20
Nov

Should I Apply for Social Security Benefits at 62?

by admin in Retirement

As you get closer to 62, there is one important financial decision you will have to make. You can choose to collect Social Security benefits at age 62 or delay it until 70. The decision is personal and depends on your specific circumstances. However, there are several considerations that can help guide your decision.

1.  You will receive a higher Social Security benefit for every year you wait
Full retirement age is around 66 or 67 (if born after 1960). If you start collecting Social Security at 62, you will receive a 25%-30%(based on your full retirement age) lower payment than if you’ve waited until your full retirement age. In addition, if you wait until you are 70, you will receive 8% increase in benefits for every year you wait. For example, if your full retirement age is 67 and your full Social Security benefit is $1000, it will be reduced to $700 if you start collecting at 62 or increase to $1240 if you wait until 70. A simple break-even analysis for collecting at age 62 vs. 70, shows that the break-even age is around 80. You will receive more in total benefits if you will live longer than that. If you are in good health, have good genes and expect to live into your 80’s and 90’s, then maximizing your Social Security payment is a good strategy.

2. Your life expectancy
If you have health concerns and believe that your life expectancy is lower than average (see life expectancy calculator link below), then it might make sense to start collecting Social Security early.

3. You need money to cover your living expenses
If you need money to cover your living expenses now and there are no other options, then you have no choice but to apply for Social Security early and receive a smaller payment for life.

4. You plan to work after 62
If you work between age 62 and your full retirement age, Social Security will reduce your benefit $1 for each $2 earned above Social Security limit. In 2014 this limit was $15,480. So if you make more than the limit, it probably will not make sense to collect Social Security at 62.

5. Your social security benefit is higher than your spouse’s
Couples have an additional consideration. If your full Social Security benefit is higher than your spouse’s it might make sense to postpone collecting your benefit. Even if you have health concerns, you might want  to consider your spouse’s life expectancy as well. Your surviving spouse can collect Social Security benefits based on their own earnings or yours. It might make sense for you to wait to collect your benefits so that you and your spouse can collect a higher amount for the rest of your life.

6. You are more comfortable having the money sooner than later
If you worry about the future of Social Security or just more comfortable having the money early then collecting sooner might be the right option for you. You also need to be comfortable with having a lower benefit for life. It is true that Social Security has reserves to pay full benefits until 2037. After that, new revenues will be able to cover about 75% of scheduled benefits. However, with small changes the system can continue to pay full benefits. Because of political implications and how changes to the system were implemented in the past, it is unlikely, that any policy changes will impact current retirees or someone who is near retirement age.

I still have some time before I need to make this decision but my husband is getting closer to 62. He is in good health and hopes to work late into his 60’s. So for him it makes sense to delay collecting benefits for as long as possible. Actuarial life expectancy table from Social Security, shows the average life expectancy for a 62 year old man is around 81 and for a 62 year old woman is around 84 . So statistically speaking for most people, the longer they wait to apply for their Social Security benefits the higher the total benefit they will receive.

 

USEFUL LINKS  –

http://www.ssa.gov/OACT/STATS/table4c6.html – Social Security actuarial table for life expectancy

http://www.socialsecurity.gov/oact/population/longevity.html  – Quick life expectancy calculator

https://rslic.metlife.com/lic/corpLongevity.do?target=back  – Life expectancy calculator with basic health and lifestyle considerations

http://crr.bc.edu/special-projects/books/the-social-security-claiming-guide/ – Social Security guide from the Center for Retirement Research at Boston College

http://www.socialsecurity.gov/OACT/quickcalc/early_late.html – Early or late retirement calculations

http://www.socialsecurity.gov/retirement/1943.html – Shows how your benefit is reduced based on what age you start collecting benefits

http://www.socialsecurity.gov/retire2/agereduction.htm – Shows how your benefit is reduced based on your full retirement age

http://www.socialsecurity.gov/retire2/otherthings.htm – Full list of considerations from Social Security

http://www.socialsecuritysolutions.com/get-your-solution.php – Offers a Social Security calculator with different strategies for singles and married couples for a fee. Starting with a $20 personalized report.

