This Week In Your Wallet: File-and-Suspend Has Six Months To Live
Yesterday President Obama signed on the dotted line for a two-year budget deal that will prevent the U.S. government from defaulting on its debts this week (raising the debt limit through March 2017) and lessen the likelihood of a government shutdown in December. (Although that’s still a TBD.) But that’s not all. Medicare and Social Security experienced some changes as a result.
Medicare Part B
Before the deal, 30% of Medicare Part B beneficiaries were bracing for a 52% premium increase. If you were one of them, you (and your wallet) can breathe a sigh of relief, because the government is taking a $7.5 billion loan from the U.S. Treasury to help cover those expenses. Now, as MONEY reports, Part B premiums will increase by 15% to $123 a month (instead of $159.30). Your annual deductible will stay at $147, but will increase by 15% next year to about $167.
Social Security Disability
The Social Security Disability fund was going to run dry in about a year. The new bill will shift payroll tax revenue so that Social Security can pay all of its disability claims until 2022. Had the bill not gone through, those on disability would have experienced 20% cuts in payouts.
File-and-Suspend
The popular Social Security claiming strategy for two-earner couples will be off the table in six months. Once repealed, you can no longer file and suspend so that your spouse can file for a spousal benefit, allowing both of your benefits to grow. If you’re at full Social Security age and you’re considering this, the time to act is now.
75 Is The New 62
Welcome to the workforce, Class of 2015 – you’ll be here until age 75! That’s right – due to the increasing costs of living and student debt – the graduating class of 2015 will have an average retirement age of 75, according to a new study from NerdWallet (and a shoutout to the study’s author Arielle O’Shea, who worked with me for nearly 10 years before leaving for the Nerd. Go Ari!) As USA TODAY reports, you can knock that number down to 70 by returning to the nest until 25 (i.e. avoiding rent hikes). Another way for these grads — or anyone else — to shave years off the retirement clock is to invest early and often. The report notes that this year’s graduates will need a $1.189 million dollars for nine years of retirement.
Low-Risk Transactor vs. High-Risk Revolver
Are you a low-risk transactor or a high-risk revolver? (No, they’re not superhero names.) The answer is becoming increasingly important as lenders aren’t just looking at whether you pay your bills, but how you pay them. As Reuters reports, your credit reports now show whether you regularly pay your credit cards in full every month – and some lenders are using this information to decide which credit cards and loans to offer you and whether to take you on as a customer. If you have the habit of paying in full, you’re considered to be a low-risk transactor. Regularly carry a balance and you’re a high-risk revolver.
Moreover, Fannie Mae just announced it will require mortgage lenders to use this “trended credit data” in loan decisions next year, which could help some transactors, who happen to have lower credit scores, secure mortgages. To put the two profiles into perspective: A study by one of the three credit bureaus, TransUnion, found that revolvers are three times more likely than transactors to default on new credit cards and auto loans, and five times more likely to default on current cards.
Why You’re Overspending
Quite simply, as humans, we’re not hardwired to save. We prefer immediate gratification to delayed, and – as this Wall Street Journal article so accurately points out – we can make all the right moves (i.e. track our spending and have budgets) and still overspend. Why? We can blame our psychological impulses and blind spots. For instance, people are terrible at estimating outflows. Science is still trying to figure out the big why here, but when planning future finances, people think (a lot) more about their income than they do their expenses – and this leads people to believe they can afford things they really can’t.
How you view willpower also affects your spending. If you view willpower as a limited resource, then you’re more likely to “reward yourself” (via overspending) after showing willpower. Your mood can also play a big role in your spending behavior. For example, research shows that unhappy people save less and spend more; whereas happy people are the complete opposite. Happy people are more future-oriented, they save more and they spend less. As the Journal puts it, “Even if money can’t buy happiness, it seems that happiness can buy money.” It’s a good read, see the full article here.
