Since medicare open enrollment is quickly approaching (October 15th), I thought now would be a good time to start talking about it. I know most of us aren’t even close to being eligible for medicare (age 65). But our parents might be and if they’re not sure how to navigate the system, it’d be nice if we were informed enough to help them.
So, first things first. Did you know that Medicare has multiple parts that cover different things? I didn’t, up until a few years ago.
Here’s a quick breakdown of all the different parts and what they cover.
Part A – Hospital Insurance (hospital bills)
- Home health care
- Hospice care
- Inpatient hospital care (meals, hospital room, nursing services)
Part B – Medical Insurance (doctors’ bills)
- Physician care
- Laboratory tests
- Physical therapy
- Rehabilitation services
- Preventative services
- Annual check-up
Parts A & B make up “Original Medicare.”
Part C – Medicare Advantage*
- Medicare-covered services available through private health plans, such as HMOs,
PPOs, and private fee for service plans
Medigap – Supplemental Insurance*
- Pays for things that Parts A & B won’t cover:
- Anything beyond what the doctor has agreed upon with Medicare
*You can have Part C or Medigap but NOT both! Medigap is the more popular choice.
Part D – Prescription Plan (medication)
- Prescription drugs
This is just a very brief intro to Medicare. Eventually I’ll cover topics like when you’ll need to enroll in Medicare, the different Medigap plans available and how to find the best Medigap and Part D plan for you.
I got engaged exactly 2 months ago (April 19th) and being the avid planner that I am, I’ve already booked our venue, our engagement and wedding photographers, our DJ/MC, a photo booth and my wedding day hair stylist and make-up artist.
Booking all these vendors has taught me a lot about patience and negotiating. For those of you reading and not planning a wedding anytime soon, I’m sure these tips can be applied for booking vendors for any occasion (birthdays, anniversaries, corporate events, etc.).
Tip #1 – Get Multiple Estimates
My fiancé and I checked out 7 venues before booking one. Between the cheapest venue and the most expensive venue was over a $10,000 difference. Our first choice venue gave us the most expensive estimate, which was way more than what we were willing to pay. We did a little bit of negotiating within the first few days of meeting their event coordinator and knocked a few hundred dollars off the top right away. But the biggest win came when we told them what our second choice venue was offering us for food & beverage (after negotiating with them a bit, too). Once our first choice venue had that information, they gave us a better counter offer the next day, making them the clear winner. This gave us an instant savings of thousands of dollars.
The same thing happened when we booked all our other vendors. And even when our first choice vendor couldn’t beat our second choice’s offer, they still ended up offering us a better deal than what they started with.
Keep in mind that if you’re going to use estimates from different vendors as leverage, the vendors have to be comparable. For instance, our first and second choice venues were in the same city (literally across the street from one another) and offered the same type of food. You can’t ask for filet mignon at one location and then chicken at another location and expect the first location to match or beat the price.
Tip #2 – Be Patient
Ever hear that quote, “he who speaks first, loses”? This is definitely true when it comes to negotiating with vendors. You’re basically playing a game of “who wants this to work out more?” If you contact them right after they’ve given you an estimate, they’ll think you really want them and be less willing to negotiate. Even if you’re willing to pay their initial asking price, play it cool if you want to save any money. Wait for them to reach out to you a second time or tell them you need more time to think about it. If saving money is not as important as guaranteeing this particular vendor, feel free to book them right away. FYI, we’ve had multiple vendors tell us that they can only give us a discount if we book them right away or that another party is interested in booking them for our date… whether that’s true or just a sales tactic, by delaying our response for an extra few days, almost every one of our vendors lowered their price a little more before we signed the contract.
Tip #3 – Consider Swap Meets and Cheap Retailers for Your Attire
If you look for dresses specifically under the “bridesmaid” category, they’ll always be more expensive (like at here and here). But if you look for maxi dresses at your favorite cheap retailer, you could find a bridesmaid dress for a lot less. Another option is going to a local swap meet. That’s where I plan on getting my bridesmaid dresses this weekend. I’m still deciding between 3 options but all of them are under $100 and look just as nice as the dresses that cost $200-$300.
