9 Easy Moves to Save You Time and Money

A man counting a handful of dollars.
Back in the day, TVs were all basic black-and-white sets with on-off knobs and a choice of four channels. People saved money in a bank account, carried a department-store charge card, and could fit all of their important papers in the proverbial shoebox. Today’s big-screen entertainment centers come with hundreds of channels and multiple remotes. Likewise, consumers are free to choose among a vast array of financial products and services. That’s a boon to your finances, but it also makes life more complex and can become overwhelming. To cut through the clutter, we suggest that you think one and done: one credit card to maximize your rewards points, one manager for all of your retirement accounts, a single do-it-all mutual fund. Even if you make only one or two of our nine moves, you’ll cut your stress and have more time to kick back — and you’ll save money, too.

1. Carry just one credit card in your wallet. Why tote around a clutch of credit cards for retail stores you no longer patronize or gas stations that are nowhere near your home? By consolidating your purchases on one rewards card that best matches your spending patterns, you can lighten your wallet and streamline your monthly bills; stockpile rewards points, frequent-flier miles or cash-back bonuses; and reduce the hassle if your wallet is lost or stolen. (See our slide show Find the Best Rewards Credit Card for You.)

The flip side is to get rid of the cards you don’t need. Even if you keep more than one and carry a backup card when you travel, the key is to prune your accounts judiciously. Canceling credit cards outright can hurt your credit score because a big component of your score is your credit-utilization ratio. That’s the amount of credit you’ve used expressed as a percentage of your overall credit line. You want to keep that ratio as low as possible (ideally below 30 percent or, even better, below 20 percent). Closing a number of accounts can bump up the ratio, even if you pay off your balance every month.

Start by ordering your credit reports from annualcreditreport.com. You’re eligible for one free report annually from each of the three major credit bureaus. Once you have the list in hand, look for cards with low credit limits. If you have $50,000 in available credit, closing a department-store card with a $500 limit won’t make a big dent in your utilization ratio. Still, if you’re planning to apply for a mortgage or a car loan, it’s a good idea to put off closing unwanted credit cards until after the loan has been approved, says Rod Griffin, director of public education for Experian.

Or you could simply put aside all but one of your cards in a safe place. Your utilization ratio won’t suffer, and you won’t be tempted to use the cards.

2. Use a single insurer. Keeping your homeowners, auto and other insurance policies with the same company will cut down on the number of bills you have to pay and may even improve the service you get. For example, if you’re happy with the way your auto insurer handles claims, it makes sense to use the same company to insure your home (and possibly your life).

That’s especially true if the company rewards your loyalty with a generous discount. Most major insurers offer discounts if you buy more than one policy. Purchase multiple policies from Allstate, for example, and you can save up to 20 percent on your auto insurance premiums and up to 35 percent on your homeowners policy. Liberty Mutual offers savings of up to 10 percent on its homeowners, condo or rental coverage if you bundle it with auto insurance. The company may offer a discount on the auto insurance premiums, too. Most insurers also cut you a break on auto insurance if you cover more than one vehicle. And Nationwide offers a discount of up to 50 percent on boat insurance if you have multiple policies.

Buying all of your policies from one insurer won’t always deliver the best deal. For example, bundling may not lower your insurance costs if you need a nontraditional policy, such as insurance for a home built with green technology, says Jeanne Salvatore, spokeswoman for the Insurance Information Institute. But you can streamline your search by getting price quotes from an insurance agent who deals with several companies (go to www.iiaba.net to find one near you). Don’t overlook insurers that sell directly to customers, such as Geico and USAA.

3. Create one master password. Hardly a week goes by without news of another massive security breach that has exposed thousands of people to identity theft. Yet despite this threat, the most common password is 123456, according to SplashData, a provider of password-management systems. The second most common password is — wait for it — password.

Clearly, we need to do better. But who has the time to come up with (and remember) difficult-to-decipher passwords for all of their online accounts? One solution is to use a password-management system that stores all of your passwords in a single file. All you need to remember is one master password (your dog’s name is not a good choice) to access all of your other user names and passwords. Most password managers offer a free basic version; you’ll need to update (and pay) to use the service on multiple devices.

Unfortunately, these programs aren’t bulletproof. In June, LastPass, one of the most popular password-management systems, announced that its network had been hacked, exposing users’ e-mail addresses and password reminders. The company said encrypted master passwords were not compromised, although users were prompted to change them.

If you’re uncomfortable storing your passwords in the cloud, there are alternatives. KeePass stores all of your passwords in an encrypted file on your computer. As is the case with the cloud-based systems, you use a master password to access the file. Just make sure your computer is protected from hackers with strong antivirus software, or you’ll lose the benefits of storing your passwords locally. (For more advice on protecting yourself against data breaches, see our Guide to Preventing and Overcoming 5 Types of Identity Theft.)

4. Store your files in one place. Among the mountains of paper in your home office are a number of documents that you should save forever: birth certificates, passports, Social Security cards, education records, life insurance policies, marriage license, divorce decree and record of military service. Hold on to home-purchase documents and records of improvements for as long as you own the property. The same goes for the titles to your vehicles.

