Category Archives: Opinion
Before Cosigning a Loan, Know the Risks
By Jason Alderman
Shakespeare probably said it best: “Neither a borrower, nor a lender be, for loan oft loses both itself and friend.” Four hundred years later, people still wrestle with whether or not to help out a loved one by loaning them money or cosigning a loan.
Perhaps you want to help your kid qualify for a better student loan rate or assist your widowed mom with refinancing her mortgage. Before you cosign anything, however, make sure you understand the risks involved.
Here are just a few of the things that can go wrong and questions to ask before committing yourself – and your good credit – to what could be a decades-long commitment:
First, understand that the main reason you’re being asked to cosign a loan is because lenders don’t think the borrower is a good risk. By cosigning, you’re guaranteeing that you’ll repay the full loan – plus any late fees or collection costs – should the borrower default.
If that doesn’t scare you sufficiently, read on:
Even one late or missed payment can damage your credit.
In most states, the creditor can – and probably will – go after you for repayment without first trying to collect from the borrower, because they know you’re more likely to have the money.
If the loan goes into default or is charged off, that fact will go into your credit report and can take seven years to erase.
If you pledged personal property to secure the loan, you could lose these items if the borrower defaults.
Should the lender agree to settle for a lesser amount, you’ll have to report the difference as “debt forgiveness income” and pay tax on it.
If you cosign a credit card account, primary borrowers over age 21 are allowed to raise the credit limit without notifying you.
Government-backed student loans generally aren’t eligible for bankruptcy protection unless you can prove “undue hardship.”
Some private student loans contain a clause allowing the borrower to originate additional years’ loans without your signed approval.
Even if you’re not asked to repay the loan, your potential liability could stop you from getting additional credit if your debt-to-income ratio is too high.
If you do decide to cosign someone’s loan, taking these steps can help lessen your risk:
Calculate whether you can afford the loan’s monthly payments, should the borrower stop paying. To be prudent, start setting aside enough money to cover it for one year, which will allow you to keep payments current while working out a solution.
Insist that the lender agree, in writing, to notify you if the borrower missed a payment or the loan’s terms change. That’ll give you more time to make contingency plans.
If you’re unsure about the borrower’s reliability to pay each month on time, ask the lender to send payment requests directly to you so you can manage the transaction. (It’s a pain, but one way to guarantee timely payments.)
Ask the lender to stipulate in the contract that you’re only responsible for the loan’s principal amount, should it default. It doesn’t hurt to ask.
Make sure you get copies of all paperwork in case of future disputes.
Don’t consolidate old loans accumulated by your spouse before you married. If something should happen (divorce, death), you would be responsible for paying them off.
There may be times you want to cosign a loan to help out a relative or friend, despite the risks involved. The Federal Trade Commission’s “Cosigning a Loan” guide share precautions to take before entering such agreements www.consumer.ftc.gov.)
Don’t Be Surprised by Retiree Healthcare Costs
By Jason Alderman
Retirement isn’t cheap. Even though you’re no longer drawing a paycheck, you still must pay for housing, food, utilities, transportation and healthcare, to name just a few expenses. As prices continue to escalate, it’s not surprising that the ages at which people expect to retire – and when they actually do – have crept up in recent years.
Speaking of healthcare costs, here’s a number that’ll stop you in your tracks: According to an annual Fidelity Investments study of retirement costs, the average couple retiring in 2014 at age 65 is expected to need $220,000 (in today’s dollars) to cover their medical expenses in retirement. Those planning to retire at 62 can expect another $17,000 in additional annual expenses.
Fidelity’s estimate includes Medicare premiums, deductibles, copayments and other out-of-pocket costs, but notably does not include most dental or vision services, over-the-counter medications or, most importantly, long-term care.
When Fidelity polled pre-retirees aged 55 to 64, 48 percent believed they’d only need $50,000 to cover their healthcare costs in retirement. That’s quite a reality gap.
If you’re planning to retire in the next few years and are concerned you haven’t saved enough money to cover your healthcare expenses, here’s a sampling of what you can expect to pay:
Medicare Part A helps cover inpatient hospital, skilled nursing facility and hospice services, as well as home health care. Most people pay no monthly premium for Part A. However, in 2014 there’s a $1,216 deductible for each time you’re admitted as an inpatient, plus a $306 daily coinsurance after 60 days ($608/day after 90 days).
