May 26

When I worked for a large company, my wife and I enjoyed the use of a Flexible Spending Account, otherwise known as an FSA. This account allowed us to save up to $5000 pretax, and use it for medical expenses during the course of the year. Doctor copays, medicine copays, and expenses that our insurance didn’t cover, such as chiropractic care. For the most part, I had no complaints about this program. The FSA was a use-it-or-lose-it plan, so members needed to plan carefully, and as the year drew to a close, if there was going to be much money left, it was time to go eyeglass shopping. That purchase was always good for a few hundred dollars. Recent changes to the plan reduced the family maximum to $2500, and tempered the use-it-or-lose-it provision to permit $500 to carry into the next year. Better, but not great.

HSAlimit

Now, the Mrs is retired and I’m working for a small company whose health insurance is an HDHP, a high deductible health plan. This means that we have at least a deductible of $1250 per person ($2500 for the three of us) and a family maximum out of pocket of $12,700. What this also means is that I was eligible to open an HSA, a health savings account. The HSA offers a maximum pretax deposit of $6,550 per year. Most important, there’s no risk of losing what you don’t spend. In fact, the account offers investment options so if you are young you can use this as a long term savings account, invest it in stocks (whatever funds your custodian offers) and have these funds available for expenses in the future. In a sense it offers the best of both the traditional IRA with money going in pre-tax, and the Roth IRA, as qualified spending allows you to make withdrawals tax free. Unlike the FSA, this account does not need to be sponsored by your employer. So long as your health insurance meets the above criteria, you can open the HSA at a bank that offers it. If your insurance qualifies you for an HSA, check it out. Many of my coworkers were unaware they could use an HSA, and I saved them over $1500 for just a quick conversation and a bit of paperwork.

written by Joe \\ tags: , ,

Dec 21

A Guest Post today from Crystal –

Life insurance is little more than an afterthought for many young people. With their entire lives ahead of them, few if any responsibilities and minimal consideration of their own mortality, life insurance seems like little more than a way to waste money and not have fun because of it.

However, full-scale adulthood eventually sets in. In what seems like no time, many people marry, have children and make a number of other personal and financial commitments that all depend greatly on their continued health.

These people often take out life insurance policies to protect those they love from economic disaster regardless of what may happen in the future. It appears that at a certain point, life insurance becomes necessary in the lives of many people, but at what point? Just how old do you have to be to start thinking about life insurance? 30? 45? Should you apply for a policy from your deathbed?

The answer is it’s never too early, once you have responsibilities, that is. No matter how young you are when you have a family that depends on you, their needs will remain the same in your absence. The unpredictable nature of life often leads to unexpected consequences. Check out the official AAMI website at http://www.aami.com.au/life-insurance

The next person to meet with an untimely demise will not be the first, and so it is always advisable to ensure the security of those you love should tragedy strike in the form of a speeding bus.

Getting a life insurance policy at a fairly young age also saves you money. It is actually better to get life insurance the younger you are, as insurance companies will see you as a safe risk and offer you an excellent rate provided you don’t have the health of someone much older.

Waiting until you are a certain age or until you already have health problems could result in much higher premiums than you would have otherwise paid, and even the risk of outright denied coverage should you develop a health issue or lifestyle habits deemed uninsurable before applying.

Life is uncertain, and so it is important to have a viable contingency plan for virtually any foreseeable event. As soon as you are in a stage of life where others depend on you for their survival, you should consider taking out a life insurance policy.

A life insurance policy helps protect those who would have great difficulty providing for themselves in the absence of a policy holder of any age. If you can find some room after the party budget, you should certainly consider it.

written by Joe \\ tags:

Nov 10

Another interesting week in the market and in the PF Blogosphere.

We start this week with a post from Bargaineering, Your take: Is investing in IPOs smart, or strictly for muppets? My own answer? It depends on whether one gets IPO shares at the IPO price or if the price is the elevated price at the open of trading. I was fortunate to get 100 shares at the IPO price, and will hold on to Twitter for a while. I wouldn’t have bought it at $46.

twtr

My friend J. Money is Obsessed With Rich Habits, because Tom Corley’s site Rich Habits offers some great reading. I hope Tom isn’t insulted when I say his work reminds me a bit of the work of Dr Thomas Stanley, author of many best sellers, The Millionaire Next Door and Stop Acting Rich among them. As long as we are a country of spenders vs savers there’s room for this message to be offered by many writers. Nice find, J.

Nerd’s Eye View’s Michael Kitces wrote about The Impact Of Taxes On The Safe Withdrawal Rate. We keep hearing about how 4% is the rate we can withdraw funds from our retirement accounts, but how do taxes affect this number? Michael explains.

Black Friday. Even the name sounds ominous. After all, Black Tuesday was bad. Very bad. You know what Black Friday is – the day after Thanksgiving, when stores offer prices to entice us to go save money on things we never needed in the first place. At Five Cent Nickel, Psychology of Black Friday: Motivation behind the pursuit of deals. If you miss reading this article, you will risk having your pocket picked on Black Friday.

Ask the Readers: High-deductible health insurance: yea or nay? A post at Get Rich Slowly that grabbed my attention. I’ve always felt that real insurance had a low premium, but a high deductible. In other words, I’m protected from the disastrous expense an accident might cost me, but would pay for routine doctor visits out of pocket. Ellen Cannon discusses her take on these plans.

