MONEY Travel

3 Top Retirement Trips That Won’t Break Your Budget

Bartolome Island, The Galapagos.
Bartolome Island, The Galapagos. Ray Hems—Getty Images

That retirement dream trip may carry a harsh real-world price tag. Here's how save on costs and still travel comfortably.

Where is retirement going to take you? If you’re like most people, you’re dreaming of grand European tours, African safaris, maybe even Antarctica.

But even if you think you’ve budgeted generously for trips, you might get a harsh dose of reality when you see the actual price tag. A couple that puts aside $10,000 a year for travel may only be able to pull off one major trip per year, with maybe some left over for smaller jaunts.

What Patrick O’Brien, 71, and his wife Bobbie, 68, found out is that you can’t get too far on that. So what the O’Briens have done is a combination of lowering their expectations and raising their budget. They nixed Australia from their list, but over the years have done about 10 group tours, including two weeks in Alaska this year.

Here’s what three of the most popular trips for retirees will cost you:

GRAND EUROPEAN TOUR

How popular is the big European trip for retirees? Consider this: Viking River Cruises, one of the largest riverboat cruise operators, will carry more than 250,000 passengers in 2014 with a median age of 55, and 75% of them will do one of their European riverboat tours. The majority of those will sail from Amsterdam to Budapest, or some portion thereof.

Cost: A mid-tier balcony stateroom for an eight-day Rhine cruise in the spring will run about $8,000 for a couple, not including airfare, which can cost $600 a ticket from New York. Excursions and food are included, but not tips.

Budget tip: Off-season cruises are always cheaper, but on this route, Viking marketing executive Richard Marnell says the late-fall Christmas market specials are a big draw. “It has a feel and a vibe – they are an artisans’ heaven,” Marnell says.

GREAT WALL IN CHINA

Thelma Tiambeng-Bright’s dream retirement trip was to go to China, a feat she accomplished last year on a tour with YMT Vacations. The 70-year-old retired teacher, who lives in Duncanville, Texas, flew to California to join the group, which then flew to Beijing. From there, she saw the Terracotta Army, cruised the Yangtze River, saw the Great Wall and then Shanghai.

Cost: Tiambent-Bright’s 12-day trip cost about $4,000, including airfare. The current discount rate for a couple is $2,400, with $1,500 for airfare from a destination like Dallas.

Budget Tip: Travel with a buddy or significant other, if you can. Tiambent-Bright says she pays $600 to $800 extra on any trip she goes solo.

GALAPAGOS ISLANDS

For Patrick and Bobbie O’Brien, their dream retirement trip was to see the extraordinary wildlife of the Galapagos Islands, off Ecuador. They took an 11-day journey with Road Scholar, which was previously known as Elderhostel, a popular nonprofit group that plans educational trips for seniors.

One important feature for their budget was that the trip was all-inclusive. “We want to know how much money we will spend, and the nicest part is that there are no extra costs—you don’t have to worry about tipping or side trips,” says Bobbie O’Brien.

Cost: $8,000 for a couple, not including airfare to Quito, which will add $1,700.

Budget tip: When you want to go on the big trip, set it and forget it, suggests Peg Walter, a 70-year-old retiree from New York. “I cringe when I see the amount, because you pay for the whole thing in one lump sum,” Walter says. But then by the time she goes on the trip, she’s able to just enjoy herself because there are no extras involved on most of her tours.

“I call them ‘SKI’ trips —Spend the Kids’ Inheritance,” Walter jokes. “We’re not rich by any means, but we say, let’s try to use wisely what we have so we have memories.”

MONEY 401(k)s

5 Ways to Get Help With Your 401(k)

Most 401(k) plans now offer financial advice, often for free. Workers who take advantage of these programs tend to earn higher returns.

UPDATED: OCT. 7

When Chris Costello wanted to test his new online 401(k) advice service called blooom, he asked his sister if she would let him peek under the hood of her account.

What Costello found was typical of workers who do not pay much attention to their accounts—it was allocated badly, leaving her behind on her retirement goals.

In his sister’s case, she had put her funds in a money market account when the recession hit in 2008 and never moved them back into the market.

“It’s been like four or five years of recovery, and she had made like $10,” says Costello, who is co-founder and chief executive of blooom.

Overall, workers have more than $4.3 trillion invested in 401(k) plans, according to the Investment Company Institute. Yet many of the 52 million workers who participate in 401(k) are not good at making their own investment choices, experts say.

Studies show that workers who get investment advice from any source do better than those who receive no advice.

The difference can be more than 3% a year on returns or up to 80% over 25 years, according to a recent study by benefits consultant Aon Hewitt and 401(k) advice service Financial Engines.

