MONEY Health Care

How to Pick a Health Plan That’s Right For You

Picking a card with medicine on it
David Emmite—Getty Images

HMO, PPO, EPO? The alphabet soup of insurance plans may leave you dazed and confused. Here's how to make sense of your choices and get the coverage you need.

What’s in a name? When it comes to health plans sold on the individual market, these days it’s often less than people think. The lines that distinguish HMOs, PPOs, EPOs, and POS plans from one another have blurred, making it hard to know what you’re buying by name alone—assuming you’re one of the few people who know what an EPO is in the first place.

“Now, there’s a lot of gray out there,” says Sabrina Corlette, project director at Georgetown University’s Center on Health Insurance Reforms.

Ideally, plan type provides a shorthand way to determine what sort of access members have to providers outside a plan’s network, including cost-sharing for such treatment, among other things. But since there are no industry-wide definitions of plan types and state standards vary, individual insurers often have leeway to market similar plans under different names. In general:

  • Health maintenance organizations (HMOs) cover only care provided by doctors and hospitals inside the HMO’s network. HMOs often require members to get a referral from their primary care physician in order to see a specialist.
  • Preferred provider organizations (PPOs) cover care provided both inside and outside the plan’s provider network. Members typically pay a higher percentage of the cost for out-of-network care.
  • Exclusive provider organizations (EPOs) are a lot like HMOs: They generally don’t cover care outside the plan’s provider network. Members, however, may not need a referral to see a specialist.
  • Point of Service (POS) plans vary, but they’re often a sort of hybrid HMO/PPO. Members may need a referral to see a specialist, but they may also have coverage for out-of-network care, though with higher cost sharing.

Although insurers identify plans by type in the plan coverage summaries they’re required to provide under the health law, one PPO may offer very different out-of-network coverage than another.

“You have PPOs with really high cost sharing for out-of-network services, which from a consumer perspective seem a lot like HMOs,” says Corlette. Some plans labeled as PPOs don’t offer out-of-network services at all, experts say. On the other hand, some HMOs have an out-of-network option that makes them seem similar to PPOs.

Then there are EPOs. “People have no idea what an EPO is,” says Jerry Flanagan, lead staff attorney at Consumer Watchdog, an advocacy organization that recently filed a class action lawsuit against Anthem Blue Cross in California. They claim, among other things, that the insurer enrolled people in EPO plans with no out-of-network coverage who believed they were being enrolled in PPO plans that provided such coverage.

“Materials at the time of enrollment and in member’s Explanation of Benefits have clearly stated that the plan was an EPO plan which may not have out-of-network benefits,” said Darrel Ng, a spokesperson for Anthem Blue Cross, in a statement.

This year, HMOs and PPOs dominated the plans offered by insurers on the health insurance exchanges. According to an analysis of plans sold in the 36 states for which the federal government runs the online insurance marketplace as well as the plans sold on the California exchange, HMO offerings made up 40% and PPOs another 40%. POS plans made up 12% and EPO plans 7%.

Higher premiums didn’t necessarily correlate with better out-of-network coverage, says Caroline Pearson, vice president at Avalere Health, a research and consulting firm. HMO plan premiums, in fact, were slightly higher on average than those for PPOs, according to the Avalere analysis.

Pearson says the explanation may be that insurers anticipated that people who bought a PPO would probably want to use out-of-network providers. Since out-of-network spending doesn’t count toward the out-of-pocket maximum that people are responsible for before insurance picks up the full tab, these people were likely to be cheaper to insure, she says. (Next year, the out-of-pocket maximum will be $6,600 for single coverage and $13,200 for a family plan.)

Based on the 18 states that have released their proposed products and rates for next year, it doesn’t appear that plan types are likely to change significantly, says Shubham Singhal, leader of the health care practice at management consultant McKinsey & Co.

“Perhaps a few more EPOs will emerge,” he says. “Some of the health plans that might have introduced metal-level plans through the HMO are viewing the EPO as way to introduce a non-gatekeeper product.”

Since you can’t rely on plan type to provide clear guidance on out-of-network coverage, there are three basic questions to investigate when evaluating a plan, says Pearson:

  • Is there out-of-network coverage?
  • Does that out-of-network spending accrue toward the member’s out-of-pocket maximum? Legally it doesn’t have to, but some plans include it.
  • Do members need a primary care physician gatekeeper?