In addition, the IRS generally has three years from the tax-filing deadline to audit your return, so keep your return and supporting documents for at least that long. Some experts recommend, though, that you hold on to your tax returns indefinitely because they can be useful for other purposes, such as applying for disability insurance or a mortgage. Starting with tax year 2014, you’re also required to keep records that show you and your family had health insurance, along with records of any subsidies you received to cover health insurance premiums.

Once you’ve stored all of those documents in a bank or a couple of file drawers at home, feel free to toss, toss, toss. After you’ve paid your credit card bill, shred the monthly statement unless you need it to claim tax deductions. Monthly bank statements can also go into the shredder unless you need them for tax purposes. Shred pay stubs after you’ve received your Form W-2 and checked it for errors. You can dispose of brokerage statements once you receive your annual statement, unless they show a gain or loss that you’ll need to report on your tax return. Hold on to statements that show the cost basis for an investment you still own.

You can also harness technology to reduce paperwork. The IRS accepts digital copies of supporting tax documents, so you can scan documents you’ll need, such as letters from charities, and convert them to digital files. Back up the files with an external hard drive or flash drive.

Or store scanned documents on the Internet, using free cloud-based services such as Apple iCloud Drive, Dropbox, Google Drive or Microsoft OneDrive (see our story The Mysteries of Cloud Storage Explained).

5. Get your bank to pay your bills. Why waste time paying your bills when your bank or credit union probably offers an electronic bill-payment program, most likely at no charge? Even if one of your accounts doesn’t accept e-payments, the bank will send a paper check.

You can set up e-mail or text reminders of due dates, which will reduce the risk you’ll incur late-payment fees. Or arrange for recurring payments to be made automatically every month before the due date.

Although auto-pay can be a godsend for busy people, there are downsides, too. Changing banks can be a hassle because you must unwind all of your auto-payment plans before closing your old account (most banks and credit unions provide switch kits that help you with this process). If you’re hit with an erroneous charge, you’ll be out the money while you dispute the payment. Even when bills are accurate, you need to make sure there’s enough money in your account to cover the automatic payment. Otherwise, you’ll be hit with hefty overdraft fees.

One way to avoid that problem is to put your savings on autopilot, too. Have your paycheck deposited electronically in your bank account and, if your employer permits it, consider having a portion of your check deposited in a savings account set up for emergencies. You can arrange for your bank to withdraw money automatically from your savings whenever there’s a shortfall in your checking account.

6. Consolidate retirement accounts. Over the course of your working life, you may have accumulated a raft of 401(k) plans from former employers and individual retirement accounts at various financial-services firms. You can reduce paperwork, lower fees and make sure your port­folio is appropriately diversified by rounding up these accounts under one umbrella.

For IRAs, consolidating with one firm will help you avoid low-balance fees that could eat into your returns. As long as mutual funds in your IRA are included in the financial institution’s funds network, you won’t have to sell your funds when you consolidate. You can combine the same types of IRAs (such as traditional IRAs) in a single account, which makes it easier to keep track of your portfolio.

Increasing the size of your account could also make you eligible for perks, such as a discount on tax software or a free portfolio review by a financial planner. Changing and updating beneficiaries is also easier when all of your IRAs are in the same place. And when you retire, taking withdrawals from your IRAs will be easier if you have all of your accounts with the same firm.

Your IRA provider will happily help you roll over old 401(k) plans into your account, too, but that’s not always in your best interest. Some large-company 401(k) plans offer institutional-class mutual funds with lower fees than retail funds offered by IRAs. Many also offer stable-value funds, which are attractive low-risk alternatives to money market funds and are only available in employer-sponsored retirement plans.

If you’re still working, there’s a one-step alternative: Roll your former employer’s plan (or plans) into your current employer’s 401(k). Most large companies allow plan-to-plan rollovers. You’ll streamline your retirement savings accounts without sacrificing the benefits offered by a 401(k).

7. Pick one broker or fund firm. It’s also a good idea to put taxable investment accounts under one roof: You can see what you have at a glance, compare your asset allocation to your target mix of investments, and reduce the amount of paperwork you have to contend with at tax time.

All of the big fund com­panies, such as Fidelity, T. Rowe Price and Vanguard, have brokerage arms, so you can transfer both individual securities and mutual funds to them. Big brokerage firms, such as Charles Schwab and TD Ameritrade, let you buy and sell funds as easily as stocks. Know, too, that you usually don’t have to sell an investment to transfer it. Just stipulate that you want to transfer it “in kind” and your current brokerage will transfer your securities without triggering a potentially taxable gain.

Going simple won’t only make your life easier, it could also improve your results, partly because you’ll find your portfolio easier to understand. That cuts down on shocks that can lead to poor, emotionally driven decisions, says Ben Carlson, author of the book “A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan.”

