Day: May 29, 2019

Personal Finance Daily: Buying a house? Here’s how to ensure your confidential financial details remain secure and The No. 1 most morally acceptable ‘hot-button’ issue in America

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Happy Wednesday, MarketWatchers. Don’t miss these top stories:

Buying a house? Here’s how to ensure your confidential financial details remain secure

First American Financial, one of the country’s largest title insurers, accidentally exposed nearly 900 million sensitive documents.

My grandson’s live-in girlfriend hates me and doesn’t want me to stay at their home — should I still leave him all my money?

This woman is upset that she’s been shunned by her grandson’s partner.

CFPB tweet offers ‘negligent or worse’ student-loan advice, advocates say

A tweet sent by the CFPB raises questions about how effectively it’s overseeing the student-loan industry, experts say.

How rating everything from your Uber driver to your Airbnb host has become a nightmare

Uber said Wednesday that will kick passengers and drivers off the app if they develop a ‘significantly below-average rating.’

Energy drinks may be linked to frightening side effects for your heart

Drinking 32 ounces in an hour increased the risk of electrical disturbances in the heart, an American Heart Association study found.

The No. 1 most morally acceptable ‘hot-button’ issue in America

The issue comes ahead of divorce, abortion, marital infidelity, wearing fur and drinking alcohol, according to a Gallup poll.

Parents are just as addicted to their smartphones as their kids

Teenagers learn their dependence on gadgets at home.

Elsewhere on MarketWatch:
Size matters: tracking the economy through new-home square footage

A chart of the median size of newly-constructed homes shows that the current housing cycle has peaked, though it doesn’t say when the housing market will finally roll over.

The market is too pessimistic about prospects for a trade deal, says a long-time China watcher

One long-time China watcher wasn’t surprised by the events of the spring, and says talks are still in early innings.

Trump Today: President maintains innocence as Mueller stresses he did not exonerate him

President Donald Trump said Wednesday that Special Counsel Robert Mueller’s Russia report vindicated him, even as Mueller said in a statement that he couldn’t clear Trump of obstruction charges.

The trade war’s next casualty: corporate profits

The trade dispute’s impact on corporate profits is becoming more pronounced.

Energy drinks may be linked to frightening side effects for your heart

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This could kill an energy drink lover’s buzz.

Consuming 32 ounces of energy drinks (two cans of Monster Energy Drink, made by Monster Beverage Corporation MNST, -0.82% or just under three cans of Red Bull) in under an hour spiked the risk of electrical disturbances in the heart for as long as four hours after the drinks were consumed, according to a small study published in Journal of the American Heart Association.

Thirty-four healthy volunteers between the ages of 18 and 40 were randomly assigned to drink 32 ounces of one of two commercially-available (but unidentified) caffeinated energy drinks, or a placebo drink, on three separate days. Both energy beverages had 304 to 320 milligrams of caffeine per 32 fluid ounces; in comparison, a Starbucks Pike Place roast packs about 330 milligrams for 16 ounces. The placebo contained carbonated water, lime juice and cherry flavoring. The beverages were swallowed within a 60-minute period, but no faster than one 16-ounce serving per 30 minutes, so the participants weren’t chugging two drinks back-to-back.

The researchers took electrocardiograms to measure electrical activity in the subjects’ hearts, for instance, the QT interval, or the length of time it takes the ventricles in the heart to prepare to beat again. They also recorded the subjects’ blood pressure. Both measurements were taken at the beginning of the experiment, and then every 30 minutes for four hours after the beverage was drunk.

The participants who gulped the energy drinks had a higher QT interval at four hours compared to the placebo drinkers, and their blood pressure increased, as well. QT intervals that are too short or too long can cause life-threatening heart arrhythmias, and increased blood pressure can lead to heart failure, stroke and aneurysms by damaging the arteries and the heart.

More research is needed, as this study was small, only featured healthy individuals, and didn’t take other factors into consideration (such as mixing the drinks with alcohol.) It also didn’t look at the long-term effects of energy drink consumption. But lead author Sachin A. Shah, professor of pharmacy practice at the University of the Pacific, wrote that the preliminary findings raise red flags.

“The public should be aware of the impact of energy drinks on their body, especially if they have other underlying health conditions,” Shah said in a statement. Healthcare professionals should advise certain patient populations, for example, people with underlying congenital or acquired long QT syndrome or high blood pressure, to limit or monitor their consumption.”