Medicare Part B pays toward medically necessary doctor’s services, outpatient care, durable medical equipment and many preventive services. It’s optional and has a $104.90 monthly premium (although higher-income people pay more). There’s a $147 yearly deductible, after which you’re responsible for 20 percent of Medicare-approved service amounts, provided the doctor/provider accepts Medicare. Note: There’s no annual limit for out-of-pocket expenses.
Medicare Part C (Advantage) plans are offered by private insurers as alternatives to Parts A and B. They’re usually structured like HMO or PPO plans. Most cover prescription drugs (so Part D is unnecessary) and some also provide dental and vision coverage. You must use the plan’s doctor, hospital and pharmacy provider networks, which are more restrictive than under Parts A and B.
Advantage plan costs vary considerably, based on factors such as annual out-of-pocket maximums, monthly premiums, copayments and covered medications. Some Advantage plans cost no more than Part B, while others have a higher premium (to account for drug and other additional coverage).
Medicare Part D helps cover the cost of prescription drugs. It’s optional and carries a monthly premium. These privately run plans vary widely in terms of cost, copayments and deductibles and medications covered. The 2014 national average monthly premium is about $32, although plans can cost up to $175 a month. Plus, higher-income people pay an additional surcharge. You may not find a plan that covers all your medications, but aim for one that at least covers the most expensive drugs.
Use the Medicare Plan Finder at www.medicare.gov to compare Part D and Advantage plans in your area. To learn more about how Medicare works and what it does and doesn’t cover, read “Medicare & You 2014″ at the same website.
Bottom line: Even though Medicare does pay a significant portion of retiree medical care, make sure that when you’re budgeting for retirement you take into account the many out-of-pocket expenses you’re likely to encounter.
By Jason Alderman
Under 26? Should You Stay on Your Parent’s Health Insurance?
In their quest to land a job, any job, many young adults will sacrifice what used to be called “fringe benefits” to gain a foot in the door. But many entry-level jobs either offer no healthcare benefits, or the employee’s cost share is prohibitive for someone barely making minimum wage. Add to the equation that most twentysomethings are in good health and rarely visit the doctor and it’s easy to see why many will forego health insurance in favor of paying other bills.
But that’s a dangerous choice. One serious accident or illness can rack up thousands of dollars in bills. In fact, over half of all personal bankruptcies result from unpaid medical bills. Plus, there’s usually a tax penalty for going uninsured.
Fortunately, since the Affordable Care Act (ACA) rolled out, young adults now have more health insurance options than before. In addition to buying coverage through their employer (if offered), people under age 26 may also choose to enroll in their parent’s plan, even if they’re married or no longer a dependent, or to buy an individual plan through the health insurance marketplace.
If you’re currently without coverage or want to explore better options, this is the perfect time to start researching what’s available. Here’s why:
For most employer-sponsored benefit plans, the open enrollment period to sign up for 2015 benefits happens in the next few months. Watch for communications from your own employer and ask your parents to do likewise if their company provides dependent health coverage. ACA’s 2015 open enrollment period is November 15, 2014 to February 15, 2015.
With both employer plans and ACA, if you miss open enrollment you’ll have to wait until the following year to apply unless: you’re applying for Medicaid; you qualify for a special enrollment period because of a family status change (e.g., marriage, divorce, birth of child); or you lose your current coverage.
Another good reason to enroll in a healthcare plan is the so-called individual mandate, an ACA regulation that says most people must maintain health insurance with minimum essential coverage for themselves and their dependents or be subject to a penalty for non-compliance.
Certain people, like those whose income falls below the federal poverty line, are exempt from the penalty. But keep in mind that even if you opt to forego insurance and pay the penalty, you’ll still be responsible for all your healthcare expenses. For more information, go to www.healthcare.gov/exemptions.
If your parent’s plan offers dependent coverage, they can add you until you turn 26, even if you are: married; not living with your parents; attending school; eligible for worse coverage through your own employer; or not financially dependent on your parent. If they’re already covering other dependents, there may be little or no cost to add you to their plan. Plus, they can generally pay the premium using pretax dollars if it’s an employer-provided plan.
Other coverage options include:
Those under 30 can buy a catastrophic health plan designed to financially protect against worst-case scenarios like a serious accident or illness. For information, search “catastrophic” at www.healthcare.gov.
If you can’t afford your employer’s insurance and your income falls below certain levels, you may qualify for a tax credit that reduces the cost of ACA plan coverage.