That’s only the beginning. Once you figure out whether a plan covers out-of-network care, it can be difficult to find out whether your doctor is even in that plan. You can check with you doctor’s office, but sometimes they don’t know. You can also look at provider directories to see who is and isn’t in a plan’s network, however, that information frequently proved inadequate or inaccurate last open enrollment period. But understanding the alphabet soup of plan types is an important first step.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

MONEY 401(k)s

Why Workers Would Take a Pay Cut for This Retirement Benefit

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A 401(k) employer match is so valuable that many workers would be willing to lower their pay to get a bigger one, a survey finds.

Would you willingly take a pay cut? A surprising number of workers say yes—if it means getting a richer 401(k) match.

That’s one of the findings from a Fidelity Investments survey released today. When workers were asked if they’d prefer to have lower compensation in return for a higher 401(k) employer contribution, 43% chose the pay cut. As the responses show, many workers realize that it would be worthwhile to accept “a short-term pay cut for a long-term payoff,” says Fidelity vice president Jeanne Thompson.

The results also show that more people are worried about achieving a financially secure retirement, which seems increasingly out of reach. For many workers, a 401(k) plan is their sole means for saving for retirement, while an employer match is the closest thing to a free lunch that you can get. But a 401(k) match is more than a nice fringe benefit—depending on your ability to save, it may even make or break your retirement.

Why is a 401(k) match so crucial to retirement success? Consider that most workers need to put away 10% to 15% of salary in their plan to be on track to a comfortable retirement, financial advisers say. But the typical saver stashes away only 8%. So to get to that 10% or higher savings rate, the average worker needs a boost from a company match. Overall, employer matches account for more than 35% of total contributions to the average worker’s 401(k) account.

That brings up one bright spot in the survey: The typical employer match is now 4.3% of pay, which comes to an average of $3,450 per worker a year. That’s a jump of more than $1,000 compared with the average employer contribution 10 years ago.

There are good reasons for employers to offer tempting 401(k) matches. Companies can deduct the contributions from their corporate taxes, and the benefit is a valuable tool for attracting talent and retaining employees, especially as the job market improves. Only 13% of workers surveyed said they’d take a job with no company match, even if it came with higher pay.

Of course, the fact that Fidelity is asking workers to choose between a match and pay cut is another stark reminder that Americans are largely on their own when it comes to saving for retirement. “Many people used to have a pension plan. That’s not true for younger workers today, and even many Baby Boomers who had pension plans have had them frozen,” says Thompson.

If your 401(k) lacks a generous match, it’s crucial to step up your own savings. One relatively painless way to do it is start with a 1% increase in your savings rate. For each $33 reduction in your take-home pay, you will add $220 to $330 to your future retirement income. (To see how different savings rates will boost your nest egg, try this retirement income calculator.) At the very least, save enough to get your full 401(k) match.

TIME Retail

Target Openly Supports Gay Marriage in Legal Brief

Hackers Grab 40 Million Accounts From Target Stores
A Target store is seen on December 19, 2013 in Miami, Florida. Joe Raedle—Getty Images

The major retailer has joined a group of companies in filing an amicus brief in support of gay marriage

Target announced its support for gay marriage Tuesday by signing onto an amicus brief in a case before a federal appeals court, after years of criticism for its neutrality on the issue.

“It is our belief that everyone should be treated equally under the law, and that includes rights we believe individuals should have related to marriage,” said Target Executive Vice President Jodee Kozlak in a statement Tuesday.

The retail giant joins a group of national companies signing onto an amicus brief filed in Wisconsin’s appeal of a lower court decision that struck down that state’s gay marriage ban. A similar case in Indiana has been folded into this case.

Kozlak said Target already offers benefits to LGBT employees and families. In announcing the move, Kozlak couched the decision in both ideological and economical terms regarding the challenges created by having contradictory marriage regulations in different states.

“This position is particularly challenging for a large organization that operates nationally, such as Target,” Kozlak said. “Current laws — in places like Wisconsin and Indiana that are addressed in this brief – make it difficult to attract and retain talent … We believe that everyone – all of our team members and our guests – deserve to be treated equally. And at Target we are proud to support the LGBT community.”

MONEY Pensions

Why Some Private-Sector Workers Are Facing Big Pension Cuts

Multi-employer pensions are in financial trouble—and any solution is likely to mean workers end up with smaller retirement benefits.

The window is closing on our last best chance to protect the pensions of 10 million American workers and retirees.

These workers are in multi-employer plans—traditional defined benefit pension plans jointly funded by groups of employers in industries like construction, trucking, mining and food retailing. Although many of the country’s 1,400 multi-employer plans are healthy, 1.5 million workers are in plans that are failing. And that threatens the broader system.

