As featured in The Wall Street Journal, Money Magazine, and more!

If you’re unhappy with your 401(k), rest easy… you’re not alone. In fact, on August 19, over 60,000 employees joined up and filed a class action lawsuit against their employer, Morgan Stanley. Their reason: questionably managed and poorly performing 401(k) plans.

It’s one thing to ask workers to stay late or forget to restock the break room. Messing with their retirement plans, though? That’s a whole different animal.

The filed suit alleges that Morgan Stanley, a company with over $8 billion in 401(k) assets, chose to invest employees’ money in its own funds in order to maximize profits and benefit itself. Using only in-house investment funds would have been a questionable practice on its own. The unfortunate and compounding fact, though, is that these funds have also been grossly underperforming.

In fact, its Morgan Stanley Institutional Small Cap Growth Fund IS Class was 99% less profitable than other small cap growth funds in 2014. It didn’t get much better in 2015, where the fund performed worse than 95% of the others.

So, why would the company continue to toss 401(k) funds into obviously poor choices such as these? Self-promotion and siphoning profits for themselves are two potential reasons. The class action suit last week alleges that these were indeed the motivating factors, but it gets better.

The lawsuit also claims that on top of these 401(k) plans earning less than they could have with 99% of the other options out there, the costs were also exorbitant in comparison. It accuses Morgan Stanley of charging its own employees higher mutual fund fees than it charged outside investors.

These fees are also higher than those that other funds on the market currently carry. For instance, Morgan Stanley was apparently charging a fee of .98%, whereas a similar fund from Vanguard charged a mere .07%. The effects of this percent difference on a retirement account could be astronomical!

Of course, this would not only be shady business practice, but is potentially illegal. The federal Employee Retirement Income Security Act (ERISA) of 1974 places a fiduciary obligation on companies to act in the best interests of the plan participants. Managing funds in a way that primarily benefits the company, instead, is a potential violation.

Seeing how 401(k) plans play such a large role in the retirement savings of today’s working class, this sort of practice would have detrimental effects on the future financial security of each of their employees. Most of us pay into retirement plans and give blind faith that our employers are managing our money with our best interests in mind. Morgan Stanley, it would seem, has let a lot of people down.

It will be interesting to see how this suit plays out in court. It has the potential to be a harsh reminder of companies’ ethical and legal obligations to their workers. The class action suit is seeking damages of $150 million on behalf of its approximate 60,000 proposed participants. Morgan Stanley has not yet responded to requests for comments on the suit.

Have you worked for Morgan Stanley? Leave a comment to let us know your thoughts on their 401(k) plan and the class action lawsuit.

{ 0 comments }

This year has been a rough one for health insurance companies of all sizes. With the recent news of Aetna withdrawing from most of its Obamacare exchanges, many Americans are beginning to worry about their shrinking options, skyrocketing premiums, and where they’ll even find services.

Scarily enough, Aetna is not alone in its decision, and joins two other insurers in withdrawing from the program. What does this mean for Americans and their healthcare, and what does it mean for the marketplace?

What’s Happening?

No matter which side of the political spectrum you favor, healthcare has been a tinder pile of a topic over the last few years. With the implementation of the Affordable Care Act (ACA) – better known as Obamacare – in 2014, the United States became the last remaining developed country to institute universal healthcare. Previously, we were the lone wolf: 32 out of 33 developed nations had already adopted such programs.

Of course, as we have come to understand, “universal healthcare” does not mean free healthcare for many. The United States opted to implement an insurance mandate system, meaning that its citizens are required to either obtain private coverage, qualify for an exemption, obtain State Health coverage, or pay a tax (penalty) for not carrying health insurance. Depending on your income level and the marketplace options available to your area, this could potentially turn into an expensive venture for your family.

One of the selling points of the more comprehensive version of Obamacare that passed, at least in the eyes of the insurance companies, was that the mandate would force more healthy Americans to buy policies. The idea being that the average American would want (and need) to avoid paying the high penalty taxes for their family. This is especially true since the tax is increasing every single year.

In turn, this padding of healthy customers’ premiums (and their policies that would, ideally, go largely unused) would help the insurance companies offset costs… costs involved with providing care for the older and sickly customers that flocked to them for new coverage.

