Dori on the Dime

Are You Ready for 2020?

Lately, I’ve been skipping Page One and heading straight to the editorial pages, where I’ve been stopping more frequently in an effort to make sense of the day’s news.

Was The New York Times making a case for credit card debt?

“Put the Next Recession on Your Card,” read the headline, but it was the graphic that got my immediate attention. Eight desperate consumers were barely hanging on to a zagged arrow that keeps ticking upwards. They were just about ready to lose their balance and fall. Only one lone figure wasn’t at risk of falling; in fact, his feet were steady, and his arms pumped ahead energetically, as he strode ahead. He was clearly able to manage the rocketing rise in interest rates indicated by the arrow.

As I studied the graphic more closely, I realized that he represents the wealthiest 10% of Americans who are profiting from the recent tax cuts legislation. These lucky few are not only unfazed by what’s going to happen by 2020 but, like the sole striver in the graphic, are going to profit over the next 18 months.

If you haven’t been paying attention, the Federal Reserve, the nation’s bank, has been steadily raising the federal funds rate, the rate at which banks and other financial institutions borrow money.  Currently, that rate is 1.9%, but it’s projected to increase to 3.4% by the end of 2020.

That means that the money you and I borrow over the next 18 months—for a mortgage, a car loan, and a revolving credit card—is going to cost more. “The Fed is picking our pockets because, to prevent the economy from overheating, it is legally required to keep inflation in check by raising rates,” the writer explained.

Is that fair? Of course not, but don’t focus on that headline. Start focusing on another story that has yet to come into view:

Your own story, of how you’re going to pay off your credit card debt.

Are you among those U.S. cardholders who carry a balance from month to month? You’ve got a lot of company: Two out of every three cardholders has an average balance of $5,700.

Have you ever thought about what it costs to pay the minimum? Up to 15 years. Yes, seriously. I just used the credit card calculators available from creditcards.com and bankrate.com. Keep paying the minimum payment, which is typically 3% of your balance, and you’ll eventually pay back close to $3,800 in interest.

As of July 2, when this editorial appeared, Chase was adding 11.74% to 20.49% to the prime rate, which nudges the rate to the brink of 30% (29.99%). Those rates are already high, but, over the next 18 months, they’ll be in the nosebleed zone when the prime rate hits 3.4%.

Financial reality is always a shock to absorb. Years ago, I thought I could use credit cards to stretch my budget, until I realized that I couldn’t pay the balance when the bill came due. I was living in New York City’s SoHo neighborhood, in a third-floor walkup studio that cost two-thirds of my monthly income to pay my mortgage. I had moved there in May 1987—six months before the stock market’s “Black October” cut the value of stocks and, subsequently, my 350-square-foot studio in half.

Then other factors piled on, as they inevitably do: I couldn’t refinance the adjustable rate on my mortgage, because New York’s co-op rules require that 50% of a co-op’s units have to be individually owned and occupied. The landlords who converted the building from rentals to co-op apartments had held onto 32 units out of the 60. For 12 of the 17 years I lived there, I paid interest rates averaging 10% to 12% on my mortgage after the end of the adjustable rate period.

I worked every freelance job I could, in addition to my day job, and, when all else failed, I tried to have a sense of humor about it: Just think of the exercise you’re getting, I told myself, as I skipped a subway ride and walked the 30 or so blocks back home before heading up those stairs.

My point is, there’s always something you can do. Pay attention now to the cold, hard facts laid out in The Times’ editorial and make a plan to get out of debt. You have 18 months to write a new headline for yourself.

So here are my questions to you this morning. Do you carry a balance on your credit card, or cards, from month to month? What is your plan for paying down your debt?

Welcome to Dori on the Dime—Demystifying Personal Finance

In the summer of 2001, my former boss had to write me a letter of recommendation, after deciding to retire her long-running syndicated Washington Post column on personal finance. That was one of my favorite roles, reporting for Jane Bryant Quinn’s Post column, monthly for Good Housekeeping and as needed for Newsweek. I chased down information for two Post columns a week and figured my way out of one financial maze after another. During those critical years in the nation’s economy (1998-2001), I learned who to call and what to ask on a dizzying array of personal finance topics.

So I took it as a huge compliment when Jane called me “a pit bull in tracking down information.” That’s really when Dori on the Dime began, although I didn’t realize it at the time. The idea was introduced in July 2009, when I was celebrating over lunch with wealth manager Julie Jason, whose award-winning book on retirement income planning I helped edit.

That was shortly before the global financial crisis became a personal financial crisis for me, and I was forced to put aside Julie’s idea for a personal finance column. News assignments and book contracts had started to dry up, adding to the unpaid cost of helping loved ones that had drained me financially. After debating whether to use my money, or the government’s, to pay my bills, I decided to apply for early benefits from the Social Security Administration (SSA).