“Left to their own devices, people either do nothing at all or pick poorly,” says Christopher Jones, chief investment officer at Financial Engines, the largest provider in the advice sector as ranked by assets under management.

So where can employees turn for guidance?

1. Start with your human resources department

You might already have access to advice, says Grant Easterbrook, an analyst who tracks online financial services for New York-based consulting firm Corporate Insight. He says even his own colleagues do not know they have access to free financial advice as an add-on benefit.

If you work at a big company, you might be one of the 600 clients of Financial Engines. Their free services include allocation advice and performance data. Other companies may employ consultants to give advice during open-enrollment periods or give access to calculators and other advice through the website of the 401(k) provider.

Employees at smaller companies might have to venture further to get help. “Three out of four participants don’t have access to an employer-based advisory tool,” says John Eaton, general manager of 401K GPS. “But there are a lot of DIY solutions out there.”

2. Get free advice on the Web

The Web offers a lot more these days than standard retirement calculators. You can obtain detailed advice on allocating funds in your specific retirement plan from several providers.

At FutureAdvisor and Kivalia, to name two, all you have to do is type in the name of your company and the system will generate a sample portfolio. You will then have to take that allocation advice and implement it on your own.

3. Pick managed funds or target-date funds

If you do not want to get too involved in the process—even to just pick a simple selection of index funds—your company will typically offer some kind of managed fund or target-date fund, a diversified fund linked to a future retirement date that gradually gets more conservative as you age, in their mix of choices.

When you allocate your money into these types of funds, you are buying the management expertise that comes with them, timed for a retirement date in the future. Sometimes that comes with stiff fees, so be sure to check the fine print, says Easterbrook.

“Absent engagement, it’s a reasonable approach to take,” adds Shane Bartling, a senior retirement consultant for benefit provider Towers Watson & Co.

4. Pay to have somebody manage it for you

Financial Engines has 800,000 subscribers who pay a percentage of their assets under management to monitor their 401(k) accounts and make changes accordingly. Others are GuidedChoice, which offers its services through providers such as ADP, Schwab, and Morningstar, which reaches 99,000 different plans.

Start-ups are emerging as well, either charging a flat fee such as $10 a month or a fee based on how much money you have.

401K GPS, which launched in 2011, operates primarily through investment advisers and small employers. There is also blooom, MyPlanIQ, Co-Piloted and Smart401k.

5. Do not opt out of auto-enrollment

The majority of people will still do nothing, but that may be a savvy option. Financial Engine’s Jones says some companies are making workers re-enroll in 401(k) plans and defaulting them into managed accounts to get them to diversify.

“When we do that, about 60% of population will stay in these programs,” says Jones. About 15% of active investors will opt out because they are already getting advice.

UPDATE: In the auto-enrollment section, the default allocation was corrected.

MONEY Health Care

The Real Reason You’re Spending More on Health Care

Getty Images
Getty Images

A new survey finds that health insurance premiums are rising at a modest rate. But workers are facing far higher out-of-pocket costs.

U.S. health insurance premiums are going up only 3% this year, to an average of $16,834 for a family. Workers will pay about 20% of that cost, or $4,823, according to a study released today.

The Kaiser Family Foundation’s 2014 Employer Health Benefits report says that rate increases are slowing from recession highs that ran far above inflation rates. In the past 10 years, healthcare premiums rose a cumulative total of 69%.

However, the big leap in deductibles offsets the good news for consumers.

“If you told the average working person that healthcare costs were at record-low increases, they’d look at you like you were a little bit crazy,” says Kaiser chief executive officer Drew Altman. “Out-of-pocket costs are way up, while their wages are relatively flat.”

While insurers and employers kept premiums in check over the past few years, deductibles are up 47% since 2009. The average deductible now stands at $1,217—at least $1,000 for 41% of workers and $2,000 or more for 18%.

The shift to high deductibles is even starker at companies with fewer than 200 employees. Some 61% of these workers have deductibles of at least $1,000.

“This has a big impact on working people,” says Altman. “It can be a real disincentive to get care.”

Kaiser surveyed 2,052 employers from January through May.

During open enrollment season, when employees choose their healthcare plans for the following calendar year, most do not pay close attention to their choices. A recent study by insurer Aflac shows that 41% of workers spent less than 15 minutes researching their benefits in 2013, and 90% keep the same benefits year after year.

Some companies only offer limited choices or even just one option. Even so, employees need to make other decisions during open enrollment and need the information supplied at that time to make crucial budgeting plans, says Kathryn Paez, principal researcher for the American Institutes for Research.

