2015 Personal Finance Year in Review https://learn.extension.org/events/2160 This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of Family Readiness Policy, U.S. Department of Defense under Award Numbers 2012-48755-20306 and 2014-48770-22587. 1
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2015 Personal Finance Year in Review · costs-for-couples-retirement-rise • Retiree health care costs up 29% since 2005 • Estimated cost: $245,000 throughout retirement for a
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2015 Personal Finance Year in Review
https://learn.extension.org/events/2160
This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of Family Readiness Policy, U.S. Department of Defense under Award Numbers 2012-48755-20306 and 2014-48770-22587. 1
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MFLN Personal Finance
@MFLNPF
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Key Take-Aways
• Retirement (including retiree health care costs) will be expensive and many people are unprepared
• Consumer knowledge of 529 plans and health insurance is limited
• Federal income taxes and ACA penalties are related
• Credit card security upgrades are widespread
• Consumer shopping preferences are changing
• Very modest income and estate tax changes in 2016
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Reference Links
• Each 2015 event that is listed has a reference link
• Consider opening up the reference links if you have a second monitor
• Some links, unfortunately, have “pay walls” or you can only see a research study abstract for free
• You may be able to see enough of the article (title, author, date) to be able to find it through a search
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Q1: What Do You Think Was the MOST Significant Personal Finance
Event of 2015?
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Key Findings from 2015 Personal Finance Studies
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Information Search: A Health and Personal Finance Link ? • 2015 Study: Individuals who engage in health search
behaviors (e.g., reading nutrition details of food labels) are more likely to engage in financial planning activities
• Financial planning was proxied through five different retirement readiness activities
• N = 4,825 cases
• Cognitive process had significant health-wealth relationship but direct physical activities (e.g., exercise) did not
Understanding the Uninsured • May 2015 Robert Wood Johnson Foundation study
• Survey of 1,270 uninsured adults ages 18-64 – N = 469 Latinos
• Most uninsured think health insurance is important
• Cost remains the main barrier – Calculated decision includes all OOP costs
• Other reasons: ability to still get care and pay OOP and perception of insurance as a “commitment”
• Knowledge gaps: tax credits & special enrollment http://www.rwjf.org/content/dam/farm/reports/surveys_and_polls/2015/rwjf420854
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Scary Projections for Retirees
• HealthView Services Report (3/15): 66-year old couple retiring in 2015 with average Social Security benefits can expect medical costs to consume 67% of lifetime SS
– About 90% of SS for 55-year old couple retiring in 10 years
• Social Security benefits grow by about 2% a year
• TIAA-CREF Survey of 1,000 U.S. adults (2/15): http://www.fa-mag.com/news/most-people-want-lifetime-income-but-don-t-know-how-to-make-it-happen-20729.html
• 84% want guaranteed income stream in retirement
• 46% concerned they will run out of money
• Only 14% have purchased an annuity to secure a steady stream of income
• 29% are saving nothing at all for retirement
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2015 EBRI Retirement Confidence Survey (RCS) • Survey of 1,003 workers and 1,001 retirees
• Almost a third (28%) of workers have < $1,000 in savings and investments for retirement
• 57% say they have < $25,000
• 50% of retirees left the workforce earlier than planned (health, downsizing, etc.)