Most people could benefit from having life insurance. In a previous post, I covered a few scenarios like if you have young children, a mortgage, etc. where life insurance is probably needed, even if you’re a millennial just starting out in your career.
There are so many different types of life insurance options that it’s easy to feel confused on which policy would be the best fit for you. And if you ask an insurance agent, there is a very high chance they will recommend you get a permanent (also known as whole-life) policy because it’s the most expensive and they will get the most commission. The biggest hook they use to lure you into buying permanent insurance is the cash value savings component. They’ll tell you that in addition to buying life insurance that never expires (unlike term insurance, which will expire), you are also building up a savings account.
However, besides the the big commission they get from a permanent life insurance sale, here are few other considerations insurance agents might conveniently leave out:
1) You might not really need life insurance. Life insurance is for protecting your dependents so that when your income is lost, the death benefit (amount your beneficiaries would receive when you pass) will allow them to maintain their lifestyle or at least it’d alleviate some of the financial burden while they adjust. But if you’re single with no kids or parents who depend on you and you don’t have any large debt that needs to be paid off, then you don’t have much of a need for life insurance. It’d be like getting car insurance when you don’t drive.
2) Term insurance might be better for your cash flow needs. Let’s just say you buy a term policy with a $500,000 death benefit, it might cost you as little as $17 a month. But for a permanent policy with the exact same death benefit, it might cost you something closer to $400 a month. A lot of us millennials need that extra $383 for other financial priorities (paying off student loans, saving for retirement, building an emergency fund, etc.).
3) Investing the difference between the cost of term and permanent insurance gives you more savings in the long run. There is a popular saying that goes “buy term and invest the difference.” Using the example from above, you would buy the term insurance for $17 and invest the difference ($400-$17 = $383). Chances are, if you invest the difference in the stock market, you will end up with more money than if you had “saved” it in a permanent life insurance policy. This will, of course, heavily depend on what investments you select.
If all that was confusing, here is a shortcut: Term insurance is most likely better for you than permanent insurance if…
- you have student loans or credit card debt
- you’re not saving a lot (or at all) for retirement
- you don’t have an emergency fund
- you have large expenses coming up (wedding, car purchase, home purchase, a baby on the way, etc.)
The following post was drafted back in October but never published because it needed editing, which I didn’t get to till now…
I filed my 2013 tax return today.
The 24 hours leading up to me going to the post office was very dramatic and overwhelming. I’ll spare you the details and just get to the lessons I learned:
1. Your Tax Return is YOUR Responsibility
Ever since I started working and paying taxes, I relied on my mom to do my taxes for me. She would get together with our CPA for a day or two and all I had to do was sign the bottom of my 1040 once it was complete. This year was different. In April, when tax returns were due, my mom was busy preparing for an out-of-country trip and didn’t have time to get it done so we filed for an extension. Long story short, my tax return wasn’t ready until this morning, the LAST day of the extension. I’m not a last minute person so I was in a panicked mess these last 2 days. I wanted to blame my CPA for all the mistakes that were made/overlooked. I wanted to blame my mom for not getting together with him sooner. But at the end of the day, my tax return is ultimately my responsibility and I could’ve been more proactive and taken the time to get all the documents together myself.
2. Save Your Tax Documents As You Go
When my coworker pointed out all the deductions that were missed, I scrambled to find all the necessary paper work to fill in those gaps: receipts, bank statements, etc. If I had saved those documents as they were accrued, it would have saved me so much time and hassle.
3. IRA & 401k Contribution Deadlines
Sadly, I realized on April 16th that you have to make your IRA and 401(k) contributions by April 15th to count for the previous tax year. So in order for my IRA contribution to count towards my 2013 tax return, I had to have made the contribution by April 15th of 2014. Just because you can file for an extension to complete your tax return, it does NOT mean you can get an extension on your contribution deadline. I missed out on a key opportunity to lower my taxes.