Among her suggestions:

  • Compare the summary of benefits and coverage for each available plan.
  • Come up with a rough estimate of how many doctor visits you typically have in a year and what medication costs will be.
  • If you foresee any major costs, like for the birth of a child or root canal surgery, consider contributing to a flexible spending account or health savings account for this purpose. For 2015, workers can put up to $2,500 in a flexible spending account and $3,350 in a health savings account for an individual and $6,550 for a family.

 

MONEY Benefits

The Best Company Benefit That You’re Ignoring

Roll of medical gauze unrolling
Gregor Schuster—Getty Images

New rules let you carry over unused funds in your healthcare flexible spending account, and more employers are adding that option. So that's one less excuse for why you're not signing up for this valuable perk at work.

The U.S. Treasury Department changed a rule last October to allow employees to roll over $500 of unspent flexible spending account money, ending years of a use-it-or-lose it policy, but most workers have yet to reap its benefits.

Only 8% of U.S. companies adopted the FSA program this year, according to data from Alegeus Technologies, the largest provider of benefit administration services.

But that figure could jump to as much as 50% in 2015, predicts Alegeus executive chairman Bob Natt.

FSAs allow workers to set aside pretax money for healthcare expenses.

Employees will likely find out if their company is taking part in the rollover program when they get their open enrollment benefit information this fall.

Those offered the new option will be able to place up to $2,500, pretax, in their FSAs, and roll over as much as $500 of unspent money at the end of the year. Those who continue in traditional FSA plans will have to use all their funds by year-end, or when a grace period stipulated by their companies ends.

But the program’s participation rate is meager. About 33 million Americans contribute to an FSA each year. That number includes only a quarter of the workers eligible for it at large corporations, according to benefit consultant Mercer.

That enrollment could be boosted by the new rollover benefit, Alegeus’ Natt says, allowing both employees and employers to benefit from not paying tax on those contributions.

Indeed, there’s already some evidence of the new rule’s pulling power.

PrimePay, a third-party benefit administrator, which heavily promoted the rollover option to clients last year, saw a 30% adoption rate. The companies that participated saw a 17% increase in participants and contribution dollars.

“I was a little disappointed at first,” says Steve Jackson, PrimePay’s senior vice president for strategic development and channel sales. “But then as I saw what Alegeus was finding nationwide, it seemed better.”

FSAs can still be a hard sell to employees.

Rod Leveque, 39, who works in communications in Claremont, Calif., contributed to his FSA for the first time last year, after four years at a company that offered the option. Leveque says his decision was spurred by an impending LASIK eye surgery, for which he expected expenses.

Next year? “I doubt I will continue to participate,” he says. “I don’t think the $500 rollover would sway me, either,” he adds, because his typical medical expenses do not make it worthwhile.

If your company does adopt a rollover model, Natt’s advice is to put at least $500 in, because you are at no risk of losing it. If you leave the company and still have a balance on the books, however, you’ll need to spend that balance down.

Related: How to Pick a Health Plan That’s Right for You

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

MONEY Health Care

What It Really Means When Your Doctor Says He Doesn’t Take Insurance

A denial may not be as straightforward as it seems. Here's what your doctor's policy could be—and what that could mean for your medical bills.

Some doctors really mean it when they say they do not take health insurance. For others, it is more of a nuanced statement.

Consumers trying to decipher the difference have to ask a lot of questions to figure out how to manage their bills.

Here are the three key scenarios facing consumers:

1. “I do not take your insurance, but I will work with you on the price.”

A growing number of doctors simply are not taking contracts with insurance companies, although the concentration varies by region and by specialty. That leaves patients to pay the market rate the doctor charges, and then submit a receipt to get reimbursement for out-of-network coverage, if they have it.

In some cases, the pickings can be slim for in-network docs. For example, 45% of psychiatrists do not participate in insurance networks, according to JAMA Psychiatry.

“The burden of getting the forms right and getting all the paperwork is placed on the physician,” says Dinah Miller, a psychiatrist who practices in Baltimore and co-authors a blog called Shrink Rap. “If you’re seeing eight or nine patients a day, and several bounce, it’s a lot of uncompensated time.”

Primary care physicians are opting out, too. Some are moving to a concierge model, in which patients pay a subscription fee like $150 a month to see their doctor.

Membership in the Association of American Physicians and Surgeons, a conservative-libertarian group of private-pay doctors, increases by about 10% a year, says Jane Orient, executive director of the organization, which has 5,000 members.

Many doctors who say they don’t take insurance will make deals with patients on an individual basis. One key negotiating tip is to know what your in-network rate would be, typically a discount of about 40%, suggests Joe Mondy, a spokesman for insurer Cigna.