• 69% of workers said they could save $25 more than current savings ($1,300 a year)
• Federal Reserve Board study (8/15): credit scores might be able to predict marriage stability
• People with higher credit scores (or whatever personal qualities credit scores represent) were more likely to form committed relationships and marriages and stay in them
• Wide gap in credit scores, more likely to break up
• Controlled for education, race, income, other factors
• “Issues” for people lacking health insurance or incorrectly estimating 2014 income
• Too high APTCs reduced refunds or resulted in tax bills
• Marketplaces rely on consumers to report changes
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Increased Health Savings Account (HSA) Use • HSA: Pre-tax savings for OOP medical expenses
• Maximum 2015 HSA contribution: $3,350 (single) and $6,650 (family) + $1,000 if age 55 and older
• Must have health insurance with a deductible of at least $1,300 (individual) or $2,600 (family)
• “Shadow Retirement Plan”: After age 65, no penalty for withdrawing money for nonmedical use – Only works if you are healthy with few OOP expenses
• High earners also reduce risk of getting hit with 3.8% surtax on net investment income
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Workplace Wellness Programs
• April 2015 EEOC regulation: U.S. employers can reward workers with up to 30% of cost of health insurance in return for wellness program participation
• More than a third of employers charge a penalty that averages $50 a month if workers don’t participate – Some charge as much as $1,600 a year
• Some companies penalize “holdouts” by removing company HSA contributions and charging tobacco-related surcharges
• If still working at 65 and haven’t claimed Social Security, enrollment isn’t automatic
• Must go to www.socialsecurity.gov three months before turning 65 and sign up for free Part A (and Part B if no employer coverage)
• Must enroll in Part B within 8 months after the month you retire to avoid risking late penalties
• Substantial penalties and waiting periods http://m.kiplinger.com/article/insurance/T027-C000-S002-guide-to-getting-the-most-out-of-medicare-2015.html
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Long-Term Care Insurance • “Policies are getting pricier, harder to find, and increasingly difficult
to justify as a worthwhile purchase”: http://www.wsj.com/articles/long-term-care-insurance-is-it-worth-it-1430488733
• 2014 LTC insurance sales were down 24% from 2013
• Cost for 60-year old couple (for both): $1,685 to $2,813
– With 3% inflation protection: $3,549 to $4,746 for couple
– Based on typical policy with $164,000 of potential proceeds
• New Trend: “Hybrids” (LTC benefits with life insurance, annuities)
• CRR Study: Nearly half of men’s and 36% of women’s nursing home stays don’t exceed 3 months (within Medicare’s 100-day maximum): http://crr.bc.edu/wp-content/uploads/2014/11/wp_2014-12.pdf
– Nursing home stays are shorter than previously believed 37
Pension Pressures
• Increasing numbers or employees are receiving “lump sum vs. pension” offers
• Give up future monthly pension in exchange for a current lump sum (sure thing vs. an unknown)
• More than 400 company offers since 2012
• Dozens more expected in 2015
• Prompted by new regulations, low interest rates, and increasing PBGC premiums charged to employers
• 87% of the 82 state retirement systems that reported data for FY 2014 are under-funded
• Top 10 states with most underfunded pensions: Alaska, Connecticut, Hawaii, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi, New Hampshire
• Three “Alert” categories: Critical, Severely Endangered, and Endangered
• 72% of largest U.S. credit unions offer free checking vs. only 38% of large banks: http://time.com/money/3726738/where-to-find-free-checking/
• Record ATM use fees for ATMs not tied to a customer’s
bank account: averaged $4.52 per transaction and $5 to $8 in some places (10/15 study): http://www.wsj.com/articles/atm-fees-rise-toward-5-per withdrawal-1443981841
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Same Sex Marriage
• SCOTUS Ruling: Same-sex couples have a right to marry in every U.S. state
• Same-sex couples can file joint federal and state income tax returns
• Marriage penalty or marriage bonus could kick in
• Eligibility for Social Security spousal benefits and strategies such as “file and suspend”
• Eligibility for pension benefits
• Unlimited spousal asset inheritance and combined estate tax exemption
• Allows 529 plan account holders to change their investment holdings TWICE a year vs. once
• Psychological boost: don’t feel as locked in http://www.wsj.com/articles/rule-change-allows-529-investors-to-adjust-holdings-more-often-1420516879
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Student Loans
• Outstanding debt: $1.3 trillion and counting: http://www.finaid.org/loans/studentloandebtclock.phtml
• Nearly 7 million students with debts haven’t made a payment in a year: http://www.wsj.com/articles/student-debt-payback-lags-1442189980
