âTis the season of open enrollment and if you are like me, youâre trying to figure out what youâre going to do about your health insurance for the coming year. On top of choosing the right coverage, you also have to decide what additional health savings plan works best for your situation.
Health Savings Accounts (HSAâs), Health Reimbursement Accounts (HRAâs) and Flexible Spending Accounts (FSAâs) are gaining popularity with employers (especially employers with younger and healthier workforces).
Many companies are offering their workers the option of enrolling in an HSA or similar account instead of the usual HMO or PPO.
The Health Savings Account (HSA)
An HSA gives you a tax-exempt savings account to pay for your own health care expenses. They are different and operate differently than how other online savings accounts work.
The money you donât spend in one health plan year rolls over to the next.
You are also enrolled in an HDHP (High Deductible Health Plan), in which your insurance company will only pick up the tab for major health care expenses (including types of preventive care, maternity care, and pediatric primary care).
HSAâs have risen in popularity because of low premiums. In a traditional insurance plan, you pay high premiums up front; in the HDHP, you pay lower premiums and essentially assign the savings to your own health care expense account.
HSA Contribution Limits
For 2020, individuals can now put up to $3,550 per year in an HSA, families $7,100 per year. The money grows tax-deferred and distributions are tax-free (if they are used to pay for qualified medical expenses). While the $50 self-contributing and $100 family contribution increases year-to-year might seem minor, they increase your savings account with a barely noticeable rise in your contributions.
For 2021, the minimum deductible permitted on an HDHP will remain at $1,400 for individuals, and $2,800 for families. The maximum out-of-pocket limit is $7,000 for individuals and $14,000 for families. The HSA deduction will increase slightly to $3,600 for individuals and $7,200 for families.
You can even invest in HSA assets. If youâre 65 or older, you may withdraw money from an HSA for any reason without tax penalty.
The Health Reimbursement Account (HRA)
While an HRA is a tax-advantaged account like an HSA â the account savings grow with time â the assets in an HRA donât belong to you. They belong to your employer, and they revert back to your employer when you leave your job.
The HRA is essentially a favor your employer does for you â a reimbursement account rather than a true âassetâ in your possession.
The maximum contribution to the plan, made by your employer is $1,800 for 2020 and 2021.
The Flexible Spending Account (FSA)
With an FSA, you deduct pre-tax dollars out of your salary to pay qualified medical expenses. You can designate an FSA for your own health care expenses or for those of a dependent.
For 2020 and 2021, the maximum employee contribution to an FSA is $2,750. If your plan allows carryovers, you can carry $550 forward from either 2020 or 2021.
But, most FSAâs are âuse it or lose itâ â at the end of the plan year, the money left in the account doesnât roll over into the next year. Employees tend to minimally fund FSAâs, as a result, although they can be used in conjunction with HRAâs.
If you have questions about HSAs, HRAs or FSAs, why not speak with a financial or insurance professional as well as your human resource officer? Itâs wise to get as much information as you can before making the switch from an HMO or PPO.
There has been a new healthcare alternative entering the market in the last several years, like Medi-Share. The idea of these cost-sharing programs is simple.
Every month, members pay a contribution into a savings account. When a member of the program has medical bills, they submit a request to have those bills covered by the money in the accounts. If itâs approved, those bills are paid from other membersâ savings accounts.
Just like with a traditional health insurance plan, there is a set amount youâll be required to pay before you the plan kicks in. In the case of Medi-Share, there is an amount youâll have to pay out-of-pocket before you can submit a request for assistance. This limit could be anywhere from $500 to several thousand dollars.
One of the most notable advantages of participating in Medi-Share is it can be much more affordable than the alternatives. You can base your monthly contributions based on the benefits of the program you need for your family. Itâs not health insurance, but it can help combat the expensive costs of healthcare which could drain your bank account if youâre not careful.
Choosing The Right HSA Account For You
If your employer doesnât offer an HSA account option, itâs your duty to find an account. If you have a health insurance plan with a high deductible, then you may qualify to open one of these accounts.
Just like with every other major purchase or investment, itâs vital you do some comparison shopping before you pick one of them. Every HSA administrator is going to have various fees and policies. There are several various factors youâll need to account for when looking for the best health savings account.
One of the first factors to look at when shopping around for an HSA account is the fees. Some accounts have monthly fees while others only charge fees per-transaction. Some companies have fees to open an account or to transfer money to an account.
Just like a traditional checking account, some banks are going to charge you at a drop of a hat, while others donât charge a monthly fee.
The next most important thing to compare is the investment options. Some HSAs are basically a savings account, while others have investment options. If the account is a savings-type account, then it will be insured by the FDIC. However, if itâs an investment account, it probably wonât have any protection.
How do you want to access your account? Most accounts have checks or a debit card you can use for medical expenses. They make it very simple to use your money. Other accounts (most older ones) require a disbursement and reimbursement form, which can be annoying for a lot of account holders.
Best HSA Accounts
There are dozens of different places you can open your HSA account at. I have only included three of them on this list. If none of these suit your needs, donât worry, there are plenty of other options. This will hopefully give you an excellent place to start your search.
The reason Lively is the first on our list is because they have no monthly fees. Also, they donât have any opening fees. Although, if you decide to use the TD Ameritrade, you will pay a whopping $2.50 fee every month.
While speaking of fees, youâll face fewer of them with Lively.
They donât charge fees for using your debit card, for accessing statements, over contributing to your account, and several others.
HSA Bank tends to be one of the best options. There are several reasons HSA continues to rise to the top. One of those is their low monthly maintenance fees. They only charge $2.50 a month, which is much lower than most other banks on the market.
You can get the fee waived if you have a balance over $5,000. Additionally, there are no set up fees, but there are a few banking fees, most of which you can easily avoid.
Another advantage of HSA Bank is their investment options. They have a self-directed option through Ameritrade. You can choose some of their pre-selected funds with no trading fees.
Health Savings Administrators
Health Savings Administrators started in 1996 when they were a medical savings account administrator. In 2004, after the passing of legislation, they switched to health savings accounts. Currently, they have over $700 million in investments from clients across the country.
They donât require a minimum balance or have an opening fee, but they do have a $45 annual fee. One of the advantages of Health Savings Administrators is their many investment options.
The post What’s the Best Health Savings Plan For You? appeared first on Good Financial CentsÂ®.
The cost of long-term care insurance is not cheap. A 55-year-old man in the United States can expect to pay a long-term care insurance premium of $1,700 per year on average, according to a 2020 price index survey of leading insurers conducted by the American Association for Long-Term Care Insurance (AALTCI). That will cover $164,000 in benefits when the policyholder takes out the insurance and $386,500 at age 85, assuming benefits are increased 3% per year.
However, long-term care insurance costs vary widely, depending on factors like your age, health condition and the specific policies of your insurance carrier such as an inflation rider. Thatâs why itâs important to shop around to find the best rates and terms. You should also speak with a financial advisor who can help you plan the future.
How Much Does Long-Term Care Insurance Cost?
The AALTC provides the following estimates of annual premiums based on its 2020 study of different long-term care insurance carriers.
Annual Premium Estimates Status Age Premium Single Male 55 $1,700 Single Female 55 $2,675 Couple 55 $3,050 (Combined cost)
Keep in mind, though, that these are only averages based on a pool of data gathered from leading insurance carriers. The costs of long-term care insurance can vary widely, depending on several key factors. We explore some of these below.
Health: Some medical conditions will disqualify you from even being able to purchase a policy, including muscular dystrophy, cystic fibrosis and dementia. Thatâs because insurers will likely lose money on those policies. Generally, the healthier you are, the less likely youâll ever need to file a claim â and so the lower your premium.
Age: In general, youâll pay more in long-term care insurance if you take out a policy when youâre older, since youâre probably less healthy and youâre closer to needing the assistance the policy covers. This is why the AALTCI recommends you begin shopping for long-term care insurance between the ages of 52 of 64.
Marital status: When combined, premiums tend to be lower for married couples than they would be for individuals paying for a personal policy.
Gender: Because women tend to live longer than men and make claims more frequently than their male counter parts, women tend to pay more for insurance premiums. The AALTCI study showed that a single female pays an annual premium of $2,675 on average while the single man that age paid $1,700.
Carrier policies: Each insurance carrier sets its own rates and underwriting standards. In fact, costs for the same services can vary widely from one company to another. This is why you should gather quotes from various carriers. You can also work with an experienced long-term care insurance agent who can gather these for you and help you understand the differences between insurance policies. They can also help you determine the kind of coverage youâre likely to need, so you donât over-insure.
Should I Get Long-Term Care Insurance?
The average 65-year-old today has a 70% chance of needing some kind of long-term care eventually, according to the Urban Institute and the U.S. Department of Health and Human Services. Of those who need it, most would use it for about two years, but around 20% would require it for more than five years.