Losses during the crash of 2008-2009 left those plans badly underfunded. In many cases, the problems have been compounded by declining employment in their industries, which leaves sponsors with a growing proportion of retirees to current workers paying into the pensions funds.

The plans are insured by the Pension Benefit Guarantee Corporation, the federally sponsored agency funded through insurance premiums paid by plan sponsors. But the level of PBGC protection for workers in multi-employer plans is—by design—much lower than for single-employer plans. Multi-employer plans historically have been stable, so policymakers set premiums, and benefits, at a lower level than for single-employer pension plans.

But the PBGC projects that about 200 plans will become insolvent over the next two decades. If it has to fund benefits for those plans, many beneficiaries will suffer. That’s because the maximum benefit for these retirees is much lower than for those in single-employer plans—it’s capped this year at $12,870 for a worker retiring at age 65, compared with $59,318 for workers in single-employer plans. PBGC estimates that multi-employer workers with 30 years or more of service would lose an average of $4,000 in annual benefits.

Policymakers, legislators, business and labor groups have debated the issue for two years. Now we’re at a key turning point, argues Josh Gotbaum, the PBGC’s director. “If Congress doesn’t act this year, it is very likely that major plans will fail and the multi-employer system will collapse,” he told me in an interview this week.

It’s not that plans will run out of money this year or next, Gotbaum says. Instead, he says employers could start scrambling off a sinking ship, accelerating pressures on the system. Under the Employee Retirement Income Security Act (ERISA), one employer departing a multi-employer plan must make an exit contribution capped at two years of annual contributions. With a mass exodus, each employer pays a full proportionate share of the plan’s underfunded liability.

“We have a prisoner’s dilemma going on,” Gotbaum says. “Employers are looking at the other employers and thinking that they want to beat the rush—they don’t want to be the last one standing.”

Fixes would require revisions to ERISA, which governs private sector pension plans. Gotbaum says that needs to happen this year because “virtually all the congressional talent that has focused on this issue for the last year is leaving.”

Representative John Kline (R-Minnesota), chairman of the House Education and Workforce Committee, will rotate out of that position next year. Two others aren’t seeking re-election—House Ways and Means Chairman David Camp (R-Michigan) and Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin (D-Iowa).

If Congress doesn’t act this year, employers may be encouraged to quit the system, Gotbaum says, because they’ll conclude that change will be postponed until after the 2016 presidential elections.

Gotbaum hopes a reform package will include a mix of higher multi-employer insurance premiums, to beef up the agency’s ability to backstop plans that fail, and ERISA reforms that help other plans restructure so they can remain solvent. But he won’t be on the scene to help craft a solution; he leaves next month after four years at the PBGC to return to the private sector.

A coalition of employers and labor unions has been pushing for changes that would let healthy plans adopt more flexible plan designs aimed at keeping them in the system. But one controversial element has drawn strong pushback from pension advocates; it would give plan trustees wide latitude to cut the benefits of current retirees—albeit at levels slightly higher than PBGC guarantees.

Gotbaum is optimistic that an agreement could be forged after this year’s midterm elections. “Congress is taking this seriously,” he says. “It’s been difficult for them to reach agreement, but they clearly are trying. Democrats and Republicans both know something needs to be done.”

Related links:

 

MONEY Social Security

Social Security Closes Offices As Boomers Retire. How to Get Help Now.

With fewer offices and fewer employees, the agency is overwhelmed. These five steps can help you find the information you need.

As millions of Baby Boomers start to retire, the Social Security Administration is being flooded with demands for help with benefits. But in a feat of bad timing, the agency has closed 64 field offices (1 out of 20), reduced hours at all the others, and now has 11,000 fewer employees today since 2010, according to a recent bipartisan Senate report.

The reason for these cutbacks? Pressure from Washington budget-cutters, who are requiring the agency to do more with less. Social Security’s “solution” is to reduce face-to-face interactions and beef up less-costly options: online tools, call centers and, in some cases, video connections.

For its troubles, SSA got hammered last week by the U.S. Senate Special Committee on Aging, which issued the report. More accurately, the agency got hammered by the panel’s ranking members, Florida Democrat Bill Nelson and Maine Republican Susan Collins. They were the only Senators present for just about the entire session, and they made good use of their time.

Nancy Berryhill, SSA’s deputy commissioner for operations, got the dubious honor of playing punching bag for Sens. Nelson and Collins. At one point, close to frustration if not tears, she said the agency has been decimated. “With these tight budget times, I’m trying to survive. . . . It’s been devastating to us. . . . And we are losing our most experienced employees.”