Unfortunately for the insurance giants, this doesn’t seem to be happening.

Why Isn’t It Working?

For many Americans, the reality is disturbingly ironic: paying the government fine for forgoing coverage is actually cheaper than, well, paying for coverage. The only caveat to their practice (and it’s a scary one)? It’s imperative that they stay healthy.

This is, of course, the exact opposite of the intent behind the penalty, and has brought the insurance companies’ fears to the table. They are now losing money in a system that should have guaranteed success. And many of them are pulling out in response.

Their scales are being tipped by the influx of “sickness care.” With decreased memberships from healthy families, insurance companies like Aetna, UnitedHealthcare, and Humana are now scrambling to find balance.

In fact, Aetna lost $430 million just in the first half of 2016 alone. This prompted them to announce last week that they will drop almost 70 percent of the counties in which they have previously offered coverage, beginning in 2017. Whereas they sold policies in 778 counties (within 15 states) this year, they will offer coverage in a mere 242 counties (in only four states) next year.

Of Course, They’re Not Alone…

Aetna is in good company following their pullout. They join giants Humana and UnitedHealthcare Group – the nation’s largest health insurer – who have both already withdrawn from the ACA in some capacity. More are likely to follow, too. In 2014, only 30% of insurers turned a profit in their individual divisions, which dropped to around 25% for 2015.

In April, UnitedHealthcare announced that it will drastically downsize participation for 2017. They are decreasing coverage from 34 states and nearly 800,000 people, to a measly three states. (Seeing as they lost almost $1 billion on Obamacare in 2015 and 2016, the move isn’t too surprising.) Humana has also decided to withdraw from nearly 1,200 counties throughout eight different states.

All three of these companies have cited a financial hemorrhage as their reason for pulling out. Too many young and healthy Americans are choosing the penalty tax over paying premiums. This means that insurers just don’t have enough padding to continue on the same path.

Add to it that many Americans who were previously uninsured – due to preexisting conditions, inability to afford plans, or lack of motivation to navigate coverage – are elderly, sick, or just taking full advantage of having healthcare for the first time in a while. They have flocked to their new in-network providers, requiring care for coughs and cancers alike. This sudden cost has shocked the system, it seems.

Even Blue Cross Blue Shield is thinking about jumping ship. The company has already said that it would consider withdrawing from Obamacare, dependent on future marketplace trends. One of its plans, Highmark, lost more than $773 million in its first two years with the exchange system. Their CEO deemed kind of loss “unsustainable.” And BCBS of Minnesota has already dropped individual plans.

In fact, a Blue Cross Blue Shield Association report studied new Obamacare enrollees – the first investigation of its kind – and the results were alarming. It found that new ACA members have considerably higher rates of serious illnesses like hypertention, HIV, diabetes, and Hepatitis. Most of these are lifelong illnesses, with medical care and costs following them over many decades.

This study also found that Obamacare members’ costs of care were 22% higher than those Americans in employer-based health plans. They had more ER visits, more prescriptions, and more inpatient hospital care.

Regardless of the ‘why’ involved, the fact remains:  the insurance giants just can’t plug holes fast enough to keep their fiscal ship from sinking.

How Does This Affect Americans?

You might be saying, “Well, I already have coverage. How does this affect me?” Maybe you’re not yet covered, but plan to just go with whichever remaining company offers service in your area. Okay, great.

Except, you’ll likely suffer the aftershocks, too.

For the counties retaining coverage from these three companies, your premiums are likely to increase in response. Sure, Humana, UnitedHealthcare, and Aetna have chosen to pull out of their least lucrative counties. That doesn’t mean that they aren’t still losing more money than they’d like on the bottom line.

If your coverage has been eliminated by one of these withdrawals, you’re guaranteed to feel the effects. You will, of course, need to find a new plan. This may or may not cost more than you have already been paying. You might be forced to change doctors, hospitals, and treatment facilities, too. Your new plan may not cover the providers with whom you’ve already established care.

For counties losing insurers, you’ve just been robbed of one more bargaining chip. Less providers in your area means less competition, and less incentive to decrease premiums. If you’re one of the unlucky areas that will be reduced to just one or two providers, you’ll likely see a noticeable jump in premiums. In fact, more than 650 counties across the country will experience this. Or, like Pinal County in Arizona, you could be left with NO providers. A state-mandated monopoly is rarely beneficial for the consumer: “Take it or leave it.”