The smart money, then, would prepare for this significant cost. To give you a sense of how much bills can run, below are the estimated annual costs of different types of long-term care services, according to Genworth Financial, which has been tracking them since 2004.
Estimated Annual Costs Type of Services Price Private room nursing home $105,852 Assisted living facility $51,600 Home care aide $54,912 Home care homemaker $53,772
Whatâs more, costs have been rising faster than even inflation. Genworth found that the average cost of home-care services increased about $980 annually each year between 2004 and 2020. The average cost for a private room in a nursing home jumped by about $2,542 each year during the same time period, currently putting the average cost of a private room in a nursing home at $105,850 per year. As noted before, about 20% of Americans will require more than five years of care.
Unfortunately, with these costs, many retirement nest eggs will come up short. And contrary to popular belief, Medicare covers only limited medical costs, e.g., brief nursing home stays and narrow amounts of skilled nursing or rehabilitation services. The scope for Medicaid is even smaller. On average, it covers about 22 days of home care services if you meet very low income thresholds.
Of course, thereâs no way of knowing how much long-term care coverage youâll need. But knowing what long-term care insurance does and doesnât cover is key to making sure youâre not over- or under-protected.
What Does Long-Term Care Insurance Cover?
Long-term health insurance typically covers services not provided for by regular health insurance. This can include assistance with completing daily tasks like eating, bathing and moving around. In the industry, these are known as activities of daily living (ADLs). Long-term care insurance policies generally would reimburse you for these services in such locations as:
Adult day care center
Assisted living facility
Some policies also cover care related to chronic medical conditions such as Alzheimerâs disease and other cognitive disorders.
But keep in mind that these are generalizations. There is no industry standard that sets ADL requirements for claim eligibility or what kinds of illnesses long-term care insurance will cover. Each insurance carrier makes its own rules.
So itâs essential to understand when coverage kicks in â and for how long. Policies used to provide coverage for life, but now most cap benefits at one to five years. If possible, some experts recommend extending the initial period when you are not compensated for costs (itâs often 90 days) in exchange for a longer period on the other end of receiving benefits. You also will want to know how premiums may increase over time and whether the cap on benefits will, too. Some carriers allow you to place an inflation rider that increases your daily benefit every year. That increase can be up to 3%.
How Does Long-Term Care Insurance Work?
After you apply for long-term care insurance, the insurer may request your medical records and ask you some questions about your health. You can choose the type of coverage you want, but the insurer must approve you.
When the company issues you a policy, you begin paying premiums every year. Once you qualify for benefits, which is often defined by not being able to perform a set number of ADLs, and the required waiting period has passed, you can file a claim. The insurance company then reviews your submitted medical records and may send a nurse to perform an evaluation before approving a payout. Once approved, you will be reimbursed for paid services, up to the cap on your policy.
Ideally, youâll stay healthy and your long-term care needs will be minimal. Though your premiums will add up over time, this is one situation where you hope not to get your moneyâs worth. On the bright side, to lessen the hit to your wallet, the government may give you a tax break.
Tax Relief for Long-Term Care Premiums
Some or all of the long-term care premiums you pay may be tax deductible at the federal and state level. But you must make these payments toward a tax-qualified insurance policy. Also, you must meet certain income thresholds.
Maximum Deductible Premium
Age Maximum Deduction 40 or under $420 41 to 50 $790 51 to 60 $1,580 61 to 70 $4,220 71 and over $5,220 How to Buy Long-Term Care Insurance
You can purchase long-term care insurance directly from carriers or through a sales agent. The agent can help you shop around for comparable rates. This professional can also help you understand how different policies work and what they offer.
Also, you may be able to get long-term care insurance through your employer. Some allow you to purchase policies at discounted group rates. However, you should get quotes from multiple insurance companies. In some cases, you may find better rates for more suitable policies that arenât through your employer.
How to Calculate Your Long-Term Care Insurance Costs
Some websites such as Genworth Financial provide interactive calculators that can estimate what long-term care premiums may be like in your area. Prices and policies can vary, depending on the state.
Tips on Paying for Long-Term Care
If you have a health savings account (HSA), you may want to start socking away more money in it for long-term care. Also called health IRAs, these plans allow your money to grow tax deferred. (But you have to have a high-deductible health plan to open an HSA). To find out more, check out our report on the best HSAs.
Donât go it alone. A financial advisor can help you devise an insurance plan and figure out how youâre going to pay for it. If you are in the market to buy insurance now, some advisors are also licensed insurance agents. Use our matching tool to find the right advisor for you.
In a lot of cases, our health insurance coverage comes from a group plan that is offered to you by your employer or by your spouseâs employer. For individuals who do not have insurance through their employer, individual policies exist as an option as well.Â
Of course, you can also opt for having no coverage at all, but in the case of an emergency, this could be detrimental to your financial health. No matter your age or marital status, itâs worth looking into your options for a good health care plan to protect yourself from a medically-induced financial struggle.Â
No matter what kind of plan you choose, there will always be some out-of-pocket expenses, which means youâll have some decisions to make. Deciding what type of healthcare plan to choose can be stressful, but it doesnât have to be overwhelming. In the sections below, we will discuss the key factors that play into choosing the right health insurance plan.Â
Types of health plans availableÂ
There are a lot of different terms to learn when sorting through health insurance plans, and each of them come with their own set of distinctions. Before we discuss the difference between HMOs, PPOs, POS Plans and Indemnity plans, itâs important to start with the most common types of health insurance categories:Â
Indemnity of Fee-for-Service Plans: Health insurance plans that enable you to go to any doctor or specialist that you want without a referral are called indemnity, fee-for-service, or point of service (POS) plans. The insurance company will cover a predetermined amount of your medical expenses, and you will be responsible for the remaining balance. These plans tend to be the most flexible since there are no set restrictions on the medical providers youâre allowed to use, and you are usually not required to choose a primary care physician.Â
Health Maintenance Organizations (HMOs): A Health Maintenance Organization (HMO) is a band of healthcare professionals and medical facilities that offer a set package of medical services at a fixed rate. This plan does require that you have a primary care physician (PCP), who would serve as the middle-man when it comes to health care. Your primary care physician would then decide whether or not seeking out a specialist is necessary. If your PCP finds it necessary for you to see a specialist, they will then issue you an in-network referral.Â
Preferred Provider Organizations (PPOs): A Preferred Provider Organization (PPO) has the same organized care characteristic that you will get from an HMO, but with the benefit of more flexible options. A PPO allows you to seek healthcare outside of your network if you feel the need to. Keep in mind that doing so will usually cost you more in out-of-pocket expenses, but a PPO would still cover some of the cost, unlike an HMO. If having a wider variety of options is important to you, then a PPO might be a good option for you.Â
Pros and cons of each health plan
Each type of plan comes with their own implications. Ultimately, youâll have to figure out what is most important to you in order to make your decision. Letâs compare the pros and cons of each plan.
Pros: The major advantage of this type of plan is that you are able to choose where you get your medical care from and which doctor to go to, without the need for a referral or a pre-approval.Â
Cons: Indemnity plans will usually come with much higher premiums and deductibles, making them more expensive than perhaps an HMO or PPO. Another area where these plans fall short is the route you may have to take to get coverage. You may have to pay for your medical services out of your own pocket, and subsequently submit a claim to get reimbursed by your insurance company. Thereâs no telling how long this could take, and you also face the risk of not getting reimbursed at all.Â
Health Maintenance Organizations (HMOs)Â
Pros: The best thing about getting an HMO insurance plan is that your out-of-pocket medical expenses are usually pretty affordable, and you can expect to pay the same amount for each visit, depending on whether itâs a primary care physician or a specialist.
Cons: In most cases, any services that you receive from a medical professional outside of your healthcare network will not be covered with an HMO plan. Another drawback is that you have to get referred by your primary care physician in order to see a specialist. This may not be seen as a disadvantage to some, but for others it could be seen as an unnecessary extra step in the process if you already know what you need.Â
Preferred Provider Organizations (PPO)
Pros: This type of plan offers customers much more flexibility than they would have with an HMO with a lot lower rates than one might experience through an indemnity plan.Â
Cons: The main drawback with a PPO is that the out-of-pocket costs are generally less predictable.
Choosing a Health Plan is a post from Pocket Your Dollars.
Housing costs eat up more of the average Americanâs salary each month than any other single expense, reaching about one third of average expenditures in 2019, according to data from the Bureau of Labor Statistics. And while homeownership is coded into the DNA of the American Dream, buying a home isnât easy for many. Car payments, student loans, credit card bills and other debts can make it difficult to qualify for a home loan and keep up with mortgage payments. Thatâs why SmartAsset analyzed data from the 15 biggest U.S. cities to estimate how much money you will need to make â and not exceed the recommended 36% debt-to-income ratio â to afford monthly home payments.
Our study compares these cities using the following factors: median home value, property tax rate, down payment, homeowners insurance and other monthly non-mortgage debt payments. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.