The loss of veteran workers will not be easily made up by online tools. The agency logged more than 156 million public interactions last year, including 45 million office visits, 46 million field-office calls and 56 million call-center interactions. Meanwhile, the total of all its Internet interactions—for benefit applications, address changes, disability reports and other service requests—was fewer than 9 million. Expecting the Internet to somehow emerge as the preferred and dominant source of Social Security assistance overnight is simply virtual unreality.

So, we are facing a world where there are fewer and fewer workers available to help more and more aging Americans make very complicated Social Security decisions. And, as Ms. Berryhill said, the remaining agency employees are not as skilled as those that have left. Given this reality, here are five steps you can take to help you make the right decisions about your Social Security benefits.

Sign up for My Social Security. You’re reading this story online so, clearly, asking you to use the Internet should not be a stretch. Create a personalized account with the SSA to see your official earnings history and the agency’s projection of your benefits at various claiming ages.

Use benefit calculators. Compare the financial impact of claiming at different ages—and be sure to consider your spouse’s benefits too. Financial Engines is the latest financial advice firm to offer a Social Security benefits calculator. The AARP calculator does a good job of explaining the virtues of delaying benefits. My favorite calculator by far is Maximize My Social Security. (Full disclosure: MMSS was created by Boston University economics professor Larry Kotlikoff, who also happens to be co-authoring a book about Social Security with me and PBS business and economics correspondent Paul Solman.)

Personalize the numbers. Calculators are fine when it comes to plain-vanilla claiming situations. But most of us require more complex assessments to determine the best Social Security options. What’s your longevity outlook? Are you divorced? Has your present or former spouse died? Do you have young kids? Are you financially supporting your own parents? Did you or your spouse work in a job on which Social Security taxes were not paid? All of these situations may affect your Social Security benefits. Calculators rarely provide such nuanced advice.

Compare answers. As a background check, enter your precise Social Security question or claiming situation into your favorite search engine, and you’ll see a wealth of solid (and often not-so-solid) advice. You can use this information, along with your other research, as preparation for the next, and last, step.

Push for top-level Social Security advice. Armed with your research, confirm your answers with SSA. You will find plenty of basic information on the SSA website. Next, call the 800 line with any specific questions. Then follow up with a visit to your local SSA office and meet with a claims representative. Yes, you may have a long wait, but it’s worth the effort. Finally, confirm your understanding of your benefit options with an SSA technical expert—these pros are the agency’s most experienced benefits staffers. To connect with one, you may need to be persistent. But that way, you’ll get the best help SSA still has to offer.

Philip Moeller is an expert on retirement, aging and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Social Security

Are You Leaving Thousands of Social Security Dollars On The Table?

Choosing the right claiming strategy can add $100,000 or more to your lifetime retirement income.

Deciding when to take your Social Security benefits is one of the most important retirement moves you can make—and it’s one that a lot of Americans get wrong. The good news is that new tools and services are being launched that can help you avoid these costly missteps. The latest entry: Social Security Income Planner, was unveiled today by 401(k) advice provider Financial Engines.

Unlike some of the tools out there, the Financial Engines calculator is easy to use and free. After sifting through thousands of claiming strategies, the calculator presents you with the best filing choice for you and your family, at least according to Financial Engine’s algorithms. It can also include your assets (and your spouse’s portfolio) as part of the retirement income analysis.

There’s a lot at stake. Some 40% retirees rely on Social Security for the majority of their income. Even wealthier retirees receive about one-third of their income from the program.

“Social Security is incredibly complex and most people miss out on tens of thousands of dollars in benefits by claiming too soon or not coordinating with their spouse,” says Christopher Jones, chief investment officer at Financial Engines. A single person could be passing up as much as $100,000 over a lifetime by claiming Social Security early, while a married couple could lose $250,000 in lifetime income, says Jones.

Take a married couple: Jane, age 57 and Ian, 59. He earns $65,000 a year, while she earns $35,000. He wants to retire at 65 and she at 63. If they both take Social Security at those ages, he will get $24,500 a year, and she will get $12,600, giving them a combined income of $37,100 annually. That adds up to lifetime benefits of $872,300, based on Financial Engines’ estimates.