To see if your investment mix is well diversified, make a stop at the portfolio “Instant X-ray” tool at Morningstar.com, a free service that lets you plug in your investments and get a snapshot of your portfolio’s composition. Among other things, the tool tells you the degree to which your investments overlap and what percentage of your assets are in broad investment categories, such as big U.S. growth companies or investment-grade corporate bonds, as well as industry sectors, such as technology or financial services. For advice on making changes, you can upgrade to Morningstar’s premium membership ($199 a year).

8. Invest in an ‘all-in-one’ fund. If you’d rather let someone else pick your tax-deferred or taxable investments and make sure they stay in proper balance, you’re a candidate for an all-in-one fund. They come in three main flavors: Balanced funds typically hold 60 to 70 percent of their assets in stocks and the rest in bonds. Lifestyle funds assemble a mix of investments geared to your tolerance for risk. A conservative lifestyle fund might have 40 percent of its assets in stocks, while an aggressive one might have 80 percent in stocks. Asset allocations in both balanced and lifestyle funds tend to remain fairly constant over time.

The asset allocation in target-date funds, by contrast, changes as the fund ages. The idea is to pick a fund, such as Fidelity Freedom 2050, whose target date matches your particular goal — usually retirement, but the funds may also be used to save for college or other purposes. A fund with a target year far into the future typically has a high percentage of stocks. Over time, the fund gradually trims its allotment to stocks and adds more bonds and cash. Note, however, that this so-called glide path can vary dramatically from one fund sponsor to another.

Which type of all-in-one-fund should you choose? A balanced or lifestyle fund is fine for investors who want to temper the risk of an all-stock portfolio. But for goals with a clear estimated date of arrival, such as college or retirement, a target fund is just the ticket, says Christopher Philips, a senior manager in Vanguard’s Institutional Investor Services Group. “It’s globally diversified, it’s professionally managed, it’s regularly rebalanced, and it gets more conservative as you age. For someone who wants to keep things really simple, that’s a good option.”

9. Sign up once and forget it. To procrastinate is human. To automate is divine. “Humans, by their very nature, fail to follow through,” says Philips. “They may want to do something, but something else comes up and they just never execute. Automatic investment plans are a great way to overcome human nature.”

You may have already automated an aspect of your finances by signing up for a 401(k) plan or direct deposit of your paycheck. You can do the same thing with your investment accounts. Every major brokerage firm, fund company and bank offers automatic savings programs that allow you to establish a timetable designating how much you want to save and how often, the account that should be tapped to make the contributions, and where you want the money to go.

You can specify a money market fund if you’re saving for a short-term goal, or even a state 529 savings plan for college bills. No immediate goal? Then set up the savings to go into a balanced fund; Dodge & Cox Balanced (DODBX) and T. Rowe Price Balanced (RPBAX) are solid choices. “Automate as many decisions as you can,” Ben Carlson advises. “It makes things simpler and keeps you from making decisions on the fly.”

Your Back-to-School Financial Checklist

Calculator and bank account
Many of us give ourselves a little more latitude (financially and personally) during summer. We’ll have that extra mojito or leave work a little early on summer Fridays without thinking twice.

“Here in the Midwest [and elsewhere], we’re trying to do as much as we can with travel,” says Michael Foguth, president and founder of Foguth Financial Group in Howell, Michigan. “The sun is shining, we’re spending more on gas and hotels.” Yet as the seasonal spending starts to wind down, Foguth says you should ask yourself: “What do I need to prepare for?”

With the dog days of summer drawing to a close, back-to-school season is a good opportunity (even if you’re not a parent or a student) to revisit your finances and get on track for the rest of the year. Here’s a look at expert tips for checking in with your money goals and getting your financial house in order.

1. Assess where you stand. If you set financial goals at the beginning of the year, now’s a good time to check your progress. “How much have you saved?” Foguth asks. “Are you on track for your goals? Or are you behind in that and need to catch up?” A good goal for most people, according to John Rosenfeld, head of everyday banking at Citizens Bank, is to save up at least three to six months’ worth of living expenses in an emergency fund. Rosenfeld also suggests looking at financial areas you’ve been ignoring such as credit card balances or student loans.

2. Check (or create) your budget. On a more micro level, now’s also a good time tocheck in with your budget (or if you don’t have a budget, actually make one). “The majority of Americans do not have any kind of budget and do not monitor their cash flow,” says Laura Adams, author of “Money Girl’s Smart Moves to Grow Rich.” “Most people find that they are overspending in ways that they don’t realize, so it’s about checking in, and if you’re one of those really on-top-of-it people who already have a budget, make sure you’re on target through the end of the year.” If you’ve had a change in life circumstance earlier this year, such as a marriage, divorce, new baby or new job, it’s doubly important to revisit and recalibrate your budget (and employer withholding) accordingly.

3. Break down your goals. If you’re trying to reach a certain financial milestone by the end of the year, Foguth suggests breaking your goal down into smaller parts. Instead of saying, “I need to save $500 by December 24” (which could feel overwhelming to some people), calculate how much you need to save each week or month to make that happen. “If you need to save and you’re behind your goal, re-evaluate your numbers and adjust your goal,” Foguth adds.