This is SmartAssetâs fourth study on the salary needed to afford home payments in the 15 largest U.S. cities. Check out the 2020 version of the study here.
California is expensive. Three California cities â San Jose, Los Angeles and San Diego â are included in the 15 largest U.S. cities, and they all rank within the top four of this study, at first, third and fourth, respectively (with New York City claiming second place). Our findings show that living in California can be very costly if you want to own a home. The average salary (with no additional debt) needed to afford home payments across these three cities is $111,533.
Home prices vary by more than 5x. Homes in big cities are usually more expensive than homes in suburbs or small towns. But our study reveals that there is also a big difference among the 15 largest U.S. cities. The highest median home value on our list is higher than five times more expensive than the lowest. San Jose, California has a median home value of almost $1 million, while San Antonio, Texas has a median home value of just $171,100.
1. San Jose, CA
Homeowners in San Jose, California need to have the highest income out of all 15 cities to afford their home payments. Our study shows that they have to earn $143,233 (with no debt) to afford a property with a median home value of $999,900. That income goes up to $159,900 when a homeowner has $500 in monthly debt payments, $168,233 if he or she owes $750 a month and $176,657 with $1,000 of additional monthly debt. On a more affordable note, the property tax rate in San Jose is relatively low, at 0.76%.
2. New York, NY
The Big Apple comes in second, but if you want to buy a home in New York City, you will need to earn at least $98,867 with no additional debt to afford house payments. If you owe $1,000 in monthly debt payments, you will need to make $132,200. The median home value in NYC is $680,800, and the median real estate tax bill is $5,633.
3. Los Angeles, CA
Los Angelesâ median home value is slightly higher than New York Cityâs and the second-highest in the study ($697,200). The property tax rate, however, is the second-lowest overall â at just 0.68%. If you have no debt, youâll need to earn at least $98,333 to make home payments and keep your debt-to-income ratio less than 36%. But if you owe $500 each month, youâll need an income of at least $115,000.
4. San Diego, CA
San Diego, Californiaâs median home value is $658,400, fourth-highest in the study. The average property tax rate, however, is third-lowest at 0.69%. If you have monthly debt payments of $1,000 before you take out a mortgage, youâll need to earn at least $126,367 to afford house payments in San Diego. By comparison, if you have a monthly debt of $750, you will need to make $118,033.
5. Austin, TX
Austin, Texas homeowners without debt must earn a minimum of $64,600 to make their housing payments. Their income requirements rise to $81,267 if they have a monthly debt payment of $500. The median home value in Austin is significantly lower when compared to the top four cities on this list, at just $378,300. But the property tax rate is more than twice as high, at 1.75%.
6. Chicago, IL
The median home value in the Windy City is $275,200. Chicago homeowners have to pay a fairly high property tax rate, at 1.54%. If they do not have any monthly debts, theyâll need to earn at least $45,400 to afford monthly home payments without exceeding the 36% debt-to-income ratio. If they owe $1,000 in debt payments outside of their mortgage, theyâll need to earn $78,733.
7. Dallas, TX
Dallas has the fifth-highest property tax rate in this study, at 1.66%. The median home value in the city is $231,400. Homeowners without a debt must earn at least $38,933. But if they owe $750 in monthly debt, theyâll need to make at least $63,933 to afford a mortgage.
8. Charlotte, NC
Charlotte, North Carolina has a median home value of $252,100 and a property tax rate of 0.94%. Homeowners here must earn $37,367 without any additional debt to afford housing payments. If you owe $500 in monthly debt payments outside of your mortgage, youâll need to make at least $54,033 for your housing payments.
9. Forth Worth, TX
The property tax rate in Fort Worth is 1.98%, the highest rate across all 15 cities. The median home value is $209,400, and homeowners with additional monthly debt payments of $750 need to make $62,100 to live comfortably in this city. By comparison, if their non-mortgage debt payments are only $500 each month, they will need to earn $53,767.
10. Phoenix, AZ
The property tax rate in Phoenix, Arizona is 0.58%, the lowest in this study. The median home value is $266,600. Homeowners can afford making mortgage payments with an income of $36,867 as long as they have no other debt. But if they have $750 in monthly debt payments, theyâll need earn at least $61,867.
11. Houston, TX
Houstonâs property tax rate, like in the other Texan cities in the top 15, is fairly high â third-highest in the study, in fact, at 1.78%. The median home value, though, is much lower on the list, at $195,800. To afford the home payments without breaking the 36% debt-to-income rule, youâll need to earn at least $50,267 if you have $500 in other monthly debt payments. If youâve managed to stay debt-free before the mortgage, youâll only need $33,600 in annual income.
12. San Antonio, TX
The median property tax rate in San Antonio, Texas is 1.91%, the second-highest property tax rate in the study. The median home value is $171,100. To afford payments on the median San Antonio home, youâll need to earn at least $29,967 and have no additional debt payments. If you owe a monthly debt of $1,000 outside of your mortgage, youâll need to earn at least $63,300 to afford home payments comfortably.
13. Jacksonville, FL
Jacksonville, Floridaâs median home value is $200,200, and the property tax rate is relatively low at 0.87%. This means that youâll need to make $29,300 to afford an average house payment as long as you have no additional monthly debt. If you are making other debt payments of $500 each month, youâll need to earn at least $45,967 to afford home payments in Jacksonville comfortably.
14. Columbus, OH
Columbus, Ohioâs property tax rate is 1.60%, and the median home value is $173,300. Homeowners with additional debt payments of $500 each month must earn at least $45,533. Doubling monthly non-mortgage debt payments to $1,000 means that theyâll need a salary of at least $62,200.
15. Philadelphia, PA
The median home value in the city of Brotherly Love is $183,200, and the property tax rate is 0.91%. If you have no other debt, youâll need a salary of at least $27,000 to make home payments in Philadelphia. If you owe $750 in monthly debt payments outside of your mortgage, you will have to earn a minimum of $52,000 per year.
Data and Methodology
To find the minimum required salary to afford home payments in the 15 largest U.S. cities, we used data from the U.S. Census Bureau. First, we took the median home value in each city and calculated the cost of a 20% down payment. We then used the average real estate taxes paid in each city and the median home value to find the average property tax rate. Using those figures and our mortgage calculator, we found the average monthly home payment in each city assuming a homebuyer would get a 30-year mortgage with a 3% interest rate for 80% of the home value (the balance after paying a 20% down payment). We also factored in an annual homeowners insurance payment of 0.35%.
After finding the average monthly home payment, we calculated the income needed to make those payments while not exceeding a 36% debt-to-income ratio. We also considered the necessary income to make home payments based on prospective homebuyer debt levels, which ranged from no monthly debt payments to debt payments totaling $1,000 per month.
We ranked each city from the highest minimum income (with no additional debt) needed to afford home payments to the lowest minimum income (with no additional debt) needed. Median home values and median household incomes are from the U.S. Census Bureauâs 2019 1-year American Community Survey.
Tips for Homeownership
Feel at home in your finances with a trusted advisor. Want to buy a house and make sure your finances stay sound? Consider working with a financial advisor. SmartAssetâs free tool matches you with financial advisors in your area in five minutes. If youâre ready to be matched with local advisors, get started now.
Be realistic. Make sure you know how much house you can afford before you even start looking at homes so you donât fall in love with a unit that is above your price range.
Budgeting is key. If you want to start saving for a down payment, make a budget and designate a certain amount to put aside for that each month.
Questions about our study? Contact firstname.lastname@example.org.
Today, we’re going to compare net worth targets by age. Mean, median, and various percentiles.
How much money should you have as you age? How should your average net worth grow? Digest the 25th, 50th (i.e. median net worth), and 75th percentile data below.
Note: If you have some money but you’re unsure what to do with it, use the financial order of operations.
Apologies to my international readers—most of this data is pulled from or targeted towards U.S. readers. I suggest you use Numbeo to scale these values to your locality.
Let’s get started!
**Note: I recommend using YNAB to track your progress. You and I both get a free month of YNAB if you end up signing yourself (or someone else) up with the link above. No extra cost to anyone involved. You get a 34-day trial, and then an additional free month. Thatâs two months to figure out if you like it.
The Good Stuff—Average Net Worth By Age
You didn’t come here to scroll to the end of the article to see the average net worth targets. Let’s get to the good stuff!
And here are five expert viewpoints of average net worth targets by age. This initial plot is the 50th percentile, or median, net worth.
Where are these net worth targets by age coming from?
First, I pulled from Fidelity. Their recommendations are all relative to salary (e.g. “3x your salary by age 40”). I used the median American salary by age to convert salary targets into average net worth targets by age.
Note: Fidelity defines net worth as retirement savings only, and does not count other assets (e.g. your primary home’s value). The other methods below do include other assets beyond your retirement savings.
Next, I pulled data from DQYDJ. DQYDJ originally pulled of their data from the Federal Reserve Board’s Survey of Consumer Finances (labeled “The Fed” on the plot).