25
Apr

Routine Eye Exam for Free

American Optometric Association recommends routine eye exam for adults every 2 years or every year if you are wearing glasses or have a medical condition that puts you at risk. Everyone in my family wears glasses so annual eye exams are a necessity. This time we needed an eye exam for my daughter.

There are many options available for eye exams. You can go to a retailer like Costco, Sears or Walmart, an optical store like LensCrafters or EyeDrx or a private ophthalmologist or optometrist. My daughter wears both glasses and contacts. So, we needed an updated prescription for both. There is typically an additional fee for contacts evaluation and fitting.

We considered three options: an optical store like EyeDrx, an optometrist we’ve used in the past and an ophthalmologist. The regular price at EyeDrx is $119. This is $79 for an eye exam and additional $40 for contact lens evaluation. They often have coupons and promotions that provide extra $20-$30 discount. Our optometrist charges $159 or $169 if you have stigmatism. The ophthalmologist’s office quoted a price of about $260 for self-paying customers without insurance. This was the most expensive option. Before making a decision, I decided to call our medical insurance provider, Horizon Blue Cross Blue Shields of New Jersey. We didn’t have a vision plan but I wanted to check if our medical plan provided some benefits. Indeed, the customer service representative explained to me that since the healthcare reform, our medical plan covers a routine eye exam performed by an in-network ophthalmologist for free. It is considered a preventive maintenance procedure and is not subject to deductible or co-pay. That’s great news!

We found a local in-network ophthalmologist and proceeded with the exam. Still, I wasn’t completely sure that everything will be covered by the insurance and waited to see how the insurance claim will be processed. Once the claim was processed, I noticed that the exam was billed for $364 and the insurance allowed amount was $169. The insurance paid the full allowed amount and there was no cost to us. Everything worked out!

Before you schedule an appointment with the ophthalmologist, it is important to check with your insurance that they cover routine eye exams. It is also important to check what is not covered. For example, refractive assessment might not be covered by your plan. In this case, you can check the cost of this assessment with the ophthalmologist in advance. In addition, the routine eye exam doesn’t cover contact lenses evaluation. However, if you already wear contacts and have your previous prescription, the ophthalmologist may provide you with the updated contact lenses prescription. It is good to clarify this point with the doctor’s office ahead of time.

I like this new change in our medical insurance policy. It will save us hundreds of dollars on regular eye exams every year. With prescriptions in hand we are ready to shop for contacts and eyeglasses for my daughter.

9
Apr

Travel for Less – Disney World

Disney World is frequently rated as a top family destination. It offers great entertainment, dining and many accommodation options. I was looking for a place to celebrate a special occasion with my family. A place that was warm in February, a short flight away from home and had excellent entertainment for the whole family. Disney offered everything I was looking for!

Now it was time to plan all the details and make reservations for the trip.

Finding a Flight

My favorite airlines for domestic travel flying out of Newark, New Jersey, are JetBlue and Continental. I usually check the prices on their website first to get an idea of price and flight times. Then, I check sites like Kayak, Expedia and CheapOair. Kayak has a convenient format to search multiple airlines, multiple airports and flexible dates. CheapOair allows booking roundtrip on different airlines and that sometimes can result in a lower price or more convenient flight times. Expedia offers good flight and hotel package options. Usually, you can get a better price if your travel dates are flexible and you are traveling mid-week. JetBlue offers free first bag check so I like them more than Continental. We used Expedia to book our flight and accommodations and CheapOair to book additional flight tickets.

Finding Accommodations

Orlando has an abundance of accommodation options ranging from budget to very luxurious. For family travel, I like condo style accommodations. It provides more space than a hotel and also kitchen facilities for cooking. Expedia is a good starting point to look for accommodations and Trip Advisor provides travelers reviews that provide additional insight. I chose the 2 bedroom condo at the Diamond Polynesian Isles in Kissimmee, Florida. They rated  #2 out of 172 hotels in Kissimmee on Trip Advisor. That was a good recommendation for me. I loved their outdoor heated pool, free wi-fi in the room, spacious accommodations and Jacuzzi in the master bathroom. They are also conveniently located to Disney World and Universal Studios. What a great option for a family for a price around $100 per night!