4. Review your credit report. Consumers are entitled to one free credit report from each of the three major credit reporting agencies once a year through AnnualCreditReport.com, so Adams recommends requesting a reportfrom a different credit bureau every four months to spread it out. “Make sure you’re not the victim of identity theft,” she says. “Criminals can take your personal information and open up new accounts in your name, and you could have no idea that they’d done that unless you saw it on your credit report.” In addition to suspicious activity, also make sure that the amount of debt reported matches your own records. If not, it’s time to reconcile the difference.

5. Revisit your insurance needs. Adams recommends checking your insurance coverage once a year. Does the coverage still suit your needs? Are you overpaying for coverage? You can’t always switch health insurance at any time of the year, but you can certainly switch homeowners or auto insurance providers if you find a better deal. “Check in, get quotes and compare that to your current coverage,” Adams says. “You may find a better deal.”

6. Look for rate-cutting opportunities. Most homeowners know they can refinance their mortgage to a lower rate (provided they qualify based on equity, credit standing and so on). But you can also refinance other types of loans, including student loans. “A lot of people who are paying student loans got them when the rates were much higher,” Rosenfeld says. “By refinancing at a lower rate, you can pay less in total interest.” If you have credit card debt and a decent credit score, explore zero percent balance transfer offers, but do the math to make sure that the savings won’t be offset by other fees. Those without credit card debt might want to see if they can qualify for a credit card with better rewards or other perks. “Select the card that’s a better deal than what you may have today,” Rosenfeld says.

7. Optimize your tax strategies. Looking ahead to year-end, Rosenfeld suggests that consumers plan how they’ll reduce their tax liability through charitable contributions or retirement contributions. If you haven’t reached your 401(k) contribution limit yet and have extra money coming in, consider boosting your contributions to lower your taxable income and put aside extra money for retirement.

6 Online Financial Tools to Simplify Your Life

Caucasian couple in pajamas shopping online with digital tablet
These days, consumers have a vast array of financial products and services to manage. Consider these digital resources to help you keep track of it all:

1. Automatic bill payment and saving. To keep a record of bill payments and how the money is spent (helpful if you’re trying to stick to a budget), check out Mint.com. Another alternative is PersonalCapital.com, which provides budgeting tools and will track your investments, too.

2. Credit cards. Free tools at www.creditkarma.com help you gauge where your credit stands and show how you can improve it. You can also get access to your TransUnion credit report, updated weekly.

3. Insurance. The Insurance Information Institute offers Know Your Stuff, free software that will help you create a record of your possessions. It’s also available as an app for iPhone and Android smartphones. Your insurance company may also provide mobile or online tools you can use to record information you’ll need to file a homeowners or auto insurance claim.

4. Password management. PCMag.com provides a good rundown of thepassword managers available (along with their prices).

5. Paper files. Shoeboxed.com offers a free service that allows you to upload as many as five documents a month; after that, prices range from $9.95 to $99.95 a month, based on the number of documents stored and other services. Or use a free cloud-based service.

6. Retirement accounts. Your IRA provider probably offers tools you can use to figure out whether your overall port­folio is appropriately diversified, based on your age and risk tolerance. To see if you’re saving enough, use our Retirement Savings Calculator.

6 Reasons to Remain in Your Current Home in Retirement

Senior couple using tablet computer at home
The typical retirement dream involves riding off into the sunbelt, golf clubs and beach umbrella in hand. However, the reality is that the majority of retirees never leave home. Most people opt to age in place, or if they do move, they find a smaller house near their old neighborhood.

Only about 7 percent of older Americans move every year, according to a long-term study by the Center for Retirement Research at Boston College. And even though more people have recently been relocating with the improving economy, an AARP survey found that most people approaching retirement hope to remain in their current residence as long as they can.

Home is where the heart is. Many people feel attached to their home towns. Whether they grew up there or moved there to raise a family, they still enjoy going to the park where they took their kids as toddlers. They feel comfortable knowing about the best hardware store and the best pizza place. Many old-line suburbs have developed programs and amenities for their older population. Another benefit: urban centers in the north provide better public transportation than the retirement meccas of the sunbelt. There’s no subway in San Diego or T in Tampa.

Home is where your friends are. You go to the library and see familiar faces. Maybe you belong to a book club, or regularly meet friends for lunch, tennis or golf. All the research says that a strong social network is crucial for successful aging. Friends not only supply emotional support, but sometimes offer practical benefits like loaning you a book or DVD, helping with a project at home or giving you a ride. Why should you uproot yourself, move a thousand miles away and then be faced with the sometimes difficult challenge of finding a new group of like-minded friends?

People retire in the last place they land.Some people never settle down to live in one place for 20 or 30 years to raise their kids in a single community. Many baby boomers have moved around for work, or just because they’re restless, and then finally put down roots when they’re in their 40s or 50s. For example, my sister-in-law grew up in New Jersey, then moved to Michigan, Texas and finally in her late 40s settled down in Pennsylvania. She’s pretty adamant that she’s not moving again.