This Fed data is from 2019. This is the same net worth targets by age data in the table above.
This DQYDJ/Fed data is real data. It’s not a hypothetical target or subjective goal. In my charts today, you’ll see three sets of “subjective targets” and only one set of “real data.”
Next, the financial aggregation site The Balance follows a similar formula to Fidelity. At particular ages, they say, your average net worth should aim for an ever-growing multiple of your salary.
The Financial Samurai, a.k.a. Sam, is a long-time financial blogger with a no-nonsense attitude about saving money. Sam’s lofty targets are for, he says, people who:
Take action rather than complain about an unfair system
Max out their 401kand IRA every year
Save an additional 20% or more after taxes and 401k/IRA contribution
Take calculated risks through investments in various asset classes
Build multiple streams of active and passive income
Work on a side hustle before or after their day job
Focus on the big picture and donât nitpick with minutiae
Want to achieve financial freedom sooner with their one and only life
Fair enough, Sam! Sam’s high net worth targets are going to be far above average.
The Best Interest
And finally, I took my own stab at some average net worth targets by age. I did this based on deciles of American salaries, typical milestones in the average American’s life (various debts, children, growing salaries) and the savings rates that might rise and fall as a result of those life events.
A young couple might be able to save some money—but having children will put a dent in their savings rates.
As the couple’s salaries rise, savings will increase. But if/when they help their children with college, their savings rates might take another dip.
While young, one’s investments might be higher risk (and higher reward). But as someone ages, their portfolio is likely to trend towards safer investments.
I also took inflation into account. Net worth targets by age need to be adjusted for inflation.
The average 30-year old today might be making $40,000 per year. But the average 60-year old today was making $25,000 per year back in 1990 (i.e. when they were age 30). What are the consequences?
While the average 60-year old today might hope to have an average net worth of $800K (Best Interest opinion), that’s not what a current 30-year old should treat as their target or goal.
If we assume 2.5% annual inflation for the next 30 years (leading to a 2.10x total inflation increase), then a 30-year old today should target $800K * 2.10 = $1.68 million by the time they are 60.
Here are some approximate inflation multipliers based on the number of years you want to project into the future. For example, someone age 50 would want to look 20 years into the future if they want to see what their net worth target for age 70 should be.
Number of yearsin future
Looking at the table above, forecasting 20 years in the future requires an inflation multiplier of about 1.64. Make sure you account for inflation in your net worth targets by age.
Analysis of the Median Net Worth Targets
Let’s take another look at those median net worth targets by age. What conclusions can we draw?
The non-Best Interest/Financial Samurai American net worth target numbers seem low to me.
This is probably an obvious (and biased) conclusion. My method comes up with higher numbers, so I’m going to be biased into thinking the other goals are low.
Let’s start by analyzing this data through the lens of the “4% Rule,” which states that you should take your annual spending and save ~25x that much for retirement.
The Best Interest target ($850K) allows for a retirement income of roughly $34K ($850K/25) per year, or $2800 per month. Financial Samurai’s targets lead to $40000 per year or $3300 per month. When you add in Social Security benefits, that’s a very reasonable allowance for the average American.
The other methods suggest median net worths of $500K, $300K, and $220K, for a monthly allowance of $1660, $1000, and $730, respectively. With the assistance of Social Security, it’s certainly possible to live off these amounts. But there’s more risk involved.
The average Social Security benefit in 2020 is estimated to be about $1500 per month. Let’s add that to the allowances from the previous paragraph.
Would you feel comfortable living off of $3160, $2500, or $2230 per month? Depending on your area of the country, cost of living, medical expenses, retirement goals, etc., it’s a scary question.
What happens if something goes wrong with your plans? Going back to work at age 80 is not an enticing prospect. Neither is asking your children for a handout.
Are these hyperbolic outcomes? I don’t think so.
How to Compare? Apples to Apples?
Does it make sense to set the same average net worth targets by age for both a teacher and a doctor? We know that their net worths targets by age will be dramatically different.
The average American doctor’s gross income in 2019 was more than $300K. Meanwhile, the average teacher’s salary was $60K. Of course, there are millions of people that will fall within and without this range. Does it make sense to compare average net worth targets when incomes are so different?
In my opinion, yes it does make sense to do this comparison. But it’s only one data point that you should use—not an end-all-be-all.
It’s just like a young track athlete comparing their race times to record holders. Of course, they’ll be slower than the record holders. But it gives them a target, an understanding of the gap, a percentage difference to track their progress against.
Besides, the comparisons I presented above are median net worth calculations. They account for the highs and the lows, and they let you know where the middle of that scale lands. Some people start from nothing and build net worth. Others benefit from large generational wealth transfer. This average net worth analysis does not discern between the two.
If you’re making a lower salary but you love to be frugal, then set your targets high! Aim for a high net worth that’s a decile or two above your salary decile.
If you’re fresh out of law school, you’ll probably be in a mountain of debt. You might be low on the scale now, but your long-term financial prospects are good.
Keep circumstances like that in mind as you review today’s charts. This is where age, work experience, education level, etc can all play important roles.
Location and Cost of Living
We’ve covered how inflation and income can affect your position in the average net worth plots. But we should also discuss how your cost of living can affect these results.
Life in San Francisco or New York City costs more than life in Rochester, NY. And life in Rochester costs more than life in rural Kansas. Rent, gas, groceries—all these commodities have different prices around the country.
Therefore, the average net worth benchmarks should change with location.
Use the crowd-sourced site Numbeo to do some of these comparisons. For example, here are some results comparing Rochester to Boston—where Numbeo suggests we need 50% more spending in Boston than in Rochester to maintain similar standards of living.
Numbeo uses New York City as a baseline, giving it an indexed score of 100. The United States as a whole has an index score of 56, suggesting that the average American has a cost of living that’s about 44% less than the average NYC resident.
Look up your city or region to compare it to the United States index score of 56. The percentage difference will give you another way to interpret the average net worth results.
For example, Philadelphia has an index of 62, which is 10% higher than 56. If a Philly resident is using today’s data for retirement planning, they should consider adding 10% to all of the data points.
75th Percentile Net Worth Targets by Age
The plot above shows the same five experts’ opinions, but at the 75th percentile.
One interesting aspect of the 75th percentile net worth targets is that the Fidelity recommendation lines up well with the Fed data.
This suggests that people who earn more also save a larger proportion of their income, and people who save more are more likely to meet Fidelity’s thresholds. That’s real data lining up with Fidelity’s subjective targets.
These people have higher average gross income. They have a high net worth. They likely utilize a retirement savings plan. Or they might be the secret millionaire next door.
If we go back to the average net worth chart, we notice that the Fed data lags behind both Fidelity’s targets and the Balance’s targets. In other words: average real-world saving does not meet the average expectations of Fidelity and the Balance.
It takes above-average earning and saving to meet the Fidelity and Balance targets. This is an important point.
It’s not ideal, but it’s reality.
In general, systems that require above-average effort in order to obtain average goals (e.g. to meet suggested average net worth thresholds for retirement) are bad systems.
A good system would only require an average effort to achieve average results. But this is where the Stockdale Paradox is important. Don’t find yourself ten years in the future having not taken action today.
25th Percentile Net Worth Targets by Age
And to make matters worse, check out the 25th percentile chart below.
Here, three of the subjective net worth targets are all in family. Fidelity and my Best Interest targets line up very closely to each other, with the Balance falling 20-30% lower.
But how does the real net worth data compare? At retirement age, real people’s net worths are only 15% to 25% of where they “should” be.
It’d be nice to reach Financial Samurai’s targets, but many people do not have the means to maximize their savings accounts to the extent he recommends.
Let’s put a face to this data. It’s 25th percentile, meaning that one out of four people in the U.S. falls on or below this graph. Dunbar’s Number suggests that the average human can comfortably maintain 150 meaningful relationships–which would suggest that you (yes, you) closely know ~40 people (on average) on or below the 25th percentile plot.
Real people, real lives, real worry. For a 60-year old, to retire on a $50K net worth (or less) is likely impossible to do. On DQYDJ, I looked at the 25th percentile net worth for 70 year olds—it’s $56,000.
25th percentile net worth is meager all the way to the end of life. That’s a sobering fact.
The Wealth Divide
What might be causing this household net worth disparity? How do people have negative net worth, or lower-than-needed net worth?
Rising expenses and wage stagnation is an easy cause to point to. The lack of financial educationhurts. So does poor financial health—like having a low credit score and paying high interest rates. Student loan debt and credit card debt suck.
Some people are behind from the start. Your first net worth out of college is likely to be negative. Many people wake up 10 years later and find their net worth hasn’t grown. That’s the python-squeeze nature of debt.
Wealthier college graduates don’t have to battle that python. It’s not their fault—that’s just how it is. Without that student loan debt, their average net worth increases rapidly.