Renting a Car

The least expensive option was to book through Hotwire. I started planning several months in advance but found that booking 2-3 weeks in advance resulted in a better price. So I decided to wait and booked 3 weeks before the trip. The car rental was with Alamo and they offered an upgrade at the counter. To our surprise we were able to negotiate the price of the upgrade to a much lower price than their initial offer.

Buying Disney World Tickets

Disney World tickets are expensive. The price ranges from $85 per day for 1 day ticket to $38.14 per day for 7 day ticket. The local AAA office might offer additional discount on multiple day passes. Another option to save on tickets is to attend a timeshare presentation in return to significantly discounted tickets. There are signs for discounted tickets almost everywhere in the Kissimmee area and many resorts, including the one we stayed in, offer this option. You can decide if it is worthwhile to exchange 1-2 hours of your time for the discount offered. This is only an option if you know you can resist the pressure to buy a timeshare.

The Internet and websites like Kayak, Expedia and Trip Advisor completely changed how we plan our vacations. There are many choices and reservations are only a few clicks away. Vacation planning can be time consuming but also fun and you can save some money in the process. Our trip was a great success. Disney delivered its magic once more.

 

USEFUL LINKS –

http://www.kayak.com/ – Kayak website

http://www.cheapoair.com/ – CheapOair website

http://www.expedia.com/ – Expedia website

http://www.hotwire.com/car/index.jsp – Hotwire car rental

http://www.tripadvisor.com/Hotel_Review-g34352-d88560-Reviews-Diamond_Polynesian_Isles-Kissimmee_Florida.html – Trip Advisor Review for Diamond Polynesian Isles in Kissimmee, Florida

2
Mar

Shopping for Car Insurance with JD Power

by admin in Insurance

For the past 10 years we had our car insurance with Amica Mutual and were pretty happy with our policy and service. However, recent renewal bill had a premium increase of over 25% without any cause on our part. This looked like a great opportunity to shop around and check what other insurance companies have to offer.

How do you actually go about choosing an auto insurance company? I was looking for a reputable company with good customer service and reasonable rates. This is where companies like JD Power come to the rescue. They conduct consumer research studies on overall customer satisfaction, pricing, billing and payment, policy offerings and ease of contacting the insurer and then create a Power Circle Rating and a customer satisfaction ranking for auto insurers nationwide (see links below for the complete 2011 JD Power customer satisfaction list and JD Power ratings). Not every company on this list is doing business in New Jersey. There is another list provided by New Jersey Department of Insurance that shows all the auto insurers in the state. That was helpful.

Based on the JD Power customer satisfaction ranking list, the top five companies in New Jersey were: Amica Mutual, State Farm, Geico, Progressive and Allstate. After reviewing the ratings for specific categories, I decided to compare prices for Amica Mutual, Geico and Allstate.

Next step was to understand different coverage options available and what will be most suitable for our situation. We needed coverage for our two cars and a family of four driving adults. New Jersey Auto Insurance Buyer’s Guide provides some information about what coverage options most drivers choose and then of course speaking to an agent is invaluable. The table below summarizes the main options I considered.

My first contact with Geico’s customer service made a great first impression. The customer service representative was knowledgeable, patiently answered all my questions, suggested options to reduce premium and followed up with a written quote by e-mail. I had additional questions and subsequently spoke to two other customer service representatives who were very helpful. The whole experience was easy and comfortable. It was good to know that someone was there to answer your questions 24/7.

Allstate operates through a network of local agents. I contacted a local agent and was able to discuss various policy options and get a quote. I appreciated speaking to a knowledgeable agent. The enrollment process required extensive documentation including copy of driver licenses, copy of car registrations, copy of good student report card, name/address/phone for place of work and school for each driver.

Previously, I also looked at getting a quote online from Esurance. It totally did not work for me. They had a long questionnaire with language and options I didn’t understand. It resulted in frustration to me and a quote back that was very high and probably incorrect.  I learned later that Esurance is an Allstate company and I already was working with their agent. For me working with an agent was very important because there are many options and agents can speak from their knowledge and experience.