4. Make Sure You Are Withholding Enough
I wasn’t withholding enough of my paycheck and was slapped with a bunch of penalties, fees and interest. You can estimate if you’re withholding enough using this calculator.
I started working on my 2014 tax return a few weeks ago and feel much more prepared this time around!
When Judging Financial Advisers, Look Beyond the Annual Return (NY Times) – Great article on why returns aren’t everything when it comes to selecting a financial adviser.
When Bread Bags Weren’t Funny (Bloomberg View) – I stumbled upon this article through Becoming Minimalist. In his comment about the article, he wrote “perspective”. I couldn’t have said it better myself.
6 Easy Moves to Make in Your 30s That Will Pay Off Huge Later On (Time) – This article was sent to me by a friend. It provides some solid financial advice for us millennials.
I was listening to a sermon about finance a few weeks ago and when the speaker referenced people who manage their money poorly, he mentioned how “they just keep refinancing…”. I realized then that a lot of people might have a misconception about refinancing, assuming it’s always a bad thing.
When someone with poor money management skills is refinancing their home, they are most likely doing what’s called cash-out refinancing. This means they are taking cash out of the value of their home and using it to pay down other debt (i.e. credit card debt), while starting a new loan on their home. I found a great explanation of how cash-out refinancing can propel someone further into debt on Investopedia:
Many homeowners refinance in order to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring with it an automatic dose of financial prudence. In reality, a large percentage of people who once generated high-interest debt on credit cards, cars and other purchases will simply do it again after the mortgage refinancing gives them the available credit to do so. This creates an instant quadruple loss composed of wasted fees on the refinancing, lost equity in the house, additional years of increased interest payments on the new mortgage and the return of high-interest debt once the credit cards are maxed out again – the possible result is an endless perpetuation of the debt cycle and eventual bankruptcy.
Sometimes refinancing is a lot more justifiable like when you need to pay for your child’s college tuition or a large medical bill. And sometimes refinancing can even be a good thing like when you use it to lower the interest rate on your mortgage. Investopedia does a great job of summarizing When (And When Not) to Refinance Your Mortgage. So take a look when you get a chance!
A lot of us millennials are familiar with putting money into a Traditional or Roth IRA for retirement savings. When we first started working, contributing the max amount ($5,500 for 2014) into an IRA was nearly impossible for us and our entry-level salaries. But as we work our way up the corporate ladder, we will start to experience “rich people problems” such as making too much money for IRAs. Let me explain…
First, you have your Traditional IRAs. For someone who is single (for tax purposes), the phase-out for 2014 begins at $60,000 and ends at $70,000. What this means is that if your Adjusted Gross Income in 2014 is $60,000 or less, you can deduct the full amount you put into your Traditional IRA (on line 32). If your AGI is $70,000 or more, you can’t deduct anything that you put into your Traditional IRA. And if your AGI is somewhere between $60k-$70k, you can deduct part of the amount you put into your Traditional IRA. Fidelity has a simple calculator that you can use to see how much of a deduction you can take. Click “yes” under the Employer-Sponsored Plan section if you have a 401k with your employer.
Next, you have your Roth IRAs. For a single person in 2014, the phase-out begins at $114,000 and ends at $129,000. The reason why the phase-out limit is so much higher for Roth IRAs than Traditional IRAs is because with Roth IRAs, you do not get an immediate tax deduction regardless. That’s just not how Roth IRAs work. So the phase-out is for whether or not you can even contribute to the account and if so, how much. If your AGI is $114k or less, you can contribute up to the max ($5,500 for 2014). If it’s $129,000 or more, you can’t contribute anything. If you fall within the phase-out range, you can contribute up to a specific amount. You can use the calculator provided above to see what that amount is.
And lastly, you have your Non-Deductible IRAs. There is no phase-out for Non-Deductible IRAs because it works like a Traditional IRA without the immediate tax benefits. This IRA is appropriate for people who have an AGI over the phase-out limits for both Traditional and Roth IRAs but still want to take advantage of the tax-free growth. So even though you don’t get to deduct your contribution on your tax return, you still don’t have to pay taxes on your account’s earnings each year.