A different claiming strategy would give this couple an additional $131,700 more in lifetime income from Social Security, bringing their total lifetime benefits to $1 million, according to Financial Engines. Jane still files for Social Security at 63, while Ian delays taking his Social Security until age 70, which is when you get the maximum benefit. But at age 66, which is his full retirement age, Ian files a restricted application to claim a spousal benefit based on Jane’s income, which gives him $8,100 a year, which gives them a total $20,700 a year in income. Then he switches to his own benefit at age 70, boosting their payout from Social Security to $45,300 a year.

But many people don’t understand these options. Three out of four people say they are confident about their ability to make a good Social Security decision, according to a Financial Engines survey. But when those surveyed were asked basic questions about the way Social Security worked, 73% got most of the answers wrong.

When you get beyond the basics, it’s hard not to be confused. There are more than 8,000 claiming strategies for married couples, says Jones. You can file for Social Security as early as age 62 and many people do—40% start benefits at age 62, while 60% do so by 65. Fact is, every year you wait to take Social Security, your income increases 6% to 8% a year until you reach age 70.

The additional income you receive by delaying can make a big difference in your retirement security. If you had annual benefits of $18,900 at age 62, you would get $27,216 by waiting till age 67 and $33,264 a year by holding out till 70. As a recent Nationwide survey found, nearly 25% of those who claimed Social Security early regretted that decision. “Your chief risk today comes not from dying too soon but from living too long and running out of money,” says Ron Keleman a financial planner in Salem, Oregon.

Your family may also regret your decision. Married women tend to outlive their husbands, yet men often take the retirement benefit that looks best now, even if it reduces their spouse’s future income after they pass away. And if you have children, your decision would also affect their survivor benefits.

Thinking about your claiming options before you file for Social Security benefits can help not only you but your family as well. Start by checking your estimated benefits at Social Security, then try a online tool. In addition to the Financial Engines calculator, others include those at T. Rowe Price, AARP, Social Security Solutions ($50 fee). Or consider working with a financial adviser.

MONEY Social Security

How to Get Social Security In a Lump Sum (Without Taking Any Lumps)

You can get a big one-time payment from Social Security. But you will give up other benefits, so proceed carefully.

When you think of Social Security benefits, you probably imagine a regular stream of income. What you may not realize is that two kinds of claiming strategies can get you a big lump-sum benefit—one that may be worth more than $100,000 to higher-income retirees.

It’s a tempting notion. However, some people should resist the glitter of even this much money lest they wind up leaving even more benefits dollars on the table. Here’s a quick look at the pros and cons of these strategies:

In the first scenario, you can claim a retroactive payment from Social Security if you have reached full retirement age (FRA) and did not file for benefits at that time. (FRA is 66 for people born between 1943 and 1954, rising in two-month increments to 67 for those born in 1960 and later.) The maximum retroactive lump-sum payment is six months’ of benefits.

Say you were going to defer benefits past your FRA at age 66, then you had to change your mind at 66 and six months. You could then claim a lump-sum payment equal to those six months of benefits. If you decided at age 66 and four months that you wanted to file retroactively, you’d get only four months’ worth of benefits in your lump sum—rules prohibit you from claiming benefits that pre-date your FRA. (For some retroactive claims involving people with disabilities and their family members, the lump-sum payment will extend to 12 months of benefits.)

This brings us to the second claiming opportunity: a lump-sum reinstatement of benefits. It involves more money but it could cost you more too. Again, this option is only available to people who’ve reached their FRAs. Let’s say your FRA is 66, and you decided to defer filing until you turn 70, when you can claim maximum benefits. By delaying, your benefit increases 8% each year (plus any cost-of-living adjustments) until you turn 70. That means your benefits at 70 would be 32% higher than at 66 after inflation.

To get this higher benefit you could simply do nothing at age 66, and your benefits would begin rising each month due to the delayed retirement credits.

A more flexible approach is to tell the agency that you want to “file and suspend” your benefits. This way, your benefits will still rise each month until you begin taking them. But it creates a nice insurance policy for you. At any time after turning 66 and before your benefits begin automatically at 70, you can ask Social Security to issue you a lump-sum payment for all the benefits you would have received had you begun taking them at age 66.

Without the file-and-suspend in place, if you had an emergency that required you to start benefits, you could not get all the foregone payments reinstated. The best you could do is file retroactively and get a maximum of six months benefits.

While this might be a great insurance policy, there are three downsides to keep in mind.

1. If you ask for a lump-sum payment, you lose all the delayed retirement credits you’ve accrued. That’s because Social Security calculates your benefits from age 66 and will give you a lump sum based on that monthly rate (plus any cost-of-living increases). Your monthly benefit thereafter will be based on a start date of age 66. If your FRA benefit was, say, $1,000 a month, it would have risen to $1,320 in real terms by age 70. You will have forfeited that extra $320 each month.