Equipped with quotes from all three companies (see table below), it became clear that while Amica Mutual had the highest JD Power customer satisfaction ranking of 843, their quote was also the highest and for a lower coverage amount. Allstate had the lowest quote and a customer satisfaction ranking of 781. I liked the experience I had with Geico customer service department. Geico has a customer satisfaction ranking of 797 which is above the industry average of 790. Their enrollment process only required driver license numbers, car VIN numbers and the name of the college my daughter was attending. They made it really easy for me to choose Geico.

In the end, we were able to get higher coverage for less what we have been paying the prior year and significantly less than the renewal quote for 2012. Shopping around has definitely paid off!

USEFUL LINKS –

http://images.dealer.com/jdpa/pdf/2011087-nai3.pdf – JD Power press release with 2011 customer satisfaction ranking list for auto insurance nationwide.

http://www.jdpower.com/consumer-ratings/ratings.htm?study=909201124 – JD Power ratings for auto insurers.

http://www.state.nj.us/dobi/division_consumers/insurance/autoinscontacts.htm – List of New Jersey auto insurers from State of New Jersey Department of Banking and Insurance.

http://www.state.nj.us/dobi/division_consumers/pdf/autoguide02.pdf – Auto insurance buyers guide from New Jersey Department of Insurance.

http://www.state.nj.us/dobi/division_consumers/insurance/auto.htm – State of New Jersey automobile insurance site contains many useful links like Controlling the Cost of Auto Insurance, Insurance Scoring in New Jersey and other.

9
Feb

What is Impulse Buying

Impulse buying happens when we buy something that we didn’t intend to buy. Malls, grocery stores, street fairs and other places of shopping can trigger impulse buying. It sneaks up on you unexpectedly like in my story below.

It was Halloween and my husband I were walking at the mall and enjoying all the sights around us. Suddenly, I heard a noise behind me and someone put a small square piece of what appeared a warm gel pad in my hand. “Here try it” – he said. It was a cold day and the heat was wonderful. Curious I looked back and followed him to his cart. They were selling Heat in a Click heating pads in various sizes. I got interested in a shoulder and neck heating pad. I often have stiff shoulders and this pad felt like heaven. After a short negotiation on the price I bought it for $35. Another salesperson offered that I try a TENS massager. You place two pads on your shoulders and they create a sensation of massage using an electric pulse. It is similar to what a chiropractor or a physical therapist will use in their office. I do have a problem with my neck and shoulders so they hit a home run with me. The salesman showed me a website with a price around $300 for the unit and offered to give it to me for a discounted price of $220. I told him I can pay $160 and we made a deal. My husband and I happily continued our walk at the mall.

That evening I came home and decided to look for these products on the internet. I found that I can buy a comparable TENS massager for $100-$120 and the shoulder pad for about $20. I paid $195 for both items and they were available for $120-$140 on the internet. Ouch! Needless to say I wasn’t happy anymore.

This was a classic example for impulse buying. At that moment, I bought something that I didn’t intend to buy acting on my emotions. There is a certain high associated with this kind of purchase that makes us happy. The desire for instant gratification can be very strong. It also puts in jeopardy our budget, our saving goals and ultimately our desired lifestyle.

Thankfully, this shopping experience is not typical for me but as this example shows I am not immune to it. In many cases from my experience there is salesperson involved who is very personable and able to establish a quick rapport with you. He or she appears so nice that it is difficult to say no. An effective way to overcome the desire to buy is to take some time out to think about the purchase. It will give you the opportunity to reassess your need for it and also time to educate yourself about a reasonable price for this item. My husband and I walked away from many timeshare and other sales presentations using this technique.

I am happiest when I get a great deal on a product I need. Usually that involves deciding on what you need in advance, doing a comparison shopping and having a budget. I don’t know if one can completely avoid impulse buying but minimizing it can go a long way toward achieving your financial goals and desired lifestyle.

4
Nov

Homeowners Insurance Options Revisited

Over the past several months, mother nature had several surprises for us. It started with a 5.8 earthquake originating in Virginia. Here I was sitting in my living room and suddenly the whole house was shaking. A week later, came the powerful hurricane Irene that caused flood damage to so many houses. And the recent snow storm in October knocked down power for over 1,000,000 households in New Jersey. We also lost power for over 5 days.  What an experience!