You can get this information through your provider’s online tools or by calling the customer service line. But Mondy says to be aware that the private provider is not bound to accept that price.

2. “I will submit the receipt for you, see what I get from the insurance company and work with you on the difference.”

This process is typically referred to as balance billing. It is largely frowned upon for in-network charges, and even restricted in some states. But it still goes on in the private-pay world, and often results in a confusing morass of paperwork.

Even insurance executives find themselves negotiating the fray. Chris Reidl, director of product for national accounts at insurer Aetna, paid an up-front fee to one doctor and then submitted the bill to the insurance company. When the insurance company reimbursed the doctor for the visit, the office refunded the fee she had paid.

Consumers need to be on top of this process and pour over their benefits statements to track the various payments. They also need to keep after their doctors’ offices to get their money back.

3. “I will try to negotiate a better rate with your insurance company.”

Some providers have back-channel communications with insurance companies, trying to get a better reimbursement so their patients end up paying less out of pocket.

Amy Gordon, a lawyer focusing on benefits issues at McDermott, Will & Emery in Chicago, facilitates some of these discussions, trying to get everyone on the same page.

Gordon gives the example of a chiropractor who has a number of patients on one employer’s plan. The going rate for a visit is $200, and the out-of-network reimbursement offered is $50. The provider has to choose whether to charge the patients the remainder or discount it.

“Being out $150 for one person is bad, but being out that much for 10 people is worse,” she says. So the provider tries to get more from the insurance company, and the insurance company tries to get the provider to join its network. The insurer and the doctor may end up settling on an $80 reimbursement, and the patients only have to pay the equivalent of a $20 co-pay.

“A lot of this can be avoided with planning, and finding if there is an acceptable in-network provider,” Gordon says. “If you still want to go out of network, you can ask the insurance company to give you an estimate of what they would pay, and then you can at least make a more informed decision.”

MONEY Kids and Money

Would You Spend $60 for Your Kid’s Lunch Box?

Laptop Lunches Bento Set with Sandwich and Yogurt.
PB& J in a Spiderman lunch box, or a Laptop Lunches bento set with carrots and yogurt? Laptop Lunches

In search of toxin-free, reusable, leftover-friendly lunch gear for their children, some parents are willing to pay a premium.

When it comes to kids’ lunches, we’ve come a long way from PB&J, an apple, and a cookie in a brown paper bag.

Beau Coffron, of Fremont, Calif., packs his daughter’s school lunches in stainless steel containers that cost at least $20 a pop. He apportions all of her food into little compartments, making cartoon characters like Charlie Brown and animal shapes such as tigers and llamas out of the ingredients. Her sports water bottles cost about $10, and the sack to carry it all came with the lunch kits but would retail separately for about $25.

Everything is toxin-free and reusable, naturally.

What started as simply a creative way to pack lunches has become a movement in the U.S. to reduce waste from individual packaging, save money by buying in bulk, make use of leftovers, and have toxin-free food containers—and share it all on social media.

Coffron, who posts pictures of these lunches on his blog, is part of this wave of moms and dads who are willing to pay much more than the cost of a box of plastic baggies at the dollar store for these benefits.

Parents who are investing in fancy lunch gear say it’s worth the upfront costs because it lasts longer than disposable items. The annual savings from reusable items amount to an average of $216 a year, according to a study by U-Konserve, whose lunch kit runs $39.95.

While popular in Japan, Bento-style lunch gear, where a variety of food is packed in small containers or compartments in a specialized, lidded tray, is still a very small portion of $1.4 billion food storage industry, according to research firm Euromonitor International. However, the small companies that sell these products report phenomenal U.S. growth during the last several years as the trend has exploded.

Laptop Lunches, one of the oldest and biggest of these companies, launched in 2002 and now sells more than 500,000 units a year, according to the company. On the smaller end of the spectrum is PlanetBox, which sells under 100,000 units a year. Launched five years ago, PlanetBox says sales are up 150% the last two years.

Products vary from all-in-one solutions like PlanetBox, which has a $59.99 Bento lunch kit with a bag and stainless steel lunch tray, to multi-piece solutions like Laptop Lunches’ $32.99 kit. A simple Goodbyn tray with three compartments runs $8.99.

That’s a lot of cash for something that is likely to end up lost within the first week of school, which is why more manufacturers are offering customization. For example, PlanetBoxes offers magnets to put on cases and Goodbyns come with stickers so that the items are easily recognizable in the lost-and-found bin. The heft of these products makes children realize they need to take care of them, too.