You don’t necessarily save much money. It costs a lot to move. You give up about 10 percent of the selling price of your house in real estate commissions, legal fees and taxes. Then there’s the cost of buying, moving and resupplying your new house. If you’re moving a long distance there are additional expenses involved in traveling and researching your new location. You might need to rent for a while or store some furniture. It’s not worth it if you only save a couple thousand dollars a year in your cost of living.

It doesn’t have to cost a lot to age-proof your home. Of course you can spend a lot of money if you want to remodel your entire house. But many of the safety issues involved in age-proofing a home involve modest expenses. Improve the lighting in stairways and outdoor areas. Change out doorknobs for lever handles that are easier to manipulate. Install bathroom grab bars and raised toilet seats. Get rid of scatter rugs, and put down colorful traction strips on the front edge of your stairs to help prevent falls. None of these changes costs much money. Depending on the layout of your home, it may even be possible to turn a study or den on the first floor into a master suite, converting the upstairs rooms into guest quarters.

Consider Yourself a Super Saver? It Could Be Costing You

Man thinking
Sometimes, even the best intentions can backfire.

The latest proof?

Researchers at the University of Chicago’s Booth School of Business find that being determined to save for a goal can lead to poor decisions in other areas of your finances — like using a high-interest credit card just to avoid tapping any of those sacred funds.

“We’re constantly told that it’s important to save money, which it is, and people believe that having savings makes them responsible,” says Abigail Sussman, assistant professor of marketing at Booth and co-author of the study.

“But people become overly focused on this version of responsibility,” she adds. “Healthy finances mean more than just having money in savings.”

The Unintended Consequences of Super Saving

Study participants were presented with an emergency — needing a $5,000 replacement furnace — as well as a savings account (earmarked for a child, a car, or an unspecified goal), and a credit card with a low, medium or high interest rate.

Turns out people were inclined to pull out their plastic to cover an unexpected cost, rather than dip into savings — even if the interest rate they’d pay for credit was much higher than the interest earned on their savings in the bank.

And participants were even more likely to use credit over savings if the account was specifically dedicated to a “responsible” goal like a child’s college tuition.

Considering that a typical savings account yields less than 1 percent interest while average credit card rates top 16 percent, super savers can pay a hefty price for those responsible intentions.

The Value of Seeing the Full Financial Picture

It certainly is possible to work toward a goal and still deal responsibly when an emergency strikes — especially, as this study suggests, if you avoid an unhealthy attachment to your savings.

“An important takeaway is to keep an eye on overall wealth, rather than focusing exclusively on a specific target,” Sussman says.

If you want to refocus your financial game plan, read up on five more money mistakes that even good savers can make.

How to Avoid the Most Common Estate Planning Mistake

actual last will and testament...

The most common estate planning mistake may surprise you.

“The mistake actually isn’t part of the will and trust, said Dan Prebish, head of life services events at Wells Fargo Advisors, based in St. Louis. “It actually has to do with beneficiary designation.”

Prebish said people sometimes fail to designate who will gain control of various assets upon one’s death. “It’s not uncommon to find that someone still had their ex-spouse named” as the one to receive control of the asset, he added.

However, the fix is easy. When changing the beneficiary on a retirement account, for example, the update is as simple as filling out a form. Prebish said communication with one’s heirs is key, given the uncomfortable nature of estate planning.

“Surprises are what breeds hurt feelings and even litigation,” he said. “Find a way to explain this to your children or heirs.”

He says the starting point to any successful estate plan is a will, which is a legal document that delineates which heirs are to receive which assets or properties you own. “Talk to a local attorney to draft a will,’ Prebish added. ‘I know people are tempted to go to the Internet and write their own.”

He said the online programs can be helpful. “But if you gave me a Stradivarius, it wouldn’t sound good because I don’t know how to play the violin,” he added. User error is typically how things go wrong when drafting wills without the help of an attorney.

Another factor to keep in mind: taxes. “An individual who has a total estate of less than $5.45 million in 2016, won’t pay any Federal estate tax,” he explained. “Above that, we’re talking about a 40 percent flat rate.” These thresholds were raised slightly for 2016 and stood at $5.43 million in 2015.

Regardless, federal estate tax generally doesn’t matter to the majority of the American public, Prebish said. That’s because one would need an estate worth over $5.45 million in order for Federal estate tax to kick in. Keep in mind, however, that individual states have different thresholds — some in the sixfigures, which may affect a wider demographic.

The Downside of Cheaper Gas

An Exxon Mobile Corp. Gas Station Ahead Of Earnings Figures
With gas prices down by more than $1 a gallon in the past year, Americans collectively are spending $350 million a day less at the gas pump than they were a year ago, says the American Automobile Association. But the drop in gas prices, along with a stronger economy, has led to more driving — and more accidents. And that’s adding up to higher insurance costs.

Through the first seven months of 2015, U.S. drivers put a record 1.8 trillion miles on the road, says the Federal Highway Administration. The National Safety Council estimates a 10 percent increase in traffic fatalities over that time compared with a year ago. Geico and Allstate (ALL) have already reported an increase in the frequency and severity of claims, and both have announced that they are hiking rates. Morningstar (MORN) analyst Brett Horn expects other insurers to follow suit.