After 10 years of work, they’re likely to be debt-free. They’re likely to own real estate. They’re more likely to be collecting passive income or contributing to their retirement account. What do all these activities have in common? They all increase net worth!
Sure, annual salary matters. Total household net worth is a function of salary—just ask the Federal Reserve.
But the net worth divide we’ve seen today starts at the beginning of people’s careers and often never closes. It’s there at age 30, age 40, age 50, age 60.
Why Do Net Worth Targets by Age Matter?
I’m just another personal finance writer, but I think average net worth benchmarks are an important metric of financial health.
Your current net worth isn’t make or break, but it let’s you know how you compare to your age group. Age 30 millennials should think about their financial future. Age 60 retirees should be aware of their cash, stocks, bonds, mutual funds, etc.
Personal net worth is like your blood pressure. It’s a good metric of health.
If you’re behind, you need to take action. While something like wealth transfer inheritances usually helps, you probably shouldn’t rely on one. Instead, increase your savings rate. Utilize your 401(k) i.e. pretax income.
Your financial future will grow from your financial present.
What Counts as Net Worth? And What Doesn’t?
Let’s do some housekeeping. What actually counts towards net worth? The answer is subjective, but it comes down to assets minus liabilities.
In general, I considered the following as contributors to net worth (i.e. liquid net worth contributors).
Retirement accounts (401k, IRAs, etc)
Investments (stocks, bonds, REITs, etc)
Other saving vehicles (e.g. Health Savings Accounts, 529 college savings plans)
Equity in real estate (e.g. your home value)
Common debts—mortgage debt, credit card debt, average student loan debt, etc.
Pension and social security
Note: Fidelity’s targets were based solely on retirement account funds.
And what doesn’t count towards net worth?
The value of common possessions (e.g. a car, a computer)
Illiquid or non-transferrable assets (e.g. airline miles)
And what is a maybe? These are assets that are fairly subjective and up to you.
Collectibles, jewelry, art—how liquid are they? And are you sure you’d want to sell them?
Business ownership—again, how liquid is it? If you can sell shares, that’s good. But if you own a gas station, is that part of your net worth?
Accrued annual vacation days or PTO, unless transferable to cash at future date.
Future inheritance. Probably ok to count if you’re sure you know what you’ll be inheriting.
Life insurance policies. Does it count as net worth if it only comes true after you die?
Today’s values account for a single person. The average American family’s net worth is likely ~double what we’ve presented today. I.e. average household net worth = 2x average individual net worth.
How to Calculate the Value of a Pension or Social Security
This involves a little bit of math. First, I’ll ask you to come up with four important numbers. Then I’ll show you two important equations. And then we’re going to work through an example together.
The four important numbers are:
[N] The number of years you estimate you’ll be retired. If you’re retiring at 60, a safe number to use here would be 25 (assuming you live to the above-average age of 85) [ 85 – 60 = 25 ]
[M] The number of years until you retire. I’m currently 30. If I retire at 60, then the number I’ll use here is 30. [ 60 – 30 = 30 ]
[R] The rate of return of the pension plan or Social Security. Here are some good sources for pension plan historic data and SS historic data. If you want to be safe, use less than 6% for a pension or less than 5% for Social Security.
[P] The assumed annual payment once you retire. For Social Security, here’s a convenient calculator. For pensions, each specific fund will likely have its own rules. Example: a typical pension pay-out might be equal to 50% of a worker’s average salary during their final three years of work.
Equations for Pension/Social Security Value at Retirement and Discounted Current Value
The two important equations are:
Fund Value at Retirement = P * [(1 – (1+R)^(-N)]/R
…we’ll call this Fund Value at Retirement the FV. Next, we need to take the FV and discount it backwards to today’s Present Value, or the PV.
Present Value = FV/[(1+R)^M]
Example: Calculating the Present Value of a Pension Fund
Wallace is a 35-year old teacher. He’ll likely retire at 60. And he’s going to be conservative in estimating that he’ll live to 82.
We now know that N = 82 – 60 = 22 and that M = 60 – 35 = 25.
Being conservative again, Wallace is going to use R = 7% as the fund’s rate of return.
And finally, Wallace knows that his pension will pay him 55% of his final year’s salary. He’s currently making $55,000 and assumes he’ll get a 2% raise for each of the next 25 years. His final year salary, therefore, will be about $90,000. And 55% of $90,000 is $49,500 per year = P.
We now know N, M, R, and P. Let’s plug them into our equations. I like to use Microsoft Excel to help keep track of my values and (if needed) easily change them to adjust my final values.
Future Value = FV = P * [(1 – (1+R)^(-N)]/R = $49500 * [(1 – (1+7%)^(-22)]/7%
FV = $547,531
Present Value = PV = FV/[(1+R)^M] = $547,531/[(1+7%)^25]
PV = $100,882
So, if Wallace wanted to include his pension value in his current net worth calculation, he’d use $100,882.
Retiring for Today
We’re at the 95th percentile for this article. I hope the average net worth comparisons today did not steal your joy, but instead opened your eyes to the wide gradient of net worth targets by age in the U.S.
Net worth targets by age are not an extrinsic competition. They’re intrinsic: will I be able to set up my loved ones and myself for fulfillment today, tomorrow, and for the rest of our lives? At least that’s how I think of it.
Looking at net worth percentile data simply helps gauge whether you’re on track, making progress, or need to change behavior. It’s important to realize—ideally at a younger age—that many people in this country are struggling against themselves in their intrinsic race. I hope today’s post might help you avoid that struggle.
If you enjoyed this article and want to read more, Iâd suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
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On Saturday evening, I had a chance to chat with my friends Wally and Jodie. You might remember them from a reader case study from last August. They’re the couple that wants to get their finances in order but they’re worried because they’re starting with less than zero.
When we chatted in August, Wally and Jodie had over $35,000 in debt. They had variable incomes, but somehow seemed to spend exactly what they earned — about $3000 per month after taxes. Worst of all, they were behind on some payments.
Now, eight months later, their situation has improved.
Over smoked German sausage and beer, Wally and Jodie told me about their progress. (My dog, Tahlequah, was eager to take part in the conversation. Or maybe it was the sausage she wanted?)
Taking Baby Steps
“Based on your advice, we’ve worked hard to increase our incomes,” Jodie told me. “We’ve both been picking up extra shifts whenever possible. And I started a second job that pays pretty well.”
“So, you’ve been able to get a gap between your income and your spending?” I asked.
“You bet,” said Wally. “By working more, we don’t have time to spend much money. In August, we didn’t have any gap between our earning and spending. Our gap was zero. Now our gap is almost $2000! And we’ve been using the debt snowball method to get out of debt. We’ve already paid off a bunch of smaller stuff and now have $438 extra per month for debt payoffs. Plus, we have an emergency fund.”
“This all sounds amazing,” I said. “Great work!”
“It is amazing,” Wally said. “This is the best shape I’ve ever been in financially. But we’re struggling to figure out what to do next.”
“What do you mean?” I asked.
“Well,” said Jodie. “We’re getting married in September. We don’t know how much to budget for that. Meanwhile, we still have a lot of debt. We owe about $10,000 on Wally’s car. We had to replace my Mini Cooper last winter, and that brought us another $10,000 of debt. Plus, I still owe on my school loans.”
I did some mental math. While the couple’s cash flow has improved, I was a little nervous that they hadn’t actually decreased their debt since the last time we talked about money. That said, I know Jodie’s old car had been a thorn in their side. And they have paid down nearly $10,000 in miscellaneous debts.
“The real issue is that we can’t seem to find balance,” Wally said. “We’re burned out. We’ve been working so much that we never have time for ourselves. Or each other. It’s affecting our moods and our attitudes.”
“Yeah,” I said. “That’s tough.”
Wally nodded. “Now I have a friend who wants us to fly out to his wedding,” he said. “We’ve done the math, and we can’t afford it. He’s offered to pay for the trip, but we don’t know how we feel about that. We want to go, but even if we do accept his help, it’ll cost us a few hundred bucks — plus whatever income we lose while we’re gone.”
“What should we do?” Jodie asked. “We thought saving more would reduce the stress, but we’re just as anxious as ever. Well, maybe not anxious in the same way, I guess, but still. We’re worried about money â even with a $2000 gap each month.”
“Trust me,” I said. “The money worry never goes away. Everybody has money anxiety, no matter how much they earn, no matter how much they have saved.”
Worrying About Money
“Do you worry about money?” Wally asked.
“Yes, of course,” I said. “I’m basically financially independent, but I still have money anxiety. In fact, I’m so worried about it that this year I’m tracking every penny I earn and spend. And, just like you, there always seems to be something that comes up for me to spend on. There’s my heart-attack scare, which now looks like it’ll cost me $7500. I just paid a huge tax bill. And there’s all of this travel I’ve committed to this year. It’s always something.”
“Should we fly to my friend’s wedding?” Wally asked. “I haven’t seen him in a long time. I can tell it’s important to him for us to be there.”