Mix and Match

Investing in one expensive lunch kit might not be enough, which is why there’s some mixing and matching that goes on, parents say.

Venia Conte, based in Las Vegas, has two PlanetBox lunch kits, in case one gets misplaced or is dirty, plus a couple of LunchBots lunch kits, which run $20 for the stainless steel containers. She also uses stainless steel food thermoses, which cost around $25 each, plus $1.50 re-usable napkins from Etsy.com and various water bottles.

“When you look at their shoes, which they grow out of in six months, $50 for a lunch box doesn’t seem so bad,” says Conte, who blogs about her lunches to keep herself engaged for 180 days a year.

While the bento lunch fad has been ongoing in Japan for years, most of the companies selling these products in the U.S. emerged after the recession in 2008.

“When I started the business, parents were like: $25 for a lunch box, that’s like way too expensive. But parents are factoring that equation differently,” says Sandra Harris, founder of ECOlunchbox, whose three-compartment stainless steel kid’s tray runs $12. “Now, BPA-free is a household word,” she says, referring to the Bisphenol, a chemical that is found in polycarbonate plastics.

For Tammy Pelstring, who started Laptop Lunches, the biggest surprise has been the community that has sprung up around these lunch kits, fueled by social media. Her company started before Pinterest and Instagram, so the first thing she noticed was people posting photos on Flickr of lunches packed in her lunch boxes—thousands upon thousands of them.

“We completely hit on something,” Pelstring says. “There’s this joy that people get when you create a beautiful lunch. It feels really good.”

MONEY Estate Planning

Want Less Stress? Get Your Estate Plan In Order

Preparing the right paperwork will help ensure that your wishes are followed and may save your heirs a bundle of money.

After helping a girlfriend through the messy, tangled finances left in the wake of a parent’s death, John Kerecz had a message for his own mom and dad: Get your paperwork in order.

A few years later, Kerecz’s father passed away unexpectedly. The 52-year-old environmental engineer from Harrisburg, Pennsylvania went to the house and looked where his father and mother used to keep their important documents, but nothing was there. It was pure luck that he went to the computer to look up a phone number and saw a folder on the desktop labeled “DEATH.”

“Sure enough, everything was there in that folder,” Kerecz says.

Armed with a copy of the will, lists of the financial accounts and insurance policies and other paperwork, Kerecz was quickly able to settle his father’s estate and use the funds to take care of his ailing mother, making him extremely grateful.

The difference between having your files organized or not is about more than just stress; leave behind a mess and it can delay inheritors’ access to funds and cost a bundle in legal fees.

“It could be six months or longer if you don’t have the paperwork in order, and … your family is in the dark, not knowing things, jumping through hoops. It’s not a fun existence,” says Howard Krooks, president of the National Academy of Elder Law Attorneys.

Taking care of the necessary documents is a hallmark of good parenting, he adds, rather bluntly: “More than any kind of monetary legacy, if you really love them, you’d do this.”

HOW TO GET IT DONE

Compile a list of the financial information your heirs will need upon your death: wills, trust information, investment accounts, legal contacts, etc. You can keep this information in an electronic file – in one master document or several attachments – to serve as a road map to find all the physical paperwork.

Or, you can do what some of elder law attorney David Cutner’s clients do, and just pull out a cardboard box and start piling up the papers.

You have to do more than just gather the information, though, cautions Cutner, co-founder of the Lamson & Cutner Elder Law firm in New York. You have to tell your loved ones you have done it and tell them where to find it. You can either hand over the file immediately or keep it in a safe place (away from the prying eyes of caregivers and potential scammers).

A safe deposit box, by the way, is not a good place to keep these papers, says Cutner, because it’s too hard to access when needed.

THE WILL

Top of the list is a copy of your will, hopefully the most recent version, plus contact details for the attorney who drew it up and any executor named. Also important are trust documents, if they exist, estate experts say.

While power of attorney and living will documents are crucial should you become incapacitated, they will not be useful after your death, says Krooks—your heirs will then be using a death certificate to obtain access to accounts.

The real power in assembling all these items is that it forces you to go through the process of specifying your wishes. Without them, your family would have to put your estate into probate, which is when the state determines the distribution of your assets. This can take up to a year and eat up about 5% of the estate, says John Sweeney, an executive vice president responsible for Fidelity’s planning and advisory services business.

FINANCIAL ACCOUNTS

Your heirs will need to know all of your account information, down to your utility bills and your tax returns. You can either create a list or include copies of statements in the file, or just directions to where to find them. Also useful is a list of relatives to contact.