In fact, many insurers were already planning to raise their rates by double-digit percentages in 2017. This is sure to put a pinch on everyone’s wallet. Even Anthem Inc., the second largest insurer in the country (behind UnitedHealthcare, of course), announced that it plans to implement “substantial premium increases” next year in order to offset its ACA losses – as high as 30 percent!

What the Future Holds

It will be interesting to see how Obamacare plays out over the coming years. A lot will depend on whether the government can work with the insurers to fix a system that is limping along. An influx of sick enrollees combined with less-than-desirable participation from healthy families has created a sinkhole for insurance companies.

The only companies happily in the black are those with very strict guidelines, higher premiums, and limited care provisions. The rest are bleeding out, it would seem. If something isn’t done quickly to help the system, it is sure to crack under the pressure.

Premiums will surely rise in 2017, and possibly beyond, as will the penalty tax. Whether or not healthy Americans will choose to enroll and balance the system, or opt out of its chaotic current state, is yet to be determined.

As for me, I’m going to go ahead and book some checkups now. Who knows what 2017 will bring…

{ 0 comments }

A few weeks ago, Rick Seany of FareCompare published an article about the upcoming Cheap Flight Day. This certainly piqued my interest. While I have heard of National PB&J Day (April 2) and Men Make Dinner Day (the 1st Thursday in November — mark your calendars, ladies), I hadn’t ever heard of an airfare discount day. This warranted another look.

Here’s what I found: if you’re contemplating air travel between late August and mid-November, this is the time to start looking. While August 23 has been dubbed Cheap Flight Day, it’s actually more of a marker for the week or two at the end of summer when airlines traditionally drop their prices.

Tell Me More

With most summer trips in the rearview and families preparing for back-to-school, flight demand decreases near Labor Day weekend. In response, the airlines adjust fares downward. While this cost-shift often falls on August 23 (as it will for United this year), it’s not the Black Friday of airfare… merely a threshold for when prices begin to fall. Think of it as the first day in late summer that you should plan to travel, if you want to save a bunch.

For example, say you’re headed from Washington, DC to Orlando for a last-minute beach hoorah before autumn. On Southwest, prices begin their decrease on August 22 and drop further on the 26th. It’s not August 23, but close enough.

Southwest

However, wait a few more days until after Labor Day weekend, and you’ll save hundreds of dollars more!

Southwest Sept

How Else to Save on Flights

Not looking to fly just yet? No worries — there are tons of ways to save on air travel year-round. Here are a few of our favorites:

Use Miles

The easiest way to earn free miles is to snag a travel rewards credit card. Many of these cards, such as the Barclaycard Arrival Plus™ World Elite MasterCard®, earn you 2x miles on all purchases you make.

With this card, you’ll also get 40k bonus miles for spending $3,000 in your first 90 days with the card, which is enough for a $400 credit towards travel. Since you can take your miles in the form of a statement credit, you’re not limited by a booking portal or specific airline.

Spend your money as usual and rack up the cash back rewards. Choose when and how you want to fly, then redeem your earned points and save.

Don’t Pay for Baggage

Unless you’ve flown exclusively on Southwest, you’ve probably paid a baggage fee once or twice. You know that if you don’t travel light, your fees can end up costing as much as your fare!

Some companies, like Southwest, include up to two bags free. This can save you a pretty penny, considering most airlines charge $25-35 per bag!

Alternately, you could pick an airlines credit card like the Citi® Platinum Select / AAdvantage® Mastercard®. This is a great choice for people who fly American Airlines. Not only will you earn 30k bonus miles after spending $1,000 in the first 3 months, but you’ll also enjoy your first checked bag free. Oh, and it’s not just for you —  this free bag offer extends to up to four travel companions, so your whole family saves.

If you end up finding a Cheap Flight Day deal on a different airline that you can’t pass up, you can still save on baggage fees. All you have to do is travel lighter. Most airlines allow one carry-on bag and one personal item (such as a briefcase, purse, or backpack) on board, free of charge. If you can fit everything for your last-minute getaway in a smaller suitcase, you will save a nice chunk of change… and avoid waiting at baggage claim after you arrive.