I decided to take a closer look at our home insurance policy to find out what is covered and what is not covered. It is not an easy task and there are many exclusions. After speaking to our insurance agent and a claim adjustor, I made several important adjustments to our policy in key areas of coverage.

Earthquake Coverage – Regular policy does not provide any coverage for that. I know the probability of having an earthquake in New Jersey is very low. Because no one expects it, the cost of earthquake coverage for home owners in New Jersey is very reasonable. It was under $100 for a year for our house. I decided to add it to our policy for the extra peace of mind.

Flood Coverage – Regular policy does not provide coverage for that.  It is usually expensive and is required for homes in flood areas. For homes not in the flood area there is a less expensive option. For our house it was about $350 per year. Still, it will increase our insurance premium by more than 40%. Given the extensive flood and water damage caused by hurricane Irene, it can be a good option. Our house doesn’t have a history of water damage but no one can predict the future. For now, I haven’t added it to our policy.

Hurricane Deductible – There is a regular deductible and then there is a separate deductible for hurricanes. My original policy had a very high deductible for hurricanes, about 2% of the insured value, which would translate to thousands of dollars. This was an unpleasant surprise to many homeowners after hurricane Irene. The state of New Jersey issued a one time exception regarding the high deductible for damages due to Irene . I decided it was worth while to pay the extra premium and have only a $500 deductible.

Power Failure – We have lost power for more than 5 days during the snow storm in October, 2011. After trying to live in the cold house without electricity for 3 days, I have reached my limit and decided to stay in a hotel. I wanted to know if our insurance will cover the stay. There was no easy answer. I had to reach a claim adjustor to get an answer. In our case, we were covered and were pleasantly surprised that the insurance offered assistance in finding a hotel and even making a reservation. This was a big help since we had no access to the internet and most hotels were booked. Kudos to everyone who helped us!

Home insurance policies are not easy to understand and have many exclusions. It is important to review it with your insurance agent and decide on best coverage options for you.

USEFUL LINKS –

http://www.nj.gov/dep/njgs/enviroed/eqrisk.htm#freq
NJ Department of Environmental Protection assesses the risk of earthquake in New Jersey

3
Aug

Vanguard or Fidelity – Who is Winning?

Recently, my daughter started a new job and asked me what to do with her 401K plan from the old job. This is a common scenario that many will encounter in their careers.

You can leave your 401K plan with the old employer, move it to the new employer’s 401K plan or rollover to an IRA account.

In some instances, you might consider staying with your current 401K plan because it offers something that is not available in an IRA account. For example, your 401K plan offers asset management option for a low management fee or maybe you really like some of the funds offered by your plan and you will need to pay commission to purchase them in an IRA account or you would like to keep your money in a Stable Value fund that is offered in 401K plans but is not available in IRA accounts.

In most situations, it is better to rollover to an IRA account. It offers the flexibility of many investment choices including stocks, mutual funds, ETFs, bonds and more. It also gives you a better control over mutual fund expenses.

Vanguard and Fidelity are two very popular choices for an IRA account. I have an account with Vanguard so my initial thought was that Vanguard is a good option. Still, I wanted to have more information before making a recommendation for my daughter.

A closer look at fees and expenses for both Vanguard and Fidelity (as of 7/31/11) is below. The first table looks at transaction and account fees and the second table looks at expenses for several selected funds.

Both companies offer free transactions on their proprietary funds and ETFs. There are some differences in transaction fees for other investments. For example, Vanguard charges less for trading stocks and Fidelity charges less for trading bonds. When looking at fund expenses, it looks like Vanguard has lower expenses for actively managed funds and funds with Admiral shares (requires investment of $10,000 or above).  I have also looked at the fund selection available. Vanguard offers a higher selection of indexed funds and ETFs and Fidelity has a higher number of actively managed funds.

Overall, I still like Vanguard slightly better because of the lower expenses and higher selection of indexed funds and ETFs.

Useful Links –

Vanguard Fees

Fidelity Fees

Vanguard Fund Selection

Fidelity Fund Selection

19
Jul

Financial Aid Demystified

College tuition has been rising faster than inflation. In New Jersey, state college tuition for the 2011/2012 school year is about $24K per year. This doesn’t include the cost of required text books, items for the dorms and other student expenses. For a 4 year degree the cost can easily exceed $100K. This is a daunting number that will make most parents look for ways to get help.