2. If you ask Social Security to file and suspend your benefit, it will prohibit you from ever being able to collect spousal benefits while deferring your own retirement benefit. To enable such spousal benefits, you must file what’s called a “restricted application.” Unfortunately, you can’t do both.

3. If you wave good-bye to that maximum $1,320 monthly benefit, so will your survivors. Their benefits are tied to yours, so when you do anything to reduce your benefit, it can have a life-long impact on your family.

For this reason, filing and suspending benefits is only a guaranteed slam-dunk for single people with no spouses or children—they don’t need to care about benefits for surviving family members. For married persons and single persons with former spouses and children, a file-and-suspend strategy to preserve access to a lump-sum payment is a tricky decision. Consider talking to a financial adviser before making this move.

Philip Moeller is an expert on retirement, aging and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY 401(k)s

Vanguard Study Finds (Mostly) Good News: 401(k) Balances Hit Record Highs

Stock market gains boosted wealth for those putting away money regularly in the right funds. Are you one of them?

If you’ve been stashing away money in a 401(k) retirement plan, you probably feel a bit richer right now.

The average 401(k) balance climbed 18% in 2013 to $101,650, a new record, according to a report by Vanguard, which is scheduled to be released tomorrow. That’s an increase of 80% over the past five years.

The median 401(k) balance — which may better reflect the typical worker — is far lower, just $31,396. (Looking at the median, the middle value in a group of numbers, minimizes the statistical impact of a few high-income, long-term savers who can skew the averages.) Still, median balances rose 13% last year, and over five years, they’re also up by 80%. All of which suggests that rank-and-file employees are building bigger nest eggs.

Vanguard balances
Source: Vanguard Group

That’s the good news. Now for the downside. Those rising 401(k) balances are mostly the result of the impressive gains that stocks have chalked up during the bull market, now in its sixth year. (The typical saver currently holds 71% in stocks vs. 66% in 2012.) Why is that a negative? Because at some point stocks will enter negative territory again, and all those 401(k) balances will suffer a setback.

Meanwhile, the amount that workers are actually contributing to their plans remains stuck at an average of 7% of pay, which is down slightly from the peak of 7.3% in 2007. And nearly one of four workers didn’t contribute at all, which has been a persistent trend.

Ironically, the savings decline is largely a side-effect of automatic enrollment, which puts workers in 401(k)s unless they specifically opt out. More than half of all 401(k) savers were brought in through auto-enrollment in 2013. These plans usually start workers at a low savings rates, often 3% or less. Unless the plan automatically increases their contributions over time—and many don’t—workers tend to stick with that initial savings rate.

Still, when you include the employer match—typically another 3% of pay—a total of 10% of compensation is going into the average worker’s plan, says Jean Young, senior research analyst at Vanguard. That’s not bad. But most people need to save even more—as much as 15% of pay to ensure a comfortable retirement, according to many financial advisers. (To see how much you should be putting away, try the retirement savings calculator at AARP.)

Even if 401(k) providers haven’t managed to get people to step up their savings rate, they are tackling the problem of investing right. More workers are being enrolled in, or opting for, target-date retirement funds, which give you an all-in-one asset allocation and gradually shift to become more conservative as you near retirement. Some 55% of Vanguard savers hold target-date funds—and for 30%, a target fund is their only investment.

With target-date funds, as well as managed accounts (which are run by investment advisers) and online tools, more 401(k) savers are also receiving financial guidance, which may improve their returns. As a recent study by Financial Engines and AonHewitt found, 401(k) savers who used their plan’s investing advice between 2006 and 2012 earned median annual returns that were three percentage points higher than those with do-it-yourself allocations.

Vanguard’s data found smaller differences. Still, over the five years ending in 2013, target-date funds led with median annual returns of 15.3% vs just 14% for do-it-yourselfers.

The lessons for investors: You’re better off choosing your own 401(k) savings rate, and try to put away more than 10% of pay. And if you aren’t ready to manage your own fund portfolio, opting for a target-date fund can be a wise move.

 

 

 

 

 

 

 

MONEY working in retirement

Don’t Buy Into the Retirement Gloom

Senior in the workplace
Thomas Barwick—Getty Images

In the emerging Unretirement movement, you are your best investment.

This story was originally published at Next Avenue.