It might pay to reshop your policy and to drive as if gas were still expensive. When it is, drivers tend to accelerate and brake gradually and maintain a steady speed to save gas, says Pennsylvania State University professor Guangqing Chi, who has studied the correlation. That’s a good way to keep your record clean and your rates low.

7 Ways to Save on Health Insurance

Doctor and patient in office
Health insurance costs are creeping ever higher. The Kaiser Family Foundation reports that average premiums will rise 5.1 percent in 2016 for the lowest-cost marketplace silver plans available to a 40-year-old nonsmoker earning $30,000 a year in 14 major cities. The increase will be lower for people with tax credits, but could still represent a significant jump in the monthly bill.

While there aren’t as many clear discounts for health insurance as there are forauto and renters insurance, there are ways to save. Here are seven tactics that can lower health insurance costs.

Increase the deductible. Health insurance premiums correspond to the plan’s deductible; that is, the total amount you must pay for care before insurance kicks in. Increasing the deductible can be risky — in a serious emergency the amount due can climb quickly, leaving you on the hook for hefty out-of-pocket expenses. Still, this might be a reasonable choice if you’re not concerned about the cost of routine care (which counts towards the deductible) and have funds set aside to cover a major illness or emergencies.

Choose an insurer with phone-in consultation. For someone who is generally healthy, a plan with a high deductible and a phone-in service might be a good option, says Eric O’Brien, president of Mosaic Employee Benefits, a multistate independent broker. Teladoc, for example, lets plan participants call or video chat with a doctor at any time for diagnoses of minor ailments and prescriptions. In some instances this is cheaper than visiting a doctor or emergency room. Consultation costs vary by telehealth provider but typically settle around $35. The fee may be lower for people with a monthly or annual subscription.

Pick a narrow-network plan. Save on premiums by choosing an insurance provider that maintains a skinny, or narrow, network in the region. In other words, the insurer may be a large, even national, company but includes only one or two medical centers in its local network. Premiums may be lower than plans with more in-network hospitals and physicians. If you want to stick with your primary care physician, first check to make sure he or she is in the narrow network before opting in.

Adjust income to be eligible for tax credits. People who buy health insurance through the government marketplaces may be eligible for tax credits depending on their “modified adjusted gross income” and family size. The lower the income, the more credits are available. You can decrease adjusted income byincreasing tax deductions. One of the easiest ways to do this is by contributing to a retirement plan — either a 401(k) or 403(b) plan through an employer or a traditional Individual Retirement Arrangement on your own.

Quit smoking. Using tobacco (cigarettes, cigars, snuff — or just plain chewing it) for anyone who buys health insurance. Marketplace plans may charge tobacco users up to 50 percent more than nonusers. Quitting comes with other financial benefits, as well. In addition to not paying for the tobacco products, premiums for life, renters, and homeowners insurance may be lower for nonsmokers.

Look beyond the exchanges. Instead of limiting your search to HealthCare.gov or state-run marketplaces, try direct shopping with insurers or compare options on a private exchange, such as eHealthInsurance or GoHealth. Prices may not be lower for identical plans, but you might find a plan that isn’t listed on the government exchange and fits your budget better. An added benefit is follow-up convenience: If there are any administrative or billing problems, they can be resolved directly with the insurer rather than having to work through the marketplace.

Consider a nonprofit health care co-op. An alternative to mainstream health insurance plans is one of the health cooperatives created when the Affordable Care Act passed. Health co-ops are nonprofit insurance organizations governed and owned by their members. A 2013 report by consultants McKinsey & Company found that in 22 states with a health care co-op, the co-ops offered the cheapest insurance plans. Some co-ops are struggling to stay open given lower than expected enrollment rates, but in some places they are a money-saving alternative.

The Death of the Starter Home

Family with For Sale sign outside of house
I had a depressing conversation recently with someone who does big housing construction deals for a big bank. There’s only two types of deals that work, he said: 1) Building pricey, premium, granite-countertop homes for well-off folks, or 2) Building affordable housing with government subsidies. Roughly speaking: There is construction for the rich or the poor. Nothing in between.

Most important, nothing for that apartment-dwelling couple with a toddler and a baby on the way. That’s the lament I hear from all my urban friends around the country. Where can I start my family? Where is my starter home?

It’s gone. Builders and banks just can’t make money off humble homebuilding, or at least they think they can’t.

If he’s right, my banking friend solved a riddle that has been at the heart of The Restless Project: Why do middle class folks feel so lost, even if they have decent jobs? I set about trying to confirm my friend’s sentiment, and it was harder than I thought. There’s little agreement on what a starter home is. He blamed demanding millennials, who refuse to live in a house without granite. While that’s partly true, I think the problem is much deeper.

In fact, you could argue — and I will — that starter homes are basically disappearing. They aren’t being built, and those that exist are either falling into functional disrepair (they are old), or more likely, being snapped up by investors to rent to young families.

First, a little housing lesson. Back in the postwar boom, America’s housing industry was on fire. Single-family housing starts jumped an incredible 400 percent during the decade. According to this great housing history, in 1950, the average price was $11,000. For perspective, median income, in real dollars, was about $3,300.