“That’s a tough call,” I said. “And it’s an example of how personal finance isn’t just about the numbers. There are relationships and emotions to consider too.”
“From a financial perspective, I don’t think you should go. But it’d be hypocritical of me to tell you that. My cousin Duane is still fighting cancer, but he wants to make another trip to Europe next month. At first, I was reluctant to join him. Like I said, I’m trying to cut expenses this year because I feel like I’m spending too much. But you know what? I’m going. So, you see, my advice and my actions are at odds here.”
I didn’t know how to tell Wally and Jodie, but my biggest concern with their situation is that it seems like they’re getting ready to stop the race when they’ve barely begun. They’re not out of debt yet. They’ve made some excellent progress, but there’s still a long way to go.
They’ve spent eight months on this project. From the looks of it, they have another eighteen months to go — but that’s if they use the gap they’ve created to accelerate their debt payments. If they don’t choose this route, it’s going to take them even longer.
At the same time, I get where they’re coming from about feeling cramped. Sure, there’s a finite amount of time until they get the debt paid off, then they can loosen up. But when you’re in the thick of it, eighteen months can feel like eighteen years.
The key, of course, is to find balance. And I think that’s what Wally and Jodie are trying to do.
They’re not trying to quit the race early. They don’t want to get behind on payments like they used to be. They don’t want to spend their emergency fund or to stop their debt snowball. What they want is to find a balance between today and tomorrow.
I didn’t mention it to them at the time, but I think they should look at the balanced money formula from Elizabeth Warren and Amelia Tyagi’s excellent All Your Worth.
Warren and Tyagi argue that in order to achieve financial balance, your after-tax spending should be allocated like this:
At least 20% should go to Saving (which includes debt reduction).
No more than 50% should be allocated to Needs (which includes housing, utilities, healthcare, basic food, and basic clothing).
The rest â around 30% â should go to Wants (which is everything else).
Warren and Tyagi are adamant that less than half your budget should go to Needs. If you pour too much toward necessities, you don’t have room in your budget for fun or the future.
The authors are just as insistent that you should build room into your budget for Wants. “You should ask yourself,” they write, “are you making enough room for fun?”
Wally and Jodie aren’t spending much on Needs at the moment, but they’re not spending much on Wants either. They’ve been pumping most of their money into Saving (in the form of debt reduction). This is a Good Thing. But maybe it’s too much of a good thing?
Making a Plan
On Sunday morning, Wally sent me an email. After meeting with me, he and Jodie formulated a plan:
Until their wedding in September, they’ll keep their debt snowball where it is today: minimum payments plus the $438 they’ve freed from satisfied debts.
They’ll use an envelope-like budget for entertainment, travel, gifts, dates, and personal items.
With the rest of their monthly gap, they’ll create a dedicated savings account for their wedding. After the wedding, they’ll throw this money at debt.
This seems like a good, purposeful plan to me. It balances today and tomorrow. And you can be sure that I’ll follow up with them in the fall to make sure they’ve stuck to the plan — that they’ve remembered to prioritize their debt snowball again.
In the meantime, I sent Wally this Reddit post in which a young guy realized that by pushing for a 65% saving rate, he was miserable. He writes:
I’m currently shooting for a 55% saving rate and I cannot tell you how much more I enjoy life. I went from feeling like I couldn’t spend a dollar that wasn’t strictly budgeted, to travelling with friends, going to concerts, and enjoying the pleasures of life. That 10% made all the difference in the world
As for me, I still feel anxious. I’ve done a good job of controlling my small, everyday expenses this year, but the big stuff is still stressing me out. I need to heed my own advice and find better balance. That will come, I think, as I consciously make better decisions about future large expenses — and as I work to increase my own income.
Why Everyone Over 30 Should Start Thinking About Life Insurance is a post originally published on: Everything Finance – Everything Finance – Its all about Money!
I donât like to make generalizations too often, but I do feel that everyone over 30 should start thinking about the importance of life insurance. That is, if youâre 30 and over and donât have any life insurance.
No one likes to think about their demise, but life insurance is an extraordinary product that can be used to reduce the financial burden you could leave behind for loved ones. Plus, different types of life insurance can even help you build wealth and diversify your assets.
Here are 4 important reasons why everyone over 30 should start thinking about life insurance.
The Insurance At Your Job is Probably Not Cutting It
By now you probably realize the life insurance coverage that your job offers is not enough. Some employers include life insurance in their list of benefits which is great, but the coverage amount often doesnât come close to your insurable need.
Your insurable need represents how much life insurance you should hold depending on factors like your age, liabilities, health conditions, and so on. One common rule of thumb is that your average life insurance coverage amount should be 7 to 10 times your annual income.
So if youâre earning $60,000 per year, you might want to consider a policy of $420,000 to $600,000 depending on your needs. However, the average employee life insurance policy amount is only around $25,000 to $50,000 or one yearsâ salary. This is not nearly enough.
Plus, when you leave your job, youâll lose your insurance benefits too. This is why itâs always important to consider having your own life insurance coverage independent of your employer. So many people are switching jobs every 2 to 3 years so you may not want your life insurance benefits to be tied to your employer anyway.
Term life insurance is pretty affordable and you can get a free quote in just a few minutes from Bestow.
Here are 4 important reasons why everyone over 30 should start thinking about life insurance. Click To Tweet
You Want to Protect Loved Ones From a Financial Burden
You donât have to be married with kids and a house to want to consider life insurance. However, more people in their 30s do focus on settling down and working toward some of these milestones.
If you do have kids, a mortgage, etc. youâll definitely want to consider how your partner would get by if anything did happen to you. Would the kids still be able to go to college? Would your spouse be able to keep the house? These are important questions that life insurance can help you answer.
Even if youâre single and at the height of your career. More people in their 30s are carrying debt like student loans and personal loans. Did you know that some types of student loan debt can not be forgiven even if you died? You probably donât want to pass on any financial burdens to your parents or other loved ones who would have to fit the bill.
Life insurance provides a tax-free payment to your beneficiary which can help cover everything from debt payments, loss of household income, funeral arrangements, and more.
RELATED: How Much Life Insurance Do You Really Need
30 Is Still Young Enough to Lock in Affordable Rates For Whole Life Insurance
Letâs say youâre considering the importance of life insurance. Whole life insurance in particular. Whole life insurance is permanent insurance that builds cash value as you continue to pay your premiums.
Other types of insurance, like variable whole life, even allow you to invest some of the cash value and grow the amount faster. You can borrow from your cash value, use it to pay your life insurance premiums, or even withdraw it while youâre still alive and well.
While whole life insurance is cheaper than term life, costs increase around the board as you get older. If youâre considering whole life insurance, the best option is to get a policy while youâre younger. Thirty years old is not too old to still get a decent rate for your life insurance premiums. Plus, it allows you enough time to build cash value that could be put to use in the future.
Get Insured and Protected From Medical Issues
Yes, life insurance is geared toward providing financial relief for your loved ones. Depending on your policy, you may be able to obtain something called âliving benefitsâ. Living benefits are an insurance rider (which means itâs an added on feature) that can be added to your term or whole life insurance policy.
Living benefits can allow you to use some of your life insurance coverage amount to pay medical expenses for a serious illness or condition. Of course, this will reduce the benefit provided to your beneficiary, but it can still be a helpful feature to help you cover medical bills that could otherwise be left for your loved ones to deal with anyway.
No one likes to think about getting sick or becoming terminally ill, but planning for the best and worst is just a part of adult life. As you get older, your health tends to decline but if youâre still healthy in your 30s, itâs the perfect time to lock in a life insurance policy and consider adding a living benefits rider.
RELATED: Should You Get Disability Insurance? 4 Ways to Decide
Life insurance should be apart of everyoneâs financial plan. Knowing the importance of life insurance can be life-saving information. If youâre over 30 and still donât have coverage. Consider all the reasons to get a term or whole life policy. Consider your current future needs and carefully weigh the pros and cons.
Remember, you can get a free no-obligation quote from BestowÂ in just two minutes.
Why Everyone Over 30 Should Start Thinking About Life Insurance is a post originally published on: Everything Finance – Everything Finance – Its all about Money!
Life insurance seems like a pretty good deal. You pay $30 a month for 20 or 30 years and in the event of your death, your family gets a sizeable cash sum, often in excess of $250,000. Every 12 seconds someone dies in the United States and these deaths occur across all demographics (although the majority are over 70) and from a myriad of causes.
If a life insurance company can afford to pay a $500,000 sum on a policy thatâs collected less than $20,000, how can it afford to stay in business when life is so fragile, death is always a certainty, and theyâre in it for the profit?
Contrary to what you might think, insurance companies donât rely entirely on luck or underhanded tactics to stay in the black. There are actually three ways that an insurance company makes money and ensures those profits remain stable.
Underwriting is the process of taking a calculated financial risk in exchange for a fee. The word was coined as the underwriter, the ârisk-takerâ, would sign their name underneath a detailed outline of all risks they were willing to take.