Miranda Marquit guest posted at Investor Junkie, Is Your Company’s 401(k) a Good or Bad Plan? Miranda wrote “With many small businesses, you might pay between 1.5% and 2%.” 2%? I think there’s a special place in hell for those who run plans that charge 2%. If your 401(k) is 1% or over, deposit to the match, then run the other way. It’s that simple.

written by Joe \\ tags: ,

Oct 26

I’ve seen enough murder mysteries for my gut reaction to be, “Enough so your family won’t need to sell the house, drop out of high school, and move to van down by the river; But not so much they are happy to see you in the casket, or worse, conspire to put you there.” While I offer this tongue-in-cheek, it actually starts a dialogue for discussing your true needs, a minimum and maximum amount.

Let’s start with the biggest expenses many of us are up against, our house and funding college for our children. If your kids are already adults, your spouse may not want to keep the house after you pass. If you still have school age children, or your spouse will stay in the house, it would be a great start to have that mortgage paid in full with the life insurance proceeds. Term life’s coverage will  remain the same for the duration of the term, but you’ll be making mortgage payments, so will have less need for the mortgage-targeted portion of the insurance. This factor will help offset inflation a bit over that term. You are likely saving for your children’s college tuition, and should account for this as well. From College Data, “According to the College Board, the average cost of tuition and fees for the 2012–2013 school year was $29,056 at private colleges, $8,655 for state residents at public colleges, and $21,706 for out-of-state residents attending public universities.” This is more than a three to one range from state school to private.  It’s okay to estimate on the high side and find you have a bit extra. So far, these two costs might range from a low of $100K, up to $500K or more. Medical school anyone?

Insurance

Next comes the real math. How much is your income that insurance will need to replace? Financial authors still tend toward the 4% rule, suggesting that you can withdraw 4% of a nest egg each year, adjust for inflation, and have a good chance of not running out of money. This means that for every $10K you make, $250K in life insurance is required to replace that stream of income. For a $40K/yr income, $1 million is needed. Of course, one doesn’t live off their gross income, but rather their net. This is what’s left after Social Security, Taxes, Retirement Savings, etc. That’s why this math is not an exact science, but rather, a starting point for how to determine your insurance needs.

Once you have a number in mind, it’s time to start shopping. Are you in good shape, physically? Do you smoke? (Gee, I hope not!) Do you have any pre-existing conditions that might make you seek to find life insurance without a medical exam? These are among the things to consider when shopping for your policy. On a personal note, we bought our policies 15 years ago when our daughter was born. After the terms came up for renewal, we stuck to the same value policies, as our college savings and mortgage payoff needs dropped, but inflation make up the difference. In five years, the mortgage will be gone, and the college bills will at least be a known quantity. And it’s fair to say that most days, my wife prefers me to the bundle of cash she’d get if I passed on.

written by Joe \\ tags:

May 30

A Guest Post today from my friend Crystal –

No-fault states often require that people purchase much more auto insurance than tort states, so it’s not a surprise that nine of the ten cities with the most expensive auto insurance rates are in two no-fault states. The following 10 cities have higher auto insurance rates than any others in the country:

• Detroit, Michigan ($4,599)
• Highland Park, Michigan ($4,214)
• Brooklyn, New York ($4,133)
• Fort Hamilton, New York ($3,947)
• Grosse Pointe Park, Michigan ($3,504)
• Bronx, New York ($3,443)
• Allison, Texas ($3,385)
• St. Albans, New York ($3,233)
• Springfield Gardens, New York ($3,213)

According to autoinsurancequotes.com in no-fault states, it doesn’t matter who caused the collision. The at-fault person will not be required to pay the medical bills of everyone who was hurt. The insurance company that insures the vehicle in which the injured parties were riding will be required to pay the medical bills up to the limits of the PIP insurance policy.

Required Insurance Coverage in Michigan

Along with Personal Injury Protection (PIP) insurance that pays everyone’s medical bills, Michigan residents must purchase Property Protection insurance in the amount of $1 million. Even though Michigan is a no-fault state, drivers are still required to purchase bodily injury and property damage liability insurance coverage. Generally, people are only required to purchase bodily injury and property damage liability insurance coverage in other states. Therefore, the greater amount of coverage and the higher limits will naturally increase the prices for people living in Michigan.

Required Insurance Coverage in New York

New York is also a no-fault state, and a greater amount of insurance coverage is required of drivers here as well. Motorists must have a certain amount of bodily injury and property damage liability coverage, but they are also required to have PIP insurance as well as uninsured and underinsured motorist bodily injury coverage.

Higher Rates for Everyone

In the cities mentioned above, even people in the most desired demographic who have the greatest driving records will be quoted auto insurance rates that are higher than they would receive in other cities. The reason is that insurance companies base their quotes on the zip code in which their customers live. For example, insurance companies perform research on different cities in which they sell insurance, and they often discover that more claims for auto insurance coverage come from customers from a particular zip code. Because this is the case, anyone who is driving in this zip code has a greater chance of filing a claim with the insurance company, and these drivers will be assessed higher rates.

Auto insurance companies set rates based on more than just the number of claims filed. The number of accidents and thefts and vandalism rates also play a role. Cities with a high risk for most or all of these factors are going to be the ones that have the highest auto insurance rates. Auto insurance companies charge clients who are less likely to need to use their insurance coverage lower rates, and those who live in high risk areas in no-fault states don’t fit this description.

How is your car insurance bill? Anything close to these top-ten cities?

written by Joe \\ tags: , ,