Eighteen months later, I was on the brink of landing a fulltime job at a national newswire service in Washington, D.C. I grew giddy at the thought of restarting my lagging retirement savings, after reading on the SSA’s website about the delayed retirement credit. The credit would allow me to suspend benefits, while growing at the annual rate of 8%. Even with paying income tax, I would come out ahead, because Social Security benefits would be growing by leaps and bounds and I could max out my retirement savings to the limit allowed by the Internal Revenue Service (IRS). Ecstatic, I grabbed a calculator and did a happy dance all the way to La La Land.

Then I called Social Security to double check what I had read. Alas, I was mistaken. You can’t qualify for the delayed retirement credit if you’ve been collecting for more than a year; I had been collecting for six months beyond the deadline.

Angry and upset, I called back to complain that the information on the website wasn’t all that clear. After holding on for an hour and eighteen minutes, and repeating the reason for my call, the representative, after the briefest of silences, said—in a voice that could freeze ice cubes in July—that the agency didn’t have the time to explain everything on its site. “That’s why you have to call us,” she said, before hanging up.

That call kicked Dori on the Dime into gear. I didn’t like the representative’s answer, or the tone of her voice.

Managing your financial life takes time. It takes time to get a straight answer about this month’s cable TV bill or a “surprise” medical bill or the reason for your shrinking 401(k) balance—time that busy consumers often don’t have.

That’s where I can help. I’ve written personal finance stories and edited books for years on saving, managing and investing your money, but I still have a personal finance question or two of my own every week to track down—and I like holding on the phone until I get an answer. As a self-employed freelance writer who’s paid for her own health care for years, and a single, never-married Boomer whose future isn’t padded with a million dollars or a comfortable pension, I have a lot of questions every week about these finance topics, and others.

I’m not a financial adviser, but I think that what I learn will help you with whatever personal finance question you’re trying to sort your way out of. So send me your questions—please! I’ll be sharing what I find out with you every Monday morning, so that you can make your way forward into the week—and on with the rest of your life.

Should You Switch to a Medicare Advantage Plan?

The screen on my digital calculator kept flashing and threatened to burn out as I added up the numbers again:

In 2018, by switching to an Aetna Medicare Advantage plan and staying within an approved network of doctors, I would pay $76 a month for my supplemental health coverage, instead of $141.44 for an Aetna Medigap policy, which covers 20% of the health care costs Medicare doesn’t, and an additional $18 for prescription drug coverage. Also, all of my doctors participated Aetna Medicare Advantage.

After getting giddy over the prospect of saving $996 in monthly premiums (actually more than that: these policies cover prescription drugs, $150 for both vision and dental services, and free classes at certain gyms), I realized that I would only save that much if I didn’t go to the doctor at all this year. So I did an estimate, revised according to the cost of my share of medical services for Aetna Medicare Advantage:

4 visits to the primary care doctor                             $15 x4=$60

2 visits to the eye doctor                                                 $45 x 2=$90

2 visits to the audiologist                                              $45 x 3=$135

4 visits to the ear, nose and throat doctor               $45 x 4=$180

2 visits to the foot doctor                                               $45 x 2=$90

That added up to more than I thought, $555, and only a savings of $441 every year, or $37 a month–money you can easily fritter away with a few fancy coffees or manicures. Still, “That’s not nothing,” as Aunt Josephine, who was born a few months before the Great Depression and knows how to squeeze a dime, likes to say.

Save that money every year, over 10, 20, and 30 years when you’re retired, and you’re talking about having some nice extra cash on hand to pay for health care costs in retirement.

Darn it, I thought, my brother, Tom, who lives in Illinois, was right when we talked last Thanksgiving Day: I could save a lot of money on health care costs in retirement in 2018–and beyond–by switching to a Medicare Advantage plan.

To be honest, I had never considered one of these plans when I signed up for Medicare a few years ago when I was evaluating Medigap policies; I simply thought an HMO-style Medigap plan was the better choice because I didn’t have to pay for any extra health care costs.

I’d save more, if I had access to a zero-based plan, but as it turns out, there are no zero-cost Medicare Advantage plans in the New Jersey county where I live. These plans are priced by the availability of the health insurance companies that offer these plans, and currently, only 11% of the retiree health population has access to these plans. They’re also affected by the cost of medical care in your zip code (which may be something to think about in the future in choosing an “ideal” place to retire).

But several months into 2018, I’m wondering if I made the right choice by switching to Medicare Advantage at all.