As a parent for a college bound student, I had a lot of questions about Financial Aid. How it is calculated? How much aid can we qualify for? How best to prepare and plan for it?

Financial aid calculations are based on parental and student income and assets during a base year. Initially, the base year is the junior year of high school. For example, my daughter graduated from high school in June 2011. So, our base year was 2010. You need to re-apply every year to continue to receive financial aid.

There are two methodologies used for calculations. The Federal Methodology is used for Federal and State aid and Institutional Methodology is used by the private schools. They use different information and calculations. To be considered for financial aid you will need to complete and submit FASFA (Free Application for Federal Student Aid) application available at http://www.fafsa.ed.gov/. Private schools will also have their own application or require a CSS (College Scholarship Service) Profile application that provides a closer look into the family finances and asks for additional information like the value of your house, income during year previous to the base year, assets in your retirement accounts and more. CSS Profile is available from College Board at https://profileonline.collegeboard.com/prf/index.jsp.

I found it helpful to calculate estimated Federal Expected Family Contribution (EFC) using this calculator http://www.finaid.org/calculators/finaidestimate.phtml. Financial aid can be calculated by subtracting EFC from school annual tuition. Below are several examples using the calculator.

Assumptions: Household size – 3; Full time and dependant student; Age of older parent – 48; 1 student in college; student earns $2,000 per year; student has $1,000 in savings; Family assets exclude house value and assets in retirement accounts

To increase your chances for financial aid, you want to minimize your assets and income during the base year that is used for financial aid calculations.

Assets in retirement accounts like IRA, 401K, etc. are protected and not considered in the calculations. The Federal Methodology also does not consider the value of your house. In addition, depending on the age of the older parent, there is assets protection allowance that can vary from $43,000 for older parent who is 45 years old to $65,000 for older parent who is 60 years old. About 6% of unprotected assets are counted toward your contribution. For example if your unprotected assets total $100,000 then about $6,000 will be counted toward your Expected Family Contribution (EFC).

The financial aid calculations take much higher percentage of student assets and income than parents. The Federal Methodology considers 5.64% of parental assets toward the Expected Family Contribution and 20% of student assets. It is a good idea not to have assets in student name. A 529 plan owned by a parent for a dependant student is reported on FASFA as a parental asset. If you have an opportunity to have a 529 account under the grandparents name then it will not be considered at all in the calculations.

Private schools have much higher tuition cost but can also offer higher financial aid based on their own calculations and therefore can be more attractive than a state school. Ivy League schools offer some of the best financial aid packages and aim to meet 100% of admitted student financial need. For example, Princeton University offers full tuition, board and room if family income is below $60,000 and full tuition for incomes up to $120,000. Average grants based on income are listed on their website – http://www.princeton.edu/admission/financialaid/how_it_works/who_qualifies/. You can also get an estimate of Princeton financial aid using their estimator at   http://www.princeton.edu/admission/financialaid/estimator/

Different schools have different deadlines for filing FASFA and CSS Profile applications. FASFA application is submitted in senior year of high school and is available January 1st. You can submit an estimated FASFA close to January 1st and then correct it with final numbers in mid February.

Most importantly if you have special family circumstances around health, unemployment, disability, etc. you should speak to the school financial aid officer soon after getting an acceptance letter. Even one phone conversation can make a difference of thousands of dollars in financial aid.

Summary of Useful Links –

http://www.fafsa.ed.gov/
Online FASFA application for Federal financial aid

http://studentaid.ed.gov/students/publications/completing_fafsa/index.html
FASFA questions and instructions

http://www.finaid.org/calculators/finaidestimate.phtml
Federal financial aid estimator

https://profileonline.collegeboard.com/prf/index.jsp
CSS profile from College Board

13
Jul

Home Ownership – Buy vs. Rent

To Buy or Rent is the question. With mortgage rates historically low and real estate prices down from their highs you might ask yourself – Is now the right time to buy a house? The answer depends on your personal circumstances.

We bought our house before our second daughter was born. We needed a bigger place and were looking for a 3 bedroom apartment. There were fewer choices available for 3 bedroom apartments and the rent prices were relatively high. At the same time, interest rates were getting lower and real estate prices were lower than a few years before. It was the right time for us to buy a house and settle down.