Underwriting is performed by all life insurance companies and itâs a careful, considered process through which they can balance their profit and loss. There is no guarantee with the underwriting process and itâs not uncommon for them to lose money over the course of a financial year. However, what they lose one year may be offset by what they earn in another year.
How Insurance Companies Profit from Underwriting
Insurance is based on statistical analysis and probability. If youâre a healthy 20-year old with no preexisting medical conditions and no genetic issues, youâre considered to be very low risk.Â
An insurance company may offer you a $500,000 payout on a 30-year term in exchange for a policy that costs less than $1,000 a year. Theyâre only making $30,000 over the term, but they know thereâs a good chance youâll live well beyond your 50th year, which means all of that $30,000 is profit.
In fact, statistically speaking, a 20-year old has a less than 6% chance of dying within 30 years and this applies to the general population. Once you account for medical issues, family health problems, smoking, drug use, dangerous jobs, and a plethora of other high-risk conditions, that figure drops to an infinitesimal sum.
The insurance company knows that if they have 50 healthy 20-year-olds on 30-year $500,000 policies, thereâs a good chance that between 0 and 2 will collect. This means they will collect $1.5 million and payout between $0 and $1 million.Â
The odds of a 20-year-old dying within that term increase if they have abused drugs/alcohol in the past, have a preexisting medical condition or their parents died of genetic disorders before they turned 50. In such cases, the underwriters will calculate the risks and create a policy that allows them to cover their costs.
By the same token, a life insurance company may refuse to provide a 30-year term to a 52-year-old, because according to the statistics, one out of every two will die within that term and they simply couldnât offer realistic premiums.
Of course, these are just rough estimates, but it gives you a general idea of how life insurance companies operate. Itâs also the reason why your premiums increase significantly if you are a smoker (smokers live 10 years less on average) are obese (obesity is considered to be as much of a mortality risk as smoking) or have a problematic medical history.
Canceled and Lapsed Coverage
Your life insurance policy can stop or be canceled at any time. Letâs return to the example of the 20-year-old paying premiums worth $1,000 a year. They may have taken out the life insurance policy because they just got married or they experienced a bout of paranoia after learning about a friend who died young.
But what happens when that relationship ends and that paranoia fades away; what happens if they go from being comfortably employed, to unemployed and desperate? Theyâre not the ones who will benefit from that payout, so they may decide that theyâre just wasting their money, in which case they stop making the payments and the policy lapses. If this happens, the life insurance company gets all of the premiums and none of the liability.
Whole life insurance policies can also be cashed out. They build money through dividends and this entices the owner to give it all up for a big payday. If theyâre struggling financially and realize they have a big balance waiting for them on their life insurance policy, they may be tempted to cash the check, close the account, and walk away with the windfall, thus removing all liability from the insurance company.
Refusing to Pay Out
Life insurance companies can also make money by refusing to pay out and pointing to a discrepancy. This is not part of their business strategy, and they donât actively seek to scam their customers because, quite simply, they donât need to. Thanks to underwriting, cash outs, lapse policies and investing, life insurance is a profitable enterprise without needing to resort to underhanded tactics.
However, they can and will refuse payouts if they determine that the contract was somehow breached. This can happen in any number of ways and for a myriad of reasons:
The Cause of Death Wasnât Covered
Most causes of death are covered by most life insurance policies. However, there are some exceptions, including suicide. Many policies refuse to cover suicide at all, while others refuse to cover it if it occurs within the first 2 years of the policy.
More than 40,000 people take their own lives every year in the United States and itâs a common issue across all demographics. Itâs also on the increase and is now the 10th biggest killer in the United States.Â
As heartless as it might seem for an insurance company to refuse a payout for someone who took their own life, itâs important to remember that their underwriting is based purely on probability, and because suicide is one of the biggest killers in young men, itâs something that has to be considered.
The policy should state clearly which causes of death are covered and which ones are not. Itâs also something you can discuss with the insurance company when you take out your policy.
Important Information was Not Disclosed
This is the most common reason for a payout to be refused. In some cases, the applicant is looking for cheaper premiums and knows that a few seemingly innocent lies will shave tens of dollars off their premiums.Â
The policyholder may also assume that certain information isnât relevant or be too ashamed to disclose it. For instance, if they were cautioned for driving under the influence of drugs or alcohol it may not seem relevant to the underwriting process, but if they die in a road traffic accident it could prevent a payout.
In the majority of cases, however, they simply forget. A life insurance policy is something you fill out in one sitting and something that requires you to list all previous medical conditions, hospital visits, and health complaints. Itâs easy to forget a few things here and there.
There is No Beneficiary
A life insurance policy can only be paid directly to an heir when they are named as a beneficiary. If there is no beneficiary, it will be paid to the policyholderâs estate, from which their heirs can make their claim.
This becomes problematic if the policyholder has a lot of debt, as the debtors will then line up to take their share from the estate. It can also make life difficult for loved ones trying to make a claim on that estate. Itâs always recommended, therefore, to name beneficiaries on the life insurance policy and to back this up by writing a will.
The Contestability Period
The above issues become more prevalent during something known as the contestability period. This begins as soon as the policy goes into effect and it can last for 1 or 2 years, depending on the policyholderâs state of residence.
If the policyholder dies during this period, the life insurance company will seek to contest it by looking at all of the details and ensuring they match. They will check the cause of death against previously filed medical reports and will make sure the correct information was supplied at the time the policy was filed and that there are no discrepancies.
Once this period passes, itâs unlikely there will be any issues, but they can still occur. The insurance company may, for instance, investigate the claim if they believe it was purchased for the sole benefit of the beneficiaries (for example, the policyholder purchases it knowing they were going to commit suicide or were about to die).
Summary: Payouts are Rare
Studies suggest that as few as 2% of all term policies pay out, and the most common reason for non-payment is that the policyholder survives the term. This is a statistic that detractors like to quote and itâs often followed by a claim that life insurance is just institutionalized gambling.Â
To an extent, theyâre right. Youâre essentially gambling against a house that always wins and, like a casino, it always wins because, for every player that wins, 10 others will lose. The difference is that life insurance provides some much-needed peace of mind while youâre alive and ensures your loved ones are covered in the event that anything happens to you.
How do Life Insurance Companies Make Money? is a post from Pocket Your Dollars.
According to the U.S. Bureau of Labor Statistics, 10 million workers are self-employed in the country. Being a self-employed worker can be liberating, but it also means youâre your own HR department, too. One of the biggest challenges youâll face is finding affordable insurance options.
With a traditional employer, you had a limited array of health insurance options, and you mightâve had access to a team that could help you understand the paperwork and process. Now that youâre on your own, youâll also have to navigate this maze on your own.
It wonât be easy, but we can help lessen the burden a bit by helping you learn about your options.
Online Insurance Marketplaces
Lots of options to choose fromCan get personalized help in finding the right plan
Sellers might be biased and offer a plan thatâs not right for you
Affordable Care Act Marketplaces
Might qualify for subsidies to lower costCan find out if youâre eligible for Medicaid/ CHIP/ other low-cost insurance optionsGuaranteed coverage for essentials
Can only enroll at certain times of year or after certain eventsCosts can be high if you donât qualify for subsidies
Short-term Health Insurance
Doesnât cover essentialsDoesnât cover pregnancy Doesnât cover pre-existing conditionsMight not available in your state
Through a Spouse or Domestic Partner
Not available for single peopleMight have to pay more than your spouse/partner for coverage
Freelancers Union or Other Associations
Might be able to get lower rates through a group plan
Might not have as many options available
1. Online Insurance Marketplaces
Insurance marketplaces (also known as âbrokersâ) are for-profit companies that sell Affordable Care Act (ACA) exchange plans and non-ACA plans. It provides you with more information and assistance than going through the ACA exchange on your own. Thereâs no cost to use an online marketplace; instead, it gets a kickback from the insurance companies when it sells you an insurance plan.
That kickback can be up to an average of $20/month depending on where you live, according to the Kaiser Family Foundation. Thatâs not chump change so brokers might present you with biased estimates. When youâre working with a broker, itâs important to ask them whether theyâre presenting you with all of the options available on the Affordable Care Act marketplace, and if not, why not.
PolicyGenius is one of the largest and easiest-to-use online insurance marketplaces. In addition to health insurance, you can also get quotes for life insurance, homeowners insurance, auto insurance, renters insurance, disability insurance, and more.Â
To learn about insurance plans that might be right for you, choose the type of insurance youâre looking for on the homepage. Then, enter your zip code, county, and email address to see the list of plans and carriers available to you.
eHealth offers health insurance plans from over 180 companies. Itâs also heavily focused toward Medicare and can help you figure out your options for this unique health insurance program. To see an immediate list of insurance plan options, select the type of insurance youâre shopping for and enter your zip code.