Shortly after I signed up for one of these plans, I rated my health as “excellent.” Then the arthritis in my right knee that I’ve managed on my own for the past decade flared up, which led to multiple visits to the orthopedic doctor ($45 a pop) and expensive gel injections. But that didn’t resolve the inflammation in my leg, so I had to follow up with a vascular surgeon, who said I had “venous insufficiency,” meaning the blood flow in my veins needed to be corrected. By the time I visit these two doctors for follow up appointments, and pay my share for the outpatient surgery I had last week ($300), I will spend $1,190 out of pocket, not including premiums. If I don’t go to the doctor anymore this year, I’ll spend just about the same money I spent on my Aetna Medigap policy in 2017.

So here’s question, or questions, as I look ahead to the Open Enrollment Period later this year, one to myself and one to you:

Should I switch back to a Medigap policy? Will I pay a penalty? Will Medigap coverage now cost me more?

And a second, to you: Did you switch to a Medicare Advantage plan like me in 2018 to save money? If so, what’s your experience been like so far? Do you plan to stick with your Medicare Advantage plan, or aare you thinking of switching later this year? And if you thought about one of these plans, but backed away, would you tell me why? You may have gleaned some insights that will help me, and others, make a more informed decision in 2018.

Listen to Your Brother—Switch to Medicare Advantage

To be honest, I had never considered one of these plans when I signed up for Medicare a few years ago. But I wanted to know how my brother, Tom, was paying nothing for his supplemental health coverage, while I was paying $141.44 for an Aetna Medigap policy and another $18 for a prescription drug plan.

He got to the point with his usual finesse. “Why did you wait so long to call me?” he asked.

This was back near the end of 2017. Open Enrollment, the six weeks at the end of the year when you can switch to another provider for your health coverage, was ending in less than 10 days. Tom, who sells health insurance policies in Illinois, said, “You really should check out Medicare Advantage plans. You have only until next Thursday to sign up.”

That got my attention. As a freelance writer and editor, I perk up whenever I hear the word “deadline.”

“I like the Medigap plan I have,” I replied, somewhat defensively. The truth is, I had never considered a Medicare Advantage plan; I just assumed that my Medigap policy, which pays 20% of the costs that aren’t covered by Medicare, was better, meaning, more cost effective, because I didn’t pay for co-payments and deductibles.

“What’s the company?” he asked. “I hope you checked their ratings.”

Fortunately, I had. “Aetna,” I replied.

“That’s a good company,” he said, “but why are you paying so much? I pay nothing–zero, nadda, zip.”

The short answer: Because I don’t want to be limited in my choice of doctors, and I want to keep seeing the doctors I currently see. Tom barreled on. “There may be a Medicare Advantage plan in your zip code that accepts your doctors,” he said before hanging up. “You should check it out.”

When I did, I couldn’t believe the numbers: I thought my digital calculator was going to burn out: I could save an eye-popping $996 a year if I switched t0 the Aetna Medicare Advantage plan, paying $76 a month instead of the combined $159 I was shelling out for Aetna Medigap coverage and a prescription drug plan.

Here’s what learned during my search that I hope will help you manage your health care costs, both now and in retirement:

1. Check credit ratings. There are four “don’ts” to pay attention to:

  • Don’t believe what a health insurer has to say about their credit rating, because they will likely choose the one that’s most favorable.
  • Don’t check just one rating; check at least two or three ratings, because each rating agency uses different criteria and methods to rate companies. Ratings from the five major agencies (A.M. Best and Kroll Bond Rating Agency, in addition to the three above) can vary.
  • Don’t assume the task of checking a health rating is easy–it’s a lot like managing your health; it takes some effort. Credit rating agencies can disagree with each other, because they follow different rating systems.
  • Don’t think your work is over once you choose a health provider. Check on the company’s health at least once a year, because agencies can announce ratings changes at any time. I’ll plan to write about this topic in a future blog.

2. Review your health care costs annually. Costs change from year to year because of regulations and marketplace competition. These days, you can’t afford to “lock and load” your health coverage; you need to review costs every year.

3. Pay attention to timing. You are going to pay if you miss a deadline for making changes to your insurance plan.

4. Review your health expenses. Pull together all your records for the last full year and add up what you spent. I used my 2017 health care costs as the basis of my health care estimate for 2018, adding in the copays and deductibles in the Medicare Advantage plan I was considering:

For now, I’m thinking of where to save that $37 a month, which will help pay some health care costs. If I’m going to live another 30 years in retirement, that money adds up. If I were younger, I would fund a Health Savings Account (H.S.A.), which is lot like an Individual Retirement Account, with one important exception: It allows you to use the money to pay for health care expenses in retirement–without paying any taxes when you withdraw it. Since healthcare costs in retirement are currently estimated to consume as much as 20% of your budget, that’s a smart move to think about making now, if you can.

What health changes did you make in 2018? Are you thinking of switching to a Medicare Advantage Plan to save money? What goals do you have for the money you’ll save?