How do you know when is the right time to buy for you?

First, you need to figure out if you can afford to buy a house. You need to have a stable income to afford the monthly payments and expenses and you need to have enough money saved for the down payment and closing expenses.

Buyer’s closing costs can vary and typically are in the 3%-4% range from the purchase price. It is recommended to have at least 20% as a down payment. It is possible to buy a house with less than 20% down payment. In this case, you will have to pay Private Mortgage Insurance (PMI) which can vary from .3% to 1% from the mortgage amount depending on the percentage of the down payment and credit rating. For example, if you have a good credit rating and plan to have a down payment of 15% then your PMI payment will be about .31% or $31 per month for every $100,000 borrowed. If your down payment is 10% then your PMI is about .52% or $52 for every $100,000 borrowed.

Monthly payments include mortgage payment, property taxes, private mortgage insurance and home insurance. The calculator at the bottom can help with specific mortgage payment scenarios (it doesn’t include PMI payment calculation).

Here is an example of monthly payments –

 

In addition to closing costs and monthly payments, there are costs associated with renovations and maintenance. When we initially bought our house we have painted all the rooms and replaced the carpeting. Over time, we had to replace our roof, buy a new washer/dryer, buy a new refrigerator, replace the water heater and central air condition unit and remodel 2 bathrooms. We are also looking to replace the windows and remodel the kitchen. If you live in the house long enough, it is safe to assume that at some point you will have to do most of the renovations. This cost doesn’t exist when you rent and requires additional savings either upfront or gradually that can amount to several hundred dollars per month.

Another question to ask is how long do you plan to stay in the house. There are closing costs when you buy a house and when you sell a house. For example on a $350,000 house you can spend $30K-$40K in buying and selling closing costs alone. So if you plan to move away in the next 5-7 years it might not be a good idea to buy now.

NY Times has a good Buy vs. Rent calculator that helps to take many factors into consideration including extra cost for utilities like heating and hot water when you own a house and lost opportunity cost if you would invest the money in the stock market – http://www.nytimes.com/interactive/business/buy-rent-calculator.html. If your rent is low it appears to be more advantageous to continue to rent.

Besides financial reasons, there are psychological considerations of knowing that you own your home and you can make any renovations you want and you can live in that house for as long as you want. These factors can play an important role in the decision to buy vs. rent.

So, go ahead and figure out for yourself if you are ready to buy a house!





26
Jun

Medical Expenses are Not Created Equal

What a difference a few miles can make! In my case, the surgical facility fee for the same medical procedure performed by the same doctor was 68% higher in one location than the other.

This year, I had to undergo a medical procedure that was done in same day surgical facility on an outpatient basis. My doctor mentioned that they perform the procedure in several locations and suggested the one that was closer to my home. That sounded like a good idea until I spoke to the procedure coordinator. I have mentioned that cost is a concern and she kindly suggested that I speak to the billing manager and check the cost of the procedure in their second location as it might be lower. To my big surprise, it was lower. Indeed, the facility fee in Paramus was 68% higher than in Emerson.

This discrepancy in cost is possible because each facility negotiates the fee with the insurance company separately and there can be a big difference as I have discovered.

Another important question to ask is if the outpatient facility is in-network provider for your insurance. Just because your doctor is in-network provider doesn’t mean that the facility they use is in network. Out-of-network providers don’t have negotiated fees with the insurance company and therefore can charge higher fees that can be 2 or 3 times higher and sometimes up to 10 times higher. If you find that the facility is not in-network, you have to negotiate up front that you should not pay more than what you would normally pay for an in-network provider.

To be on a safe side, whenever I need to have a procedure done, I follow the 3 steps below:

1)      Ask if the outpatient facility is in-network provider

2)      Ask for all costs, including physician fee, facility fee and anesthesiologist fee. Sometimes there are Lab fees as well.

3)      Ask if there is more than one location and the cost for each location.

If your doctor does the procedure in several locations it is a good idea to compare which one has a lower contracted fee with your insurance. Different doctors will have different contracted fees and will use different facilities to perform the same procedure. It pays to shop and compare!