The American Beverage Association defended the safety of energy drinks like PepsiCo PEP, +0.42%  Rockstar brand or Coca-Cola’s KO, -1.00%  upcoming Coke Energy in a statement to MarketWatch, saying: “Energy drinks have been enjoyed by millions of people around the world for more than 30 years and are recognized by government food safety agencies worldwide… as safe for consumption… America’s leading energy drink manufacturers voluntarily go beyond all federal requirements when it comes to responsible labeling and marketing practices, including displaying total caffeine content from all sources and advisory statements that the drinks are not recommended for children, pregnant or nursing women, or those sensitive to caffeine.”

A 2017 Frontiers in Public Health review of energy drink research also associated energy drink consumption with risk-seeking behavior, mental health problems, increased blood pressure, dental problems, obesity and kidney damage. “The energy drink industry has grown dramatically in the past 20 years, culminating in a nearly $10 billion per year industry in the United States,” wrote Dr. Josiemer Mattei, Assistant Professor of Nutrition based at the Harvard T.H. Chan School of Public Health. “They are often marketed as a healthy beverage that people can adopt to improve their energy, stamina, athletic performance and concentration, but our review shows there are important health consequences, and little is known about many of their non-nutritive stimulants such as guarana and taurine.”

Indeed, it’s the combination of stimulants and sweeteners that appears to be problematic, rather than the caffeine or sugar alone.

Last fall, another American Heart Association study found that drinking just one energy drink narrowed blood vessels 90 minutes later, which increases the risk of blockages that cause heart attacks and strokes. The internal diameter of subjects’ blood vessels was much smaller after consuming the energy drink.

“As energy drinks are becoming more and more popular, it is important to study the effects of these drinks on those who frequently drink them and better determine what, if any, is a safe consumption pattern,” the paper read.

A 2018 study found 40% of teens aged 13 to 19 reported side effects from ingesting energy drinks, including heart palpitations, insomnia, feeling “jittery,” chest pain, labored breathing, and even seizures, nausea, vomiting and diarrhea. The U.S. military has also warned that energy drinks could do “serious harm” to troops’ bodies, and noted that soldiers in the field were more likely to fall asleep on duty if they consumed multiple beverages a day.

The global energy drink market was worth $39 billion in 2013, and is expected to hit $61 billion by 2021.

The No. 1 most morally acceptable ‘hot-button’ issue in America

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Contraception isn’t a hard pill for most to swallow.

Birth control remains the most morally acceptable issue for Americans, according to a May Gallup poll measuring attitudes on 21 “hot-button” issues. Ninety-two percent of respondents consider it to be morally acceptable, compared to just 6% who believe it’s morally wrong.

The cost of birth control varies by method and insurance coverage. For example, a monthly supply of oral contraceptives can range from $5 to upwards of $30, according to the American Pregnancy Association, while the cost of the initial physical exam might fall between $20 and $200.

And intrauterine devices (IUDs), a form of long-acting reversible contraception, are covered under many insurance plans. But they can cost up to $1,300 out of pocket, according to Planned Parenthood.

The next most morally acceptable issue for Americans was drinking alcohol, with 79% considering it acceptable versus 19% who considered it wrong. Seventy-nine percent of Americans viewed divorce as morally acceptable, a record high and 10-point increase from 2012.

92% of respondents consider birth control to be morally acceptable versus 6% who said it’s morally wrong.

Sex between an unmarried man and woman, with 71% moral acceptability, also reached its high point since Gallup began measuring popular opinion on such issues in the early 2000s. The newest poll was conducted by telephone between May 1 and May 12 among more than 1,000 U.S. adults.

One issue that proved particularly divisive was abortion, with 42% of survey respondents regarding it morally acceptable, compared to 50% who didn’t. Mirroring the current state-level debates unfolding on access to abortion, the poll results showed a stark chasm in abortion acceptability by political ideology: Just 23% of conservatives said abortion was morally acceptable, versus 73% of liberals who said the same.

“A strong ideological split remains across many of the issues, but none is as divisive as abortion,” the report’s authors wrote. “As some states move to limit or restrict abortions, debate around this issue will likely only get more intense.”

