Junk food for thought
By Don Kuehn
I collect tidbits of information that are interesting and helpful when thinking about money—your money. Here are a few:
- Finance lunch? Visa and MasterCard are now allowing "no signature" purchases at fast food restaurants—good for business, not so good for you. All those little junk food purchases can add up fast if you buy lunch every day. If you carry a balance on your cards, it can take months to pay for today’s hamburger, and you may be paying far more than you thought (after accumulated finance charges are added). And you’ll probably just be hungry again tomorrow.
- What will happen if you get "cheated" out of the time you thought you had to plan for retirement? According to the Employee Benefit Research Institute (EBRI), four of 10 people leave work before they want to, or are ready to, retire. Nearly half the time it’s for health reasons. More and more, it’s due to corporate restructuring, plant closings or bankruptcies. That can have a dramatic effect on the ability to save and invest for retirement, and it will carve a gaping hole in your nest egg.
The message: Crank up your savings. The younger you are when you start on a serious plan of savings and investment, the greater the benefit time has on your balances.
- Fidelity Investments estimates that the average 65-year-old couple will spend $200,000 on medical costs in retirement. That does not include the costs of nursing home or assisted living care, estimated at $65,000 to $150,000 per year. Long-term care insurance makes sense for many people. It could be right for you.
- Americans will spend more than $300 billion this year on drugs of all kinds—nearly half the world’s total—even though we make up only 4 percent of the world’s population. Even with Medicare Part D, my mother spent $5,857 on prescriptions last year, almost $500 a month (plus premiums).
- You probably know that you are entitled to one free credit report every year from each of the major reporting agencies (www.annualcreditreport.com). If you followed my advice from last year, you have ordered one report from one of the agencies every four months. But did you know that you can also get a free home and auto insurance history from http://www.choicetrust.com/?
- "Affinity fraud" means getting bamboozled by a friend, relative or co-worker, especially in scams, ponzi schemes and the like. Emory University neuroscientist Gregory Burns says when we go along with our peers "activity in that part of the brain that thinks analytically may decrease, reducing skepticism," i.e., our "sucker factor" goes way up!
- The average debt level of families headed by someone 55 or older rose to $51,791 in 2004—with a median of $32,000—according to EBRI. Among lower income households (between $25,000 and $49,999), the median rose from $14,789 in 2001 to $25,700 in 2004. Sixty-seven percent of these families had some debt.
In higher income households ($100,000+), the median went from $127,812 to $163,500. Seventy-five percent of this group had some debt in 2004.
The increased debt can be partially explained by the rash of mortgage refinancing, new home purchases and home equity loans taken while interest rates were at their low ebb.
An increase in debt loads among the nation’s older adults is a concern. Conventional wisdom says that they should be trying to pare down debt heading into retirement.
- Late payments on "company" credit cards can affect your credit rating. A missed corporate payment can show-up on your credit report within a month. "If your name is on the card, you are ultimately responsible," according to Steve Katz of TransUnion. If the company runs into cash flow problems, it could be the employee who suffers the consequences.
- Want to save $300 a year? Stop going to off-network ATM machines. According to bankrate.com, the average fee banks charge noncustomers has risen to $1.64. Add your card-issuing bank’s charge of $1.25 and you are paying almost $3 for every ATM transaction. Do that twice a week and you’ve wasted over $300 a year. Go to your own bank’s ATM or write a check; avoid those surcharges.
- Did you receive or give any "gift cards" over the holidays? Read the fine print on the back. Many companies and retailers charge a monthly maintenance fee on unspent funds. At $2.50 a month, fees could wipe out the card if it is not used in a reasonable period of time.
- Social Security COLAs for 2007 were 3.3 percent, pushing the average monthly benefit up to $1,044. But Medicare premiums went up more. The standard Part B premium went up 17.5 percent in 2005, 13.17 percent in 2006 and 5.65 percent this year. Medicare now costs a minimum of $93.50 per month. One-third of all recipients depend on Social Security for nearly all of their income.
- According to an AARP Public Policy Report, 54 percent of all workers who took their pensions as a lump sum payment in 2003 had spent all of it by the middle of 2006. Suppose they went on a spending binge or that they had so little in their accounts it seemed insignificant so they just spent it?
- Are today’s young adults doomed to living a life below the standard of living established by their parents? I was impressed by a letter to the editor of the Kansas City Star by Ken Cobb of Lenexa, Kan. His theory is that it isn’t the "high cost of living" but the "cost of living higher" that’s to blame.
The choices and expectations are different, and quality has risen. For example, if apartments are more expensive, it’s because they are built better than they used to be: bigger, more bathrooms, walk-in closets, laundry facilities on the premises, etc. Cars are more expensive, but they have air bags, get better mileage and include lots of "bells and whistles" as standard equipment.
Many people are graduating with huge student loans, in part because they took five or six years to graduate. When loans were scarcer, there was a greater urgency to graduate in four years.
"The problem is that there are more goodies to tempt today’s young people, and there are lenders waiting to finance that temptation," according to Cobb.
- Would you rather receive $1,000 a day for one month, or one penny on Day One, doubling on Day Two and every day thereafter for the rest of the month?
The first option plays on our impatience because it takes no time to do the math: You’d have $30,000 at the end of the month. Pretty good.
But while the second choice takes some time to figure out, Day 30 is actually worth more than $5.3 million! Building an investment portfolio takes time and patience, too. Put time on your team and start a consistent, orderly investment regime today.
Don Kuehn is a retired AFT Senior National Representative. This column is intended to increase knowledge and awareness of issues of importance to members and retirees. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to email@example.com.