But here’s the number to watch: the average home was 963 square feet. A majority of homes had two bedrooms and one bathroom.

By 1972, prices had jumped to $30,000 while family income was nearly $10,000. Homes, which typically had three bedrooms and at least a bath and a half, now averaged 1,600 square feet. That kind of house can pretty comfortably shelter a family with 2.3 children.

Today, families are smaller — from 1970 to 2014, family size shrunk by about half a person. What’s the average square footage of a home? About 2,500. More space, fewer people.

That’s progress, of course. Now homes have central air and finished basements and man caves and spa tubs and, yes, granite countertops. But all those things are useless to young families who have no idea where to find the $500,000 they have to pay to live in a place with decent schools that’s within 50 miles of their workplace.

A healthy housing market would provide a wide spectrum of housing — the $200,000 tiny place, the $400,000 step-up home, the $700,000 dream home. I promise you that plenty of my apartment-dwelling friends would love a two-bedroom starter home on a cozy lot. But they don’t seem to exist. Why?

This BuilderOnline.com story, “Are new starter homes history,” offers a tidy explanation. For now, let’s peg $200,000 as the price of a starter home. (For a fun fact, $30,000 in 1970 has the spending power of $185,000 today. But I’m going with round numbers). It begins with a tale I’ve told in other places — if a builder can construct homes that cost 2.5 times median household income in a neighborhood, the homes will sell like hotcakes. Two-and-a-half times? Median household income is roughly $50,000 in America today. See a lot of $125,000 homes sprouting up?

No. You don’t even see $200,000 homes sprouting up. In fact, only 46,000 sub-$200,000 new homes were sold in 2014. Anywhere.

And here’s why, according to BuilderOnline:

Making a $200,000 home work as a homebuilder is junior-high-level arithmetic. Solving for profit — say, 20 percent — land and building direct costs can not exceed $160,000. Problem is, a 20 percent margin on a sub-$200,000 house has become frighteningly elusive in the past decade.

The lowest build cost is around a $50 a foot, says David Goldberg, a homebuilding and building products manufacturers analyst for UBS, New York. “If you do a 2,000-square-foot house, which is what you’d have to do to compete with existing stock, that leaves you with $100,000 of sticks-and-bricks cost. The maximum cost on the land would be $60,000.”

The catch to all this is that it’s not just one problem. No single culprit is killing the new starter home. A stream of factors — land, operational risk, labor, material costs, entitlement fees — converge at a single, all-too-real vanishing point where affordability becomes unaffordability.

Even if land can be secured at a reasonable cost, cash-thirsty localities heap fees upon fees that weigh more and more heavily on final home price tags. Chris Cates, co-owner of Fayetteville, North Carolina-based Caviness & Cates Communities, estimates that regulations that stipulate he has to convert stormwater ponds to permanent ponds and bond items such as street lights, sidewalks, landscaping and retention ponds have doubled his development costs.

So the numbers just don’t work. But left unsaid is another obvious factor, typical in all industries: every business strives to sell premium, high-margin goods. Your coffee shop wants to sell you pour-over brews at twice the price. You bar wants you to buy microbrews. Your car dealer wants you to buy a Ford Expedition, not a Ford Focus.

The low end of the market is for suckers, or Walmart. At least until demand becomes overwhelming in that segment. But even then, housing isn’t like hamburgers. Even if builders today decided America needed 5 million new midrange affordable homes, it would take years for projects to take shape, get approvals, get financing, etc. Housing is very slow to react to demand.

But that’s why there’s “used” homes, right? Young families are supposed to buy a needs-TLC place in their 20s, fix it up and trade up to their dream home later.

The problem is that cheaper, older starter homes are nearly as hard to find. Here’s one piece of evidence: The folks at RealtyTrac ran the numbers for me, and it turns out that year-to-date sales of sub-$200,000 homes is down this year compared to the last three years. That’s strange, given that sales above $200,000 are up. For example, two years ago, there were 395,000 sub-$200,000 homes sold from January to May. This year, there were only 343,000. Rising prices can’t account for more than a fraction of that drop.

Worse yet, families who would buy cheaper homes are being edged out by investors who buy the homes and rent them out. Nonoccupant buyers of single-family homes hit a record last quarter, according to RealtyTrac.

Worst of all, that’s even more true in hot, affordable communities where families are fleeing to avoid New York City and San Francisco prices.

Among metropolitan statistical areas with a population of at least 500,000, Memphis, Tennessee, posted the highest share of institutional investor purchases of single family homes in the first quarter of 2015 — 14.1 percent — followed by Charlotte, North Carolina (12.1 percent), Atlanta, Georgia (9.6 percent), Jacksonville, Florida (8.5 percent), and Oklahoma City, Oklahoma (7.6 percent).

Of course investors are buying in those places. At a time when it’s very hard to make money by saving, and the stock market appears fragile, renting to stable families is a great way to make a return on investment.