Gray wave. Age wave. Geezer tsunami. (Pick your favorite — or most hated — euphemism.) Catchphrases like these capture the realization that we’re living longer and that older Americans make up a growing share of the population. As economist Laurence Kotlikoff and columnist Scott Burns say in The Coming Generational Storm: “The aging of America isn’t a temporary event. We are well into a change that is permanent, irreversible, and very long term.”

Living longer should be a trend worth celebrating. But many people believe that America’s boomers can’t afford retirement, let alone a decent retirement. They fear that aging boomers are inevitably hurtling toward a lower standard of living.

And here’s their evidence: We’ve just been through the worst downturn since the 1930s, decimating jobs and pensions. Retirement savings are slim. Surveys show that boomers aren’t spending much time planning for retirement. The prediction that the swelling tab for Social Security and other old-age entitlements will push the U.S. government and economy into a Greece-like collapse seems almost routine.

The Unretirement Movement

Don’t buy into the retirement gloom. I’m not.

Here’s why: The signs of a grassroots push to reinvent the last third of life are unmistakable. Call it the “Unretirement” movement — and it is a movement.

Unretirement starts with the insight that earning a paycheck well into the traditional retirement years will make a huge difference in our future living standards. You — and your skills and talents — are your best retirement investment. What’s more, if society taps into the talents and abilities of sixty-somethings and seventy-somethings, employers will benefit, the economy will be wealthier and funding entitlements will be much easier.

The Unretirement movement is built off a series of broad, mutually reinforcing changes in the economy and society that are transforming an aging workforce into a powerful economic asset. Boomers are the most educated generation in U.S. history and they’re healthier, on average, than previous generations. A century-long trend toward a declining average age of retirement has already reversed itself and — it’s safe to say — you ain’t seen nothin’ yet.

“Many people aren’t slowing down in their 60s and 70s,” says Ross Levin, a certified financial planner and president of Accredited Investors in Edina, Minn. Adds Nicole Maestas, economist at the Rand Corp., the Santa Monica, Calif.-based think tank: “Yes, America has an aging population. The upside of that is a whole generation of people who are interested in anything but retirement.”

Your ‘Next Big Thing

Just ask Luanne Mullin, 60. She has done marketing for a dance company, opened a theater company and run a recording studio. These days, Mullin is a project manager at the University of California, San Francisco, overseeing the construction of scientific laboratories (she does mediation at the school on the side).

“I think there’s more and more of us at 60 who are saying, ‘OK, what’s my next career? What do I want to do that’s fulfilling?’” Mullin told me. “I’m all for what’s my next big thing.”Mullin loves her work, but she’s also wrestling with the same questions as many of her peers. “What is this aging thing?” she wonders. “Am I living fully? Is this the second half of life I dreamed of, or if not, how do I pull it together?”

When Unretirement is Tougher

For many in their 50s and 60s, the transition to Unretirement is much tougher — especially for those who are involuntarily unemployed, like Debbie Nowak.

She didn’t see the layoff coming. Nowak worked for more than 30 years in customer relations for the pensions and benefits department at Evangelical Lutheran Church in America, in Minneapolis-St. Paul, Minn., In November 2011, at 58, she lost her job there.

Nowak, who has a high school diploma, let herself grieve until the holidays were over. In the New Year, she got her severance, went on unemployment and began thinking about embracing something completely different from her old job. “I never thought of myself as a risk taker,” she says. “After 30 years, I thought I should take a risk.”

Nowak had a stained glass hobby, making window panes, mosaic trays, and other objects. That led her to the idea of working in the wood finishing and furniture-restoring business. Last year, she got a certificate from The National Institute for Wood Finishing at Dakota Community Technical College in Rosemount, Minn. To pay for it, Nowak took out a loan and the state chipped in from its displaced workers fund.

Today, she has a part-time job at small furniture-restoration company. “It’s a crap shoot, a risk I was willing to take,” says Nowak. “This is also a way to produce additional income in retirement.”

As Mullin and Nowak demonstrate, we’re living though a period of experimentation while redefining retirement. Many people are stumbling about, searching for an encore career, a part-time job or contract work that offers them meaning and an income.

Some find it extremely tough to get hired, cobbling together a job here and a contract there, assuming they’re healthy. Especially vulnerable are less-educated workers who never made much money or never had jobs with employer-sponsored retirement and health benefits.

How Society Will Change

The rise of Unretirement calls for a whole cluster of changes in how society rewards work, creates jobs, shares the wealth and deals with old age. Unretirement will affect where Americans live out their lives, too, as they seek communities and services equipped for them.