Other polarizing issues with narrow acceptable-unacceptable margins included buying and wearing clothing made with animal fur (53% acceptable; 45% wrong), doctor-assisted suicide (52% acceptable; 44% wrong) and medical testing on animals (51% acceptable; 44% wrong).

As for the least acceptable behaviors, extramarital affairs swept the board, with 89% considering infidelity morally unacceptable. Cloning humans wasn’t far behind at 85% morally wrong, trailed by suicide (79%), polygamy (80%) and cloning animals (66%).

85% of Americans say they’ve been stung by these hidden fees

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Hidden fees are a common frustration — and now we know just how common.

Altogether, 85% of Americans have faced an unexpected or hidden fee for a service they used over the past two years, according to a new survey of more than 2,000 adults from Consumer Reports. A staggering 96% of consumers said these fees were annoying.

The worst perpetrator, based on this survey, was the telecommunication industry, including cell-phone, internet and cable television service providers. Over two-thirds of the survey respondents said they were charged a hidden fee by one of these companies in the past two years.

Last year, AT&T T, -0.41%  increased a so-called “administrative fee” it charges wireless customer from 76 cents to $1.99. Analysts predicted that seemingly small change would generate $800 million in additional revenue for the company. But hidden fees crop up everywhere.

Venues, utility companies, banks, hotels, airlines and investment management firms have all charged such fees. They include everything from service fees charged by hotels for the use of a gym or Wi-Fi to banks charging customers for not maintaining a minimum deposit-account balance.

All these charges add up. In 2018 alone, U.S. customers paid an estimated $7.6 billion in reservation change and baggage fees, $11.5 billion in bank overdraft fees and $2.9 billion in resort fees, according to various data sources.

Also see: is cracking down on ‘resort fees’ rarely included in hotel room rates

Making matters worse, most people just took those charges on the chin and most people didn’t bother to warn other people of the charges. Approximately 47% said they shared the information with friends or family, while 46% simply stopped using the service.

It’s worth haggling with companies, however. While only 35% of the survey respondents said they had pushed to get an unexpected fee taken off a bill or refunded after the fact, 64% of those who did kick up a fuss said they were successful.

The survey was conducted as part of Consumer Reports’ initiative to raise awareness of hidden fees and attempt to persuade companies to stop nickel-and-diming consumers who, like many people, fail to read the fine print.

More from MarketWatch

Bitcoin Acceptance Growing: Microsoft Excel Adds Bitcoin Symbol

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Bitcoin acceptance

It seems that cryptocurrencies are nearer and nearer to mainstream adoption with each day. In the latest crypto development, Microsoft Excel has added a Bitcoin symbol to the spreadsheet for use when entering financial data. This is a big leap for Bitcoin acceptance.

Microsoft Adds Bitcoin Symbol to Excel

This move from Microsoft is a sign that Bitcoin acceptance is becoming popular, and it not just a passing whim. So far, only Bitcoin has been added to the platform’s spreadsheets.

Reddit user “thepowerx” indicated that going forward it seems like Microsoft Excel will be featuring Bitcoin as one of the listed supported currencies. However, it is still unclear when the feature will be available for all program users because there is still scanty information regarding the addition. Microsoft itself hasn’t even confirmed the move.

>> Even if Facebook Launches GlobalCoin, It’s Going to Struggle: This is Why

Bitcoin Acceptance: Microsoft’s Involvement

Microsoft has been warming up to Bitcoin over the years, and adding support for the cryptocurrency to its programs will be a way of accepting Bitcoin whole-heartedly.

Since 2014, Microsoft has been accepting Bitcoin payments, making it one of the first mainstream institutions to adopt Bitcoin. Recently, the company was involved in the launch of the Bakkt platform in collaboration with New York Stock Exchange owner Intercontinental Exchange.

Microsoft is not just supporting Bitcoin by normalizing it, but it is also openly building on the platform. The company recently created and unveiled a decentralized identity tool on the Bitcoin platform. The project, termed Ion, will enable the user to be in control of digital identities without depending on any company.

The building of the platform directly on Bitcoin instead of a faster blockchain shows how highly Microsoft regards Bitcoin.

So what do you think about Bitcoin acceptance growing globally?