Book Early

Cheap Flight Day may be a great option if you’re looking for a quick getaway, but this isn’t the best practice to use throughout the year. Previously believed to be a strict “54 days out,” the magical number for booking in advance isn’t so cut and dry. Most experts agree, though: booking last-minute isn’t the deal it once was.

According to CheapAir.com, the prime booking window actually lies somewhere between 21-120 days out from the flight. Quite the range, yes, but it varies according to time of year and even airline.

cheapair

Your best bet is to use a flexible date search, if your plans allow, and try to fly mid-week. Friday and Saturday flights are traditionally more pricey than Tuesday and Wednesday options. Try to book somewhere between 2-3 months before your flight to save the most.

Sign Up for Emails

Want to be the first to know about sales throughout the year? Sign up for your favorite airlines’ email newsletters. Often, these will be for travel 2-4 months out, so you have time to plan that trip to see your parents and even coordinate time off from work.

In Summary

Airlines may not view August 23 as a strict fare-slashing deadline, but this day historically marks the beginning of discount travel. Cheap Flight Day should still be marked in your calendar, if you have the interest and flexibility in late summer or  impromptu travel.

While you can expect to save at least 10-20% on airfare by booking travel on (or near) August 23, you can see above that I found price cuts of up to 66%. Be sure to check out your airline’s “flexible travel date” calendar when searching flights, to ensure that you get the best deal. Sites like Fly.com and FareCompare are also good aggregate resources, if you’re not picky about the airline.

Don’t forget to use your travel rewards credit cards and/or frequent flyer programs, to save even more on fares and baggage. Happy travels!

Have you taken advantage of late August-October flight deals? Have these fare cuts prompted you to plan a trip you might not have otherwise taken?

{ 0 comments }

It’s late May, and a new crop of students is preparing to go on to college. One of my less pleasant memories was the agonizing process of securing financing so I could pursue my degree. Though it’s many years later, I’d like to share what I learned that can make paying student loans more manageable and less onerous.

Of course, it was much easier when I went to college than it is now. Even adjusted for inflation, college education was much less expensive then and student loans were a better deal.

The interest rates were actually fairly similar to today’s; but I attended college back when mortgage rates were around 15 percent, so low, single-digit student loan rates represented much more of a discount.

Because student loan debt was less burdensome when I graduated, despite the fact that I took on the debt in a desperate and disorganized way, I was able to pay my loans off early, within five years. These days, the financial stakes are higher, and it takes more planning to make student loan debt manageable.

How to reduce student loan debt

Here are some things students and their parents should consider to reduce student loan debt in the first place:

  1. Consider value for your education dollar. Education is a wildly inefficient market. By that, I don’t mean that the schools themselves are disorganized. What I mean is that if you think of education as a consumer market with heavy competition for student dollars, it is amazing how wide the cost differences are. Even if you excuse the cost of elite colleges as the price you have to pay for a premium product, looking at more run-of-the-mill colleges one finds huge cost differences — sometimes representing tens of thousands of dollars a year — which do not seem generally to correlate with differences in quality. The nice thing about inefficient markets is that they make bargains available, but only to discerning consumers who take the time to shop around. Cheap should not be your primary criterion for choosing a school, but value for money should be high up on your list.
  2. Understand the qualifications needed for what you plan to do. One reason it is not out of place to think of education as a consumer market is that there is so much hard selling of degree programs these days. Often times, colleges heavily advertise degree programs that relate to a trendy career choice, but those degrees do not represent the full qualifications necessary to compete in that field. Don’t just choose a degree program because it sounds like something you’d like to study; think ahead to what you would like to do for a living, and then work backward to identify the degrees necessary to get hired in that field.
  3. Know what the market is for your planned career. Speaking of thinking ahead, research what demand there is for your planned career. The Bureau of Labor Statistics is a good source for information on hiring trends by occupation. I’m not saying you can’t choose more of a niche field because it is something you love, but you should know what your odds of making a living in that field are before you spend time and money preparing for it.
  4. Explore all your financial aid options. The federal government has a program called Free Application for Federal Student Aid, or FAFSA. This is a good clearing house for information and application materials for several types of student financial aid, so you can find the resources you need and choose the best ones for your situation.
  5. Prioritize your financial aid types. If there are grants or scholarships available — sources of aid that don’t require repayment — make the most of those before you borrow money. Then, choose federally-backed student loans first, because these offer good loan terms and some repayment flexibility. Private student loans should be your last priority.
  6. Use savings resources wisely. If you have saved money for college, put it in vehicles that will make it available when you need it and yet earn you the most interest in the meantime. You’ll find that if you are able to plan six months or more ahead, you can find CD rates that will do better for you than what you could earn in a savings account.
  7. Check how your repayment schedules add up before you borrow. Every loan you sign up for will probably provide a repayment schedule, but the reality check is to see how those repayment schedules add up as you take on multiple loans. Graduating students are often shocked by the burden they are facing, but there is no excuse for taking on obligations you won’t be able to meet.
  8. This time is too expensive to waste. Don’t be intimidated by the financial responsibility facing you, but respect it and use it for motivation. Blowing off classes and prolonging your time in school is an awfully expensive luxury. Getting your degree on time can save you a great deal of money.
  9. Remember the bigger picture cost of failing to pay. There is a lot of resentment among recent graduates about the financial burden they’ve taken on with student loans, and this is often expressed as talk about not paying back those loans — either by taking advantage of government forgiveness programs, lobbying for student loan relief, or simply defaulting. Just remember that every student who fails to pay back a loan makes it harder for subsequent students to get those loans. If you approach taking on and paying back loans responsibly, you can make the system work for you and future generations of students.

