Independent Agent- Consider working with an independent insurance agent who can provide quotes from various insurers to help identify the best deal.

 

Do an Annual Review- Reassess your insurance needs and compare rates annually to ensure that you are still being charged a fair premium.

 

Consider a Higher Deductible- Ask your insurance agent to provide premium quotes for different deductible amounts and “do the math” to decide if a higher deductible makes sense.

 

Bundle Your Property Insurance- Ask about available discounts if you bundle your homeowners insurance with other insurance such as auto, umbrella, and life insurance.

 

Install an Impact-Resistant Roof- Make your home less of a risk for an insurance company. Insurers look favorably on homes with new, impact-resistant, and well-maintained roofs.

 

Take Advantage of Discounts- Inquire about discounts for bundling, loyalty (i.e., long-term customers), age (e.g., age 55 or 60+), and a claims-free record. It never hurts to ask.

 

Pay Premiums Less Frequently- Find out how much paying your premium annually or semi-annually will save versus making more frequent payments (e.g., monthly or quarterly).

 

Maintain Your Home- Keep your HVAC, plumbing, and electrical systems in good working order to reduce the risk of fire or water damage. In some areas (e.g.,  parts of Florida) with intense heat, humidity, and storms, insurance companies are starting to require 4-point inspections (HVAC, electrical, plumbing, and roof) to better assess the risk of insuring a home.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

ABCs of CCRCs: Choosing a Life Care Community

 

My husband and I recently took a big step in planning our future. We paid a $1,500 refundable deposit to get on the waiting list for a continuing care retirement community (CCRC) with a target move-in date of 2033. Why the long timeline? We are healthy, active, and not ready to leave our beautiful single family home. At the same time, we don’t want to wait until our 80s and find 200 people ahead of us. The waiting list is about 200 with annual turnover of about 20-25 units.

Also known as Life Care or Life Plan communities, CCRCs provide housing for older adults on a continuum beginning with independent living and including assisted living, memory care, and/or skilled nursing care services, if needed. Below are seven things to know about CCRCs:

 

Rationale for CCRC Selection- Three common reasons why people select CCRCs are 1. to have a “forever home” in later life, 2. to not burden their family with end-of-life housing and health care decisions, and 3. they do not have family members to assist with end-of-life decisions.

 

CCRC Ownership- Approximately 80% of CCRCs are non-profit organizations. Some are faith-based, some have affiliations with educational institutions, and some are independent non-profits.

 

Entry Fees- There are different payment models. Many CCRCs charge a substantial six-figure entry fee and some offer rental contracts. Entry fees increase with the square footage of the independent living unit that an individual or couple selects. Entry fees at the CCRC that I selected ranged from $237,000 (488 sq. ft.)  to $863,100 (2,350 sq. ft.) with an extra $59,000 for a second person. Part of the entry fee is used to pre-pay residents’ future health care services.

 

Monthly Fees- Like entry fees, monthly fees increase with the square footage of units and the number of occupants. For the units noted above, the monthly fees are $3,190 and $9,455, respectively, with an extra $1,850 charged for a second person.

 

Health Evaluation- Prospective residents must generally complete a health questionnaire and undergo a cognitive assessment to be offered entry into a CCRC. This is done when they reach the top of the waiting list and are near the time that they plan to move in. It is a standard risk management practice to reduce the risk of a high number of residents needing nursing care.

 

Financial Evaluation- Prospective residents must also prove that they have the financial resources necessary to live at a CCRC. A net worth statement and supporting documentation is generally required. Common metrics used by CCRCs are that prospective residents should have assets totaling at least twice the entry fee and income totaling at least twice the monthly fee.

 

CCRC Contracts- Most CCRCs have several contract options. The difference boils down to how much care is prepaid. Lifecare contacts prepay unlimited care with a level inflation-adjusted monthly fee for predictability of housing and health care costs. A disadvantage is pre-paying for care that may not be needed. Some people opt to pay less up front and more later, if necessary.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.