In addition, many states expanded eligibility for their Medicaid programs under the ACA, meaning you could earn more and now qualify for Medicaid. To learn more about subsidies and Medicaid eligibility, search “income levels” at www.healthcare.gov.
Many people get an annual physical or check-up. l’d like to encourage another type of check-up – a Medicare Part D check-up. It’s easy to sign-up
for a drug plan and stay with it year after year. But the State of Iowa’s Senior Health Insurance Information Program (SHIIP) has found that doing an annual Part D check-up can save money.
Most people can change Part D plans once a year from October 15 through December 7. Last year SHIIP helped thousands of people compare plans during this time and found almost 80% saved money by changing plans for 2014. Part D plans can change premiums, co-payments and drugs covered each year. The plan that was best for you in 2014 may not be the best for 2015.
Now is the time for residents of Black Hawk County to do their Part D check-up. During the October 15-December 7 open enrollment period you can choose to change your Medicare drug coverage for 2015 or enroll in a plan if you missed earlier deadlines. We also know there are people who might be eligible to get help with their Medicare drug costs, but haven’t applied for that help with Social Security. If you’re on Medicare or know someone who is, share this important information with them.
The Senior Health Insurance Information Program (SHIIP) volunteers are available to help anyone on Medicare with questions about the drug benefit. They can also help compare the drug plans offered in Iowa, assist with enrollment in a plan if requested and help apply for assistance. To meet with a SHIIP counselor call 319-272-2250. SHIIP’s services are free, confidential and objective.
Start your check-up now. Don’t wait until the last minute to make a decision.
Roxine Hild, SHIIP Counselor
La Porte City
By Jason Alderman
Social Security to Resume Mailed Benefit Statements
Call it a paperless experiment that didn’t quite pan out. In 2011, a budget-strapped Social Security Administration (SSA) stopped mailing annual benefit statements to workers over 25 in order to save $70 million on annual printing and mailing costs.
In return, the agency launched the “my Social Security” online tool that allows 24/7 access to your statement, as well as other helpful information. (Your statement shows a complete record of your taxable earnings as well as estimated retirement, disability and survivor benefits.)
Although more than 13 million people have opened accounts, that’s only about 6 percent of the American workforce. With millions of Baby Boomers at or approaching retirement age, Congress was justifiably concerned that not enough people were accessing this critical retirement-planning tool.
That’s why this month SSA will resume mailing paper statements every five years to workers from ages 25 to 60, provided they haven’t already signed up for online statements. The expectation is that more people will migrate to electronic services over time, as Social Security continues to close field offices and reduce in-office paperwork services – thanks to years of funding cutbacks.
The paper statements are a good first step, but creating an online account allows you to log in anytime and:
- Estimate retirement, disability and survivor benefits available to you under different work, earnings and retirement-age scenarios.
- Estimate benefits for which your family would be eligible when you receive Social Security or die.
- View a list of your lifetime earnings to date, according to the agency’s records.
- See the estimated Social Security and Medicare taxes you’ve paid over your working career.
- Find information about qualifying and signing up for Medicare.
- Review topics to consider if you’re 55 or older and thinking about retiring.
- Read general information about Social Security.
- Access calculators to estimate your projected benefits under different scenarios.
- Apply online for retirement and disability benefits.
- Access a printable version of your Social Security statement.
To create an online account, go to the “my Social Security” website (www.ssa.gov/myaccount). You must have a valid email address, Social Security number, U.S. mailing address and be at least age 18.
You’ll need to verify your identity by providing personal information and answering questions whose answers only you should know. Social Security contracts with Experian to design these questions based on the credit bureau’s records.
(Note: If you’ve got a security freeze or fraud alert on your Experian credit report, you’ll either have to temporarily remove it or visit your local Social Security office – with proof of identity – to open an online account.)
Once your identity has been verified, you can create a password-protected account. Social Security emphasizes that you may sign into or create an account to access only your own information. Unauthorized use could subject you to criminal and/or civil penalties.
Review your statement at least annually to ensure the information on file for you is correct – for example, your yearly taxable earnings. Otherwise, when Social Security calculates your benefits at retirement, disability or death, you could be shortchanged; or, if your earnings were over-reported, you could end up owing the government money.
If you do find errors, call 800-772-1213, or visit your local office. You’l need copies of your W-2 form or tax return for any impacted years.
Bottom line: Even if retirement is a long way off, it’s important to review your Social Security statement now to know what benefits you can expect – and to correct any mistakes well before you need to sign up.