Taken altogether, boomers will construct a new vision of their retirement years, which will impact how younger generations will think about their careers.

“People tend to learn from examples or stories handed down from previous generations — but there are few stories to navigate the new context of old age and retirement for the baby boomers,” writes Joseph Coughlin, the infectiously enthusiastic head of MIT’s AgeLab, a multi-disciplinary center. “When there are no set rules you make them up. The future of old age will be improvised.”

Send Your Unretirement Questions

This blog aims to take a first draft at the Unretirement improv act. I’ll particularly focus on the personal finance and entrepreneurial start-up implications of the movement. I’ll talk about successes and failures, the impediments of age discrimination and the lessons people learn as they search for meaning and income in their next chapters.

Most of all, I hope to hear from you and find out about your experiences so I can address your questions in future columns. Send your queries to me at cfarrell@mpr.org. My twitter address is @cfarrellecon.

Peter Drucker, the late philosopher of management, noted that every once in a while, society crosses a major divide. “Within a few short decades, society rearranges itself — its worldview; its basic values; its social and political structure; its arts; its key institutions,” Drucker wrote in Post-Capitalist Society. “Fifty years later there is a new world.”

The transformation of retirement into Unretirement marks such a divide. Welcome to a revolution in the making.

Chris Farrell is economics editor for APM’s Marketplace Money, a syndicated personal finance program, and author of the forthcoming Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. He will be writing on Unretirement twice a month.

Related Links:

‘Partial Retirement’ Is On the Rise

A Manual for Encore Careers

 

MONEY Obamacare

How Obamacare Is Making Exiting Your Job Trickier

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Robert A. Di Ieso, Jr.

You now have more health insurance options to sort through if you quit or face a layoff, and making the wrong choice could prove costly.

Q. When I leave my job, should I sign up for COBRA or buy my own health insurance?

A. With Obamacare in full force, you have a crucial choice to make when you quit or get the ax: pay to stay on your group health plan for up to 18 months (what’s called COBRA), or buy your own policy on a government-run online insurance exchange or directly from an insurer. In May the Obama administration informed all employers with 20 or more workers that they must tell you about both options when you exit.

Your first step should be to price out an individual plan on a government exchange via healthcare.gov and through private sites like gohealth.com and ehealthinsurance.com. Thanks to the health reform law, you’re guaranteed coverage regardless of your health. And you may qualify for a subsidized premium if you earn less than 400% of the federal poverty level, or $46,680 for a single, $62,920 for a couple, and $95,400 for a family of four. If so, you must shop at healthcare.gov. Open enrollment for 2014 coverage via the exchanges closed in March—but after a job loss you have up to 60 days to shop there.

The High Price of Staying Put

Stick with your employer plan through COBRA, and you’ll likely face sticker shock. You’ll owe both your and your employer’s share of the premium, plus a 2% administrative fee. On average, you pay only 18% of the annual premium while you’re working if you’re single, 29% for a family plan, according to the Kaiser Family Foundation. The average annual tab under COBRA: about $6,000 for singles and $16,500 for families. “COBRA can be a double whammy, because you have to pay the full premium at the same time you may have lost your job and your income,” says Bryce Williams, a managing director at benefits consultant Towers Watson.

The Pros and Cons of Buying Your Own Plan

Chances are you’ll pay a lower premium on the individual market, especially if you qualify for a subsidy. The trade off is that you’ll likely face a higher deductible, steeper out-of-pocket costs, and a shorter list of in-network doctors and hospitals than you would have with your old company group plan. Make sure your preferred hospitals and doctors are in a plan’s network. Provider directories from insurers were notoriously out-of-date even before this year’s slew of changes, so check with the insurer as well as your doctors.

Also factor in how much you’ll pay for drugs, particularly expensive speciality drugs to treat conditions like cancer. An analysis by the consulting firm Avalere Health found that more than half of mid-priced individual plans sold on the exchanges saddle consumers with a percentage of the cost, sometimes 50% or more. What’s more, consumers on the exchanges are twice as likely as group enrollees to need to take extra steps before a drug is covered, such as getting prior authorization from the insurer or trying another drug first.

Whatever you do, don’t mindlessly choose COBRA, figuring you’ll research your options when you have more time, says Michael Mahoney, senior vice president of marketing at GoHealth.com. “You can’t change it later,” he says. You’ll be locked into that plan until your next chance to enroll in an individual plan. For plans starting in January 2015, open enrollment begins on Nov. 15.

 

Related:

Why your boss isn’t dropping your health plan yet

How new college grads can score a health insurance deal

 

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