When you think about it, financing college represents a sort of hand-off of responsibility from the parent’s generation to the student’s. The parent often helps pay for college and guides the student in finding and organizing financing. In the long run though, it is the student left making the student loan payments for years to come — often until he or she has kids and has to start thinking for their college education.

That passing down of financial responsibilities between generations makes this an ideal time to work together to find and plan educational financing, so the older generation can share what they’ve learned and the younger generation can step up and make informed decisions about the process rather than just going along for the ride. Given the nature of the challenge involved, both an older person’s knowledge and a younger person’s eye to the future can bring valuable perspective to the process.

{ 2 comments }

How Much to Save for Retirement in Your 30s, 40s and 50s

by Satta Sarmah Hightower

Saving for retirement is a long game, but the idea of preparing for something decades away is counterintuitive for many of us. However, consistent saving is crucial for retirement planning. Here’s expert advice for how to prepare in your 30s, 40s and 50s. Your 30s Saving for retirement really should begin in earnest during your […]

1 comment Read the full article →

Travel reward credit cards — more vacation for your money

by Aaron Pinkston

If travel is in your plans, you may want to know about this offer from American Express. It’s the Starwood Preferred Guest Credit Card, and it offers 25,000 bonus points when you make $3,000 in purchases in the first three months after opening your account. You can redeem those points for free nights when it […]

2 comments Read the full article →

2015 Federal Income Tax Brackets and Marginal Rates

by
Taxes

Tax Day 2016 for IRS Tax Year 2015, also known as your return filing deadline, is April 18. If you haven’t yet filed, here are the IRS tax rates for your 2015 earnings with background and commentary. These change from year to year to protect against something the Tax Foundation calls “bracket creep” or when […]

0 comments Read the full article →

The Best Cash Back Credit Cards of 2016

by Luke Landes

Cash back credit cards can help consumers practice responsible spending while earning a little extra for their efforts when used properly. The days of earning 5 percent cash back for all credit card purchases may be just a memory, but the smart use of credit cards can still be profitable for diligent consumers. You may […]

172 comments Read the full article →

Best Time to Buy a House

by Richard Barrington

In chemistry, a catalyst is something that triggers a reaction — but the nature of the reaction itself depends on having the right elements in place to respond to the catalyst. What brought to mind that tattered remnant of high school chemistry was thinking back on buying my first house. I’ll explain how I got […]

2 comments Read the full article →

Why Lending Rates Can’t Stay Low Forever

by Richard Barrington

The Federal Reserve sure gets a lot of media attention. And yes, the discussion of when and if the Fed is going to raise interest rates can get a little tedious, but it still probably deserves some of your attention because interest rates are woven so deeply into the fabric of household finances. The Fed […]

2 comments Read the full article →
Page 1 of 31312345···50100150···Last »