Knowing passwords for online accounts is not as important as naming another person on key accounts ahead of time, says Sweeney. This way, if the family needs to make mortgage payments or pay any medical bills, they do not have to wait until the estate is settled.

“Children are often dipping into their own assets to pay for taxes and mortgages when the last surviving parent has passed away,” says Sweeney.

In that same vein, make sure to sign another person up for a key to any safe deposit boxes or home safes, says Krooks. Include clear directions on how to access any other valuables that may be stashed elsewhere, so that it’s not mistakenly thrown out.

SURVIVOR BENEFITS

Pensions and insurance plans have many different payout rules, so you need to leave behind detailed information about policies. Insurance information should extend beyond life insurance to car, home and boat insurance, says Sweeney. It is also critical to include your Social Security benefit information, he adds.

The job of assembling all of this information can be massive, but most people appreciate it in the end.

“At first they curse us out because it’s so much to gather and put in one place. But by the time they come into the office, they’re really glad they did this exercise,” Krooks says.

MONEY Financial Planning

What Would You Do With $100,000?

Stack of Money
iStock

Deciding how to spend a large inheritance isn't as easy as you might think. Heirs who have received big bequests, along with financial planners, share lessons learned.

What would you do if you suddenly got $100,000, no strings attached?

It’s a hypothetical question for most of us. But for Peter Brooks, it was reality a few years ago.

After the untimely death of an old friend from pancreatic cancer, a lawyer called Brooks and told him there was a check waiting for $107,000, taxes paid.

With $30 trillion set to change hands from one generation to the next over the next 30 years, many others will find themselves in a similar position, according to Accenture .

While some may receive a few trinkets and others millions of dollars, the median inheritance will be between $50,000 and $100,000, according to a survey by Interest.com.

Handling new and unexpected wealth may sound wonderful, but can be a financial challenge. We asked financial experts to assess the decisions of three different beneficiaries:

WELCOME BOOST

For Brooks, a 55-year-old marketing consultant from the San Francisco area, the money significantly improved his quality of life.

At first, he deposited the check into a managed portfolio that his bank recommended. This was just before the market crash in 2008. Frustrated when the portfolio didn’t budge, Brooks rolled the money into a certificate of deposit, which turned out to be fortuitous.

“When the market crashed, I thought, wow, I must have a guardian angel,” he says.

Brooks decided that real estate was the biggest risk he could stomach, and he found an old Victorian house to buy for himself in nearby Vallejo for $97,000.

Indeed, buying a house is one of the most common financial moves people make with new money, according to Susan Bradley, a financial planner and founder of the Sudden Money Institute, based in Palm Beach Gardens, Fla., who specializes in helping people manage newfound wealth.

“If your inheritance increases your sense of home and safety, that’s a really lovely thing to do with it,” Bradley says.

Her caveat is that this works only if you’re able to handle the upkeep on the house, which Brooks has been able to do just fine.

A SPLURGE (OR TWO)

By contrast, John Kerecz, a 52-year-old environmental engineer in Harrisburg, Pa., went on a spending spree after he inherited about $160,000, plus a broken-down house, when his father died two years ago.

Because his father had his paperwork in order, Kerecz was able to quickly access the cash. He hired a lawyer based on the recommendation of a family friend, got the death certificate, and had a payout from the insurance company within a couple of weeks.

Then he embarked on a series of trips to Europe, Nashville, and New Orleans with his mother, who was in declining health, and eventually spent about $100,000.

What remained went toward a new home for Kerecz and his mother, who now suffers from dementia. He is trying to sell his parents’ original home and intends to invest the proceeds from that sale.

“I feel bad that I kind of blew it, but I wanted my mother to enjoy life while she could,” he says.

It may seem irresponsible, but using an inheritance to make memories has intrinsic value, says Bradley.

“Sometimes you can meet that purpose without spending $100,000,” notes Bradley, who says she would have coached him to take a little more time to figure out how to build those memories with just $60,000.

IN OVER YOUR HEAD

Many inheritors get in even further over their heads, especially if the money comes when they are young.

Richard Rogers, a financial consultant with Stephens Private Client group in Little Rock, Ark., had a client who inherited a significant sum at 25 and insisted on buying an $80,000 car.

“I tried to tell him that if you compound this money for a few years, you can buy a lot nicer car. But you can’t tell somebody what to do,” Rogers says.

CarmenBelcher could have used that advice, too, when, at 22, she inherited $300,000 out of the blue from her estranged father.

The money came quickly because her name was on his bank accounts and she was listed as the beneficiary of his veteran’s benefits.

Belcher responsibly paid off her college loans, then moved from Missouri to New York for a graduate program in journalism. She used what was left to support herself.