Housing expert and loan officer Logan Mohtashami talks about the “cracked equilibrium” that has led to this state of affairs: Dual-income parents with decent jobs shut out of the housing market because there’s nothing but luxury homes to buy, trying to stick it out in their one-bedroom apartment. I keep saying that average people with average jobs can’t afford average homes in America, and that’s the source of untold strife.

There’s no law of nature that says buying a home is superior to renting one. There are plenty of logical reasons that young folks might choose to rent instead of buy, and more power to them. It’s been good for America to shed the idea that housing is a guaranteed investment/retirement plan. But Mohtashami warns about the potential long-lasting social consequences of an all-renter/landlord society.

“Are we at the beginning of a sociological movement away from middle-class home ownership and towards a cultural split between the investment property landlords and their renters both of whom may have less personal investment in neighborhood security, local schools and shared public facilities compared to primary homeowners?”

Buying has one huge advantage over renting — fixed monthly payments. In all but the most unusual situation, that means housing really becomes cheaper as time passes, thanks to inflation. That is not true of renting, and certainly not now. Rents are rising at record rates around the country.

That puts families who want a place to live between a rock and … no place, really.

Why Americans Waiting Longer Than Ever to Buy First Homes

Older First Time Homebuyers
WASHINGTON — Short of cash and unsettled in their careers, young Americans are waiting longer than ever to buy their first homes.

The typical first-timer now rents for six years before buying a home, up from 2.6 years in the early 1970s, according to a new analysis by the real estate data firm Zillow (Z). The median first-time buyer is age 33 — in the upper range of the millennial generation, which roughly spans ages 18 to 34. A generation ago, the median first-timer was about three years younger.

The delay reflects a trend that cuts to the heart of the financial challenges facing millennials: Renters are struggling to save for down payments. Increasingly, too, they’re facing delays in some key landmarks of adulthood, from marriage and children to a stable career, according to industry and government reports.

These shifts help explain why homeownership, long a source of middle class identity and economic opportunity, has started to decline. The share of the U.S. population who own homes has slid to 63.4 percent, a 48-year low, according to the Census Bureau.

And when young adults do sign the deed, their purchase price is now substantially more, relative to their income, than it was decades ago. First-time buyers are paying a median price of $140,238, nearly 2.6 times their income. In the early 1970s, the starter home was just 1.7 times income.

HOMEBUYERS

Millennials are “still very interested in buying a house, but they’re delaying that decision,” said Svenja Gudell, chief economist at Zillow. “Once they start having kids, they begin looking for homes. We’re also finding that — given how much rental rates are currently rising — a lot of folks are having a hard time saving for a down payment and qualifying for a mortgage.”

Millennials increasingly find themselves in a situation like that of Lou Flores, a 30-year-old portfolio manager in San Diego. He shares a one-bedroom apartment with his boyfriend, paying $1,400 a month to live within walking distance of Balboa Park and the zoo.

Flores’ parents had built their nest egg by steadily upgrading their homes, ingraining him with the notion that “renting was a waste of money.” But the median home in San Diego costs more than a half million dollars, according to the area’s association of Realtors.

So Flores figures ownership is at least a few years away.

“Here in California, if you’re not married or with someone, it’s impossible to buy a home without financial backing from your parents,” Flores said.

Few first-timers around the country can lean on their parents. Among homebuyers last year under age 34, 14 percent received down payment help from family or friends, according to a Federal Reserve survey.

Higher Rental Prices

Most first-timers still depend on personal savings for at least some of their down payments. But rising rental prices have complicated the task of socking away money for a down payment. Fueled by a surge of renters across all age ranges, rental prices nationally have grown at roughly twice the pace of average hourly wage growth, which was a paltry 2.1 percent over the past year.

A result is that those prices are consuming more income. A striking 46 percent of renters ages 25 to 34 — the core of the millennial population — spend more than 30 percent of their incomes on rent, up from 40 percent a decade earlier, according to a report by Harvard University’s Joint Center of Housing Studies. (The housing industry generally regards a figure above 30 percent as financially burdensome.)

Some of the cost burden stems from a shift toward people who envision themselves renting for several years and therefore seeking the kinds of amenities more commonly associated with home ownership. Based on searches for rentals on RadPad in June and July, for example, apartments with stainless steel appliances and swimming pools were disproportionately popular in cities with lower homeownership rates such as Los Angeles, Chicago and Washington.

Nearly a fifth of Washington-area searches sought apartments with stainless steel appliances, compared with 5 percent nationwide. More than a third of Chicagoans wanted an apartment with a pool, versus 18 percent nationally.

Job security has become a more central consideration for first-time buyers. The Money Source, a mortgage lender and servicer, examined applications from 5,404 millennial homebuyers. It found that the buyers had averaged nearly 4.5 years in their field of work and had held their current job for slightly more than three years. Those figures point to how critical career stability has become for a generation that entered the workforce during the Great Recession and its slow-growth recovery.

Housing industry experts note that surveys still show a strong desire to buy among millennials, but that their timelines for purchasing depend on achieving more stability in their careers.

“As long as there is the job market to support millennials — just as it has for previous generations — I don’t believe their habits will change,” said Darius Mirshahzadeh, CEO of The Money Source.