• Some 94% of undergraduate private student loans are cosigned (77% in 2008-09): http://blogs.wsj.com/totalreturn/2015/06/19/risks-of-cosigning-student-loans-are-highlighted-by-regulator/
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Credit Card Security Upgrades
• As of 10/1/15, merchants have to foot the bill for fraudulent transactions if they haven’t upgraded terminals to accept more secure credit cards – Called EMV terminals (Europay, Mastercard and Visa)
• Shifting fraud liability to retailers from creditors
• Consumers received new cards with an embedded computer chip instead of magnetic stripes – Stolen card info is useless; data changes with each use – Causing “turbulence” for subscription sevices (gyms, Netflix) – Dip cards into a slot at terminal instead of swiping
• Majority of big banks are offering free FICO credit scores to their customers on monthly statement, online, or via a mobile app – Example: Citibank customers can see credit score online
Recent Shopping Trends • Millennials place a high value on experiences over “things” and boomers are starting to do likewise – “the similarities in attitudes across generations is striking”
• Purchasing experiences makes people happier http://time.com/money/4030036/millennials-boomers-buying-experiences/
• Macy’s closing up to 40 more stores (9/15) http://money.cnn.com/2015/09/09/news/companies/macys-store-closings/
• More personalized promotions based on previous purchases
• 2015 National Association of Realtors prediction: “Less than one third of families who lost homes to foreclosure or other distressed events in the last decade are likely to become homeowners again”
• Pool of new home buyers is not as big as some are expecting
• Reasons given: ineligibility to borrow again or won’t have the desire to buy again
Q4: Any Other Interesting 2015 Financial Events, Trends, or
Products?
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Key Government Legislation and Policies Affecting Personal Finances
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myRA Rollout • Proposed in 2014 SOTU address to encourage workers without
company retirement plans to save for retirement
– Like a Roth IRA “on training wheels”
– No fees and no account minimums
• $15,000 cap or 30-year limit; then money must be transferred to a private Roth IRA
• Secondary role as a reserve fund (workers can withdraw their own contributions)
• Slow roll out process; official roll out in November 2015: https://www.washingtonpost.com/news/get-there/wp/2015/11/04/introducing-myra-a-free-retirement-plan-backed-by-the-u-s-government/
• Starting in 2015, you can only make one rollover from an IRA (to a new account) in a 12-month period – Does NOT include “trustee to trustee” transfers
– Designed to prevent short-term, interest-free loans
• Indexed federal marginal tax brackets
• Indexed Alternative Minimum Tax (AMT) exemption amounts (up 1.5% from 2014)
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Income Tax Identity Theft • 2015 announcement: Increased cooperation between
the IRS, states, and tax prep firms to deter ID theft – More information exchanges among them
• 2013: IRS lost $5.8 billion to stolen-identity refund theft
• At least 12 states will be requesting W-2 forms earlier from employers in 2016
• Expect heightened security in the future
• Minimize tax refunds so you don’t have to wait http://www.wsj.com/articles/a-new-joint-effort-to-combat-tax-identity-theft-1434734299
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Q5: Any Other Interesting 2015 Financial Legislation or Policies?
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Military Financial Events
• Military Compensation and Retirement Modernization Commission Report (1/29/15): http://www.mcrmc.gov/public/docs/report/mcrmc-finalreport-29jan15-hi.pdf
• Military Lending Act Final Rule (7/21/15; effective 10/1/15): https://www.fdic.gov/news/news/financial/2015/fil15037.html
The Personal Finance Concentration Area offers 1.5 CEUs from AFCPE for AFC-credentialed participants and 1.5 CEUs from FinCert for CPFC-credentialed participants. To receive CEUs, complete the evaluation and post-test at: https://vte.co1.qualtrics.com/jfe/form/SV_1TH9BF7jj0k9HqR Must pass post-test with an 80% or higher in order to receive certificate.
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Personal Finance Upcoming Event Thrift Savings Plan Review
• Date: January 12, 2016 • Time: 11 a.m. ET • Location: learn.extension.org/events/2361
For more information on MFLN- Personal Finance go to: http://blogs.extension.org/militaryfamilies/personal-finance/
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Find all upcoming and recorded webinars covering:
Personal Finance Military Caregiving
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www.extension.org/62581
This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of Family Readiness Policy, U.S. Department of Defense under Award Numbers 2012-48755-20306 and 2014-48770-22587. 79