Now, eight years later, the money is gone.

She blames that partly on not being savvy about spending in New York, and partly on the money not being invested optimally by a bank adviser in Missouri who first helped her.

“It’s unfortunate, when people haven’t thought through it and, before you know it, [the money is] gone,” says Bill Benjamin, chief executive officer of U.S. Bancorp Investment.

The ideal thing to do is to draw up a financial plan before you start dipping into an inheritance, he says.

While Belcher thinks she is better off than before — she is building a career as a fashion editor in New York — overall, the experience was negative.

“I couldn’t appreciate the amount of money,” she says. “If this would have happened at an older age, I would have had more knowledge.”

MONEY Kids and Money

How to Get a Grip on Your Child’s Therapy Bills

Parent and journalist Beth Pinsker explains how to get your kid the mental health treatment he or she needs without breaking the bank.

When I signed up my kids for therapy after my divorce, I made some financial mistakes. The biggest was choosing an out-of-network provider, over one who takes my insurance.

Instead of a simple $20 co-pay, I spent $150 out of pocket and get 70 percent of it reimbursed, which works out to about $1,000 more over a school year. In contrast, I have a friend whose child’s therapy sessions require no co-pays at all.

In this way, mental health coverage has a lot in common with airline pricing, where seats on the same plane may sell at many different price points.

Overall, Americans spend about $2,100 per child for healthcare, according to the Health Care Cost Institute’s report for 2007-2010. During that period, HCCI says, the use of mental health services by children jumped 24 percent.

At the same time, nearly half of all psychiatrists no longer take insurance, according to JAMA Psychiatry, with a similar portion of psychologists now only accepting private payment.

Add to that an overall shortage of providers – there are 8,700 child and adolescent psychiatrists, compared to about 50,000 for adults, according to Dr. Paramjit Joshi, division chief of psychiatry and psychology at Children’s National Health System – and you have a supply and demand problem that makes cost a real issue for parents.

Stay in-network

Finding a provider in your area may be easy enough, but finding one whose availability suits your child’s schedule could be downright impossible.

That’s why I went the private-pay route. My area of Brooklyn has no shortage of doctors on my plan, but after calling a dozen and finding that an after-school slot would entail a months-long wait, I went with a personal recommendation.

To avoid the appointment runaround, lean on your plan’s customer service department to make calls for you, says Dr. Ian Shaffer, executive medical director for behavioral health for Healthfirst, a New York health plan.

Need a therapist with a specialty? You may be able to get that provider covered if you ask, Shaffer says.

He cited a case where the family wanted a therapist who shared their ethnic heritage, and had been recommended someone who charged an eye-popping $350 a visit. Healthfirst found them another therapist with the same credentials, and covered the visits.

Reduce co-pays

My friend with the zero co-pay has insurance through the state’s child health plan, but enrolment in the plan is possible only if you don’t have access to other coverage.

Most people who are on health plans through their workplace don’t have payment wiggle room, but you can ask individual providers what they can do to help, especially if you have a high deductible.

Many private-pay therapists have sliding scales based on income; others have lower fees if you work with a trainee. Since the latter are supervised grad students, “it’s like getting two doctors for the price of one, says Clair Mellenthin, director of child and adolescent services at Wasatch Family Therapy in Salt Lake City, Utah.

Also check state resources to help pay for therapy, especially if treatment is needed for some kind of trauma following a crime. Many states have victim funds, says Mellenthin.

Mark progress

Therapy can seem like an endless process, so parents need to make sure it’s staying on track, says Mitchell Prinstein, a professor of psychology at the University of North Carolina at Chapel Hill.

After the initial evaluation, make sure you have a clear treatment plan and markers to help you figure out if your child is making progress. If there’s little improvement, get a second opinion, Prinstein says. And don’t feel bad about moving on if the therapist is not the right fit.

Fight for your rights

For ongoing treatment, it’s important to make sure the insurance company is not crimping your coverage.

Even though parity clauses in the new healthcare laws say you should get as many sessions as you need, that’s not always the case.

After a while, insurers may start saying the sessions are no longer medically necessary. This is especially true if your child has a serious ongoing problem, says Alan Nessman, senior special counsel for the American Psychological Association.

Any denial of coverage can be costly.

Joe Hoyle’s bill for one month of his daughter’s treatment for a serious illness was $125,000 after his insurance company denied the claim (he negotiated a lower payment with the hospital directly). To obtain ongoing coverage, Hoyle and his wife, who live in Virginia, got her on Medicaid.

“They say they cover things, but then they get to decide when things are ‘stable,'” he says.

Hoyle urges parents to get care early for their children to try to head off bigger problems.