Get Started With eHealth
Speaking to a live agent can help you better understand which plan is right for you. But if youâre not ready to take that step, HealthMarkets offers a short survey instead. Once youâve completed the survey, it compares your responses to multiple plan coverages and generates a âFitScoreâ for each plan thatâs tailored to you. The FitScore can help you easily see which insurance plan fits your needs the best.Â Â
2. Affordable Care Act Marketplace
The Affordable Care Act is the biggest government initiative in recent years that tries to address how people â including freelancers â get affordable health insurance. The ACA created a central health insurance marketplace thatâs run by either your state government or the federal government, depending on where you live.
Your options on the ACA marketplace are graded according to a set of metal tiers:
2020 average premium1
Insurance company pays…
1This is a nationwide average for the cheapest plan at each tier level.
Itâs important to note two things here: first, the cost varies widely across the country. For example, the cheapest Bronze plan for one person costs an average of $219 in Rhode Island, but $552 in West Virginia.
Second, these numbers might shock you. If youâre a four-person family in West Virginia, for example, paying $2,208 per month on health insurance might seem like the opposite of affordable, and it is.
But one of the best features of the ACA is that depending on your income, you might qualify for subsidies thatâll help bring your actual cost down to an affordable level. Youâre also notified if you qualify for Medicaid, CHIP, or other free or low-cost health insurance options.
To sign up for an ACA plan youâll need to wait until the open enrollment period each November through December for plans that start in the new year. If you have a âqualifying life eventâ (see below), you can also sign up at any time:
If you lose your existing coverage (e.g. if you lost your job)
If you have a change in your household (e.g. getting married)
If you move to a new area
If you have a big income change, become a member of a tribe or become a U.S. citizen, leave AmeriCorps service, or leave jail or prison
3. Short-Term Health Insurance
Short-term health insurance plans are different from ACA plans because theyâre not as tightly regulated. For example, they generally donât cover preventative healthcare like annual doctorâs visits, pregnancy care, or prescription drugs.
They also come with high deductibles and carriers impose dollar limits for payouts. This type of plan is best as a temporary stop-gap measure for protection, if you get really sick or have a major accident while youâre in-between better insurance plans.
In fact, these plans are so consumer-unfriendly that theyâre banned or heavily regulated in many states. Short-term health insurance plans are usually around 20% of the cost of a low-level Bronze plan, according to one Kaiser Family Foundation survey. But remember: if you need to see a doctor, it might cost you a lot more than if you purchased a full health care plan from the ACA marketplace or another source.
4. Through a Spouse or Domestic Partner
Not everyone has this option, but if you do, itâs generally the best way to get insured as a freelancer. Employers can provide health insurance at affordable rates for their employees, and often, their employeeâs family members, too.
You might have to pay an additional fee to be included on your spouse or partnerâs plan. But itâll usually be much cheaper than finding your own plan through a broker or the ACA exchange without a subsidy. If youâre not married but youâre in a partnership you can check with your partnerâs employer to see whatâs required to qualify as a âdomestic partnerâ for insurance purposes.
5. Freelancers Union or Associations
Professional associations can often get similar discounts that employers receive. The Freelancers Union (an unofficial union), for example, offers options for health insurance, vision insurance, and dental insurance for freelancers.
Like so many other insurance-related rates, the actual cost of these plans depends on where you live. The Freelancers Union doesnât charge a membership fee, but other organizations do. If so, youâll need to weigh the cost of a membership fee against any potential savings you might get from buying health insurance through an association.
Finding the Best Health Insurance for You
The biggest factor to consider when shopping for health insurance plans as a freelancer is what your needs are.
For example, if youâre trying to start a family, youâll want to avoid short-term health insurance plans that donât cover pregnancy expenses. If you have a chronic illness and need health care more frequently, choosing a âcheapâ Bronze health insurance plan can actually cost you more over the long run because these plans offer minimal coverage.
Itâs not always easy to know what kind of health services youâll need in the upcoming year. Some events, like a major car accident, canât be planned. But if you focus on the kind of health services you need today, and compare multiple health insurance plans from different carriers, youâll find there are many health insurance options for freelancers.
The post 5 Best Places to Find Insurance for Freelancers appeared first on Good Financial CentsÂ®.
The discounts and cost-sharing offered by health insurance plans are well worth the premium payments. However, premiums can be tricky to work into your budget. Itâs important to find an affordable health insurance plan that offers good coverage.
Whether itâs open enrollmentÂ and youâre trying to find a better plan or you qualify for a special enrollment periodÂ and are making changes to your current health plan, here are three tips for finding an affordable health insurance plan:
Set a budget and research current rates
Check out the health insurance marketplace
Use comparison websites wisely
Set a Budget and Research Current Rates
Calculate how much you spend on health care annually with your current plan. Include monthly premiums and out of pocket expenses. Understanding this will help you know how much youâre currently spending on health care and help you compare costs of new plans.
The next step is to understand the current rates for the number of people youâd have on you plan and the coverage level you want. Again, keep in mind that the cost of health insurance includes premiums, the deductible, and out of pocket expenses. Knowing the rates and cost-sharing trends will help you recognize a good deal on a health insurance plan.
Understanding what youâre currently spending, setting a budget, and looking at current ratesÂ will help you find a plan thatâs a good fit for your health and financial situation.
Check OutÂ the Health Insurance Marketplace
HealthCare.gov is the health insurance marketplace used by most states. However, some states have their own marketplace website. These marketplace websites only list plans that cover the essential health benefits, per the Affordable Care Act. These benefits include prescriptions, maternal care, mental health, hospital care, preventive care, physical therapy, and emergency services.
When these health insurance exchanges were initially rolled out, the federal government offered subsidies on premiums for individuals and families with qualifying incomes. Although these subsidies are still available, the government stopped compensating insurance companiesÂ for them under the Trump administration.
Because HealthCare.gov and state-specific marketplace sites only list qualified plans, they are a great resource for finding comprehensive coverage plans at affordable premium rates.
HealthCare.gov allows users to compare up to three plans side-by-side, check covered prescriptions, and enroll in a plan. Once you select a plan, you have to make a note to yourself of the plan you chose otherwise youâll loose track of it when youâre filling out the enrollment forms. While it does take some time to fill out the required information when enrolling, the process is smooth and convenient.
Use Comparison Websites Wisely
Private health insurance comparison websites are also great tools to use when exploring all of your options. However, itâs important to use them wisely.
Not all of the plans listed on these sites offer coverage for the essential health benefits, which means these sites can list a larger number of health insurance plans. While there is potential to save some money by only purchasing the coverage you need, read the plans carefully to make sure that the health services and prescriptions you need are covered.
These websites are extremely useful for health insurance shoppers because they list plans from multiple health insurance companies. While they offer great value to site users, they also generate leads and sales for health insurance companies or independent insurance agents. In many cases, this is a win-win situation.
However, the order of the listings on some websites is affected by these sales relationships. Look for any disclosures like this on the comparison sites you use. These disclosures are usually located at the bottom of the webpage. If there is a disclosure, keep it in mind as you use browse health plans. This way youâll be better able to find affordable plans that meet your needs.
Be selective of the comparison sites you use and only use sites that show you plan options without requiring contact information. A few comparison sites worth considering are HealthMarkets, HealthCare.com, and GoHealth.
HealthMarketsÂ is a useful health plan comparison website. Users can compare individual and family plans, catastrophic plans, short term plans, Medicare and Medigap plans, and Marketplace plans from more than 200 companies.
HealthMarkets users can also work with licensed agents online or via phone or in-person meeting. The agents can help clients understand their options better and answer questions. This service is offered free to HealthMarkets users.
Another comparison website HealthCare.comÂ focuses its selection of plans on individual and family plans, Marketplace plans, Medicare plans, and Medigap plans. It has over 13,000 health plans listed on its site. If you want to compare Marketplace plans to off-exchange plans, then HealthCare.com is a great resource. HealthCare.com also has licensed insurance agents available to help clients.
GoHealthÂ allows users to view temporary insurance, individual and family plans, and Medicare plans on its website from over 300 companies. Like HealthMarkets and HealthCare.com, GoHealth has licensed insurance advisors available for clients to work with.
GoHealth also offers GoHealth Access plans. These plans are designed to supplement health insurance with prescription, dental, and vision discounts. GoHealth Access members also have a personal health assistant. Some plans include video consultations with a doctor, critical illness insurance, and accident insurance.
Understanding the market rates, setting a reasonable budget, and using helpful websites like HealthCare.gov and other comparison websites will make the search for an affordable health insurance plan simple. On comparison websites, you can view health plans offered by multiple companies, which saves you the hassle of looking a different companies separately. These tools will help you find the plan that best fits your budget and health needs.
About the Author
Alice Stevens loves learning languages and traveling. She currently manages debt and tax relief, life/healthy insurance and car warranty content for BestCompany.com.
The post 3 Tips for Finding an Affordable Health Insurance Plan appeared first on Credit.com.