“You can go along for 10 or 12 years and think your kid is just quirky, then almost literally overnight, it can go to full-blown mental illness,” he says. “You hate to talk about it, but people need to know because state governments need to do more to help people out.”

MONEY Kids and Money

4 Ways to Influence How New Grads Handle Money

Take heart. When high school and college seniors come into some cash, they mostly do good things with it.

When her son recently turned 18, Lisa Kirchenbauer and her husband had him sign papers to take control of an account for minors they had long ago set up as a college fund–which had grown to about $60,000.

“What if I ran out and bought a car with it?” he asked.

It was mostly a joke question, but still heart-stopping for Kirchenbauer, a financial planner in Arlington, Va., because she knew he could do exactly that if he wanted to—and it would be perfectly legal.

There is a jarring lack of parental control when high school and college seniors come into some cash upon graduation – anything from a $100 check from Grandma to multi-million dollar inheritances.

“You have to go for less of a parenting, finger-pointing mode and talk to them as an adult – that’s what they are now,” says Rachel Cruze, who co-authored the book Smart Money, Smart Kids with her father, financial guru Dave Ramsey.

Mostly, good things happen with the money. According to college loan purveyor Sallie Mae, about 25% of parents say that at least some high school graduation gift money ended up paying for college expenses. A 2010 poll for the National Endowment for Financial Education found that 25% of recipients put money into savings, 10% used it for travel and entertainment, and 5% put the money toward a car.

While it’s still a little scary for parents to lose control, here are four strategies to make sure that new young adults handle graduation gifts responsibly.

Test With Small Amounts

Many parents try to teach their kids healthy spending habits with allowances, which pays off when they hit young adulthood. Jill Totenberg, mom to a high school senior in New York City, started her daughter off with $5 a week in third grade, then upped it to $80 a month in high school.

Now, the 18-year-old has a bank account with a debit card and is learning to manage a credit card. Mom is pretty confident that any graduation gifts will go straight in the bank. “She totally gets it,” says Totenberg.

John Boland, a financial planner in Montpelier, Vermont, also has tested his 17-year-old near-graduate with a debit and credit card, necessary because the teen is on a travel sports team. “He knows that if he does anything foolish, he’ll lose it,” Boland says.

This past winter, when Boland’s parents asked their grandson what he wanted as a Christmas present, he said cash for college in the fall.

Roll Over Into a Trust

When higher dollar amounts are involved, young adults face pressure from families and financial advisers to lock the money up, especially for minor accounts that turn over to the child at age 18 or 21, depending on state law.

“I’ve had some of my clients say: ‘Can we not give him the money?'” says Kevin Ruth, head of private wealth planning for Fidelity. “The reality is, you can’t.”

Matt Brady, senior director of planning at Wells Fargo Private Bank, says he has seen parents convince children to roll their newly acquired funds into a family partnership or trust, so they can continue to oversee it.

“The worst thing is to just have them take control of money they can’t manage,” Brady says.

For money in trusts, it all comes down to the provisions for distribution. Many of them set limits preventing the youngsters from getting anything unless they complete tasks, like graduate.

Fidelity’s Ruth says the trend is to keep the rules as restrictive as possible.

Incentives are crucial, he says. “You can get money if you start a business or get a masters degree. A lot of times, they can only get out as much money as they earn. They have to show up with a W-2,” Ruth says. “And if you’re not doing the right thing, you will get zero money.”

The cost of setting up a trust with an estate attorney will depend on how much money is invested, and ongoing professional money management will cost an annual fee of around 1% of assets.

Allow a Little Splurge

For Tim Noonan, managing director of capital market insights for Russell Investments in Seattle, the key to his financial parenting was instilling a sense of mystery about the power of money. The message: “Money is a magical tool, but it will turn against you if you do the wrong thing.”

While he doesn’t expect his daughter to get a lot of cash gifts when she graduates this month, he was willing to shell out for a celebratory present. She asked for a party for all her friends, which he was happy to do because she already has a job lined up.

Totenberg, the New York City mom, is expecting her daughter to be responsible but also allowing for fun. “She may buy some shoes or some ridiculous gift pack from Sephora that is all pretty packaging—something she knows I’ll never buy for her,” she says.

Direct Gifts From Family Members

One stealth way to maintain a little control over funds is to direct family members toward appropriate non-cash gifts. This is what Kirchenbauer, whose son has the $60,000 college fund, is doing when family members ask what her son would like for graduation. To one she suggested a set of luggage, to another a suit, and to a third a laptop.

“My mom is just writing a check,” she said, which she hopes her son will put in a savings account.

 

 

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