Featured image: DepositPhotos © TPOphoto

Even if Facebook Launches GlobalCoin, It’s Going to Struggle: This is Why

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While not official, it looks like we’re going to see Facebook’s GlobalCoin sometime soon. And yet, if this rollout does happen, new research has indicated that the Facebook cryptocurrency will struggle to gain traction.

Here’s why.

Facebook’s GlobalCoin Hits Roadblock

The most recent piece of news about Facebook’s GlobalCoin came out last week, on May 24. It was at this time that BBC, a UK broadcasting company, said social media giant Facebook plans to launch its cryptocurrency GlobalCoin next year, even going as far as saying the company plans to conduct trials by the end of this year.

But of course, this hasn’t been publicly confirmed by Mark Zuckerberg’s company, and maybe that’s a good thing.

Yesterday, May 28, Diar, a cryptocurrency analytics firm, published a research report saying GlobalCoin will struggle out the gates as it won’t gain traction because of the demographics that use the platform.

According to Diar’s research, less than half of the platform’s users are under 35-years-old. Meanwhile, the number of users above the age of 65 has more than doubled since 2012. And here’s where things get tricky: retirees may be the main demographic on Facebook, but they are also the weakest in terms of interest in cryptocurrency. With that, Diar is confident that GlobalCoin will not be enough to pursue this demographic to enter the crypto zone.

Most people recognize that Facebook is falling in popularity with younger demographics. And while that does many things for the company, a new concern will be whether GlobalCoin will be at risk because of it. And with platforms like SnapChat gaining more traction than Facebook, the platform probably doesn’t need any more problems.

>> Bitcoin Price: Will the Bull Run Continue? What’s Next for the Digital Coin?


Who knows, though. Maybe GlobalCoin will end up being the exact thing that was needed for baby boomers to start investing in cryptocurrencies. Or maybe not. Maybe GlobalCoin will flop. Only time will tell, I suppose.

What do you think about Diar’s research? Is it fair to say GlobalCoin will struggle because Facebook doesn’t have the right demographic for it?

Let us know what you think in the comments below!

Featured image: DepositPhotos © Shawn.ccf

How much should you take out of your portfolio when you retire?

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Most people look forward eagerly to retirement, but it’s a change that requires many important choices, some of which can have pretty big consequences.

One of those forks in the road: How much money do you expect your life savings to provide you every year for living expenses?

This issue involves a very important underlying tradeoff. On the one hand, if you take out more money, your portfolio is at greater risk of eventually running dry. (There’s a technical name for that unfortunate condition: “going broke.”)

On the other hand, if you take out less money, you forego the retirement lifestyle and choices that you have looked forward to — and which I will presume you fully deserve.

To illustrate this tradeoff, I’ll rely on a set of numbers I have developed over the years to show what would have happened to somebody who retired at the start of 1970.

There’s nothing magic about that year except that we have good data for the subsequent years, a period that included lots of favorable and unfavorable economic trends, world crises, some years of substantial inflation, and serious unexpected ups and downs in the stock market.

So this period gives us a window into the wide range of things that might happen in the future.

To follow the numbers, imagine (even though you’re probably much too young) that you retired in 1970 with a $1 million portfolio.

I’ll assume you chose a first-year withdrawal of $30,000 or $40,000 or $50,000 or $60,000, and that you wanted subsequent annual withdrawals to go up reflecting actual inflation.

In order to limit the variables, I’ll further assume that your $1 million was invested equally (50/50, in other words) in the S&P 500 index SPX, -0.79%  and five-year U.S. Treasury notes.

That’s a pretty reasonable stock/bond allocation for retirees, and it reflects the overall risk level of my own investments.

So your choice in this exercise is whether you start by taking out $30,000, $40,000, $50,000, or $60,000.

You probably can imagine that if you chose $30,000 you would have less to spend but less risk of running out of money. And if you chose $60,000, you would have had much more to spend but a higher risk of running out of money.

And you would be absolutely correct.

Here’s a table to give you a snapshot of how you would have fared in the first 10 years of your retirement, depending on your rate of withdrawal.

Table 1: The first 10 years
Withdrawal rate 3% 4% 5% 6%
Withdrawal 1970 $30,000 $40,000 $50,000 $60,000
First 5 years withdrawals $164,975 $219,966 $274,957 $329,949
Balance 12/31/1974 $993,777 $940,248 $886,718 $833,189
Withdrawal 1975 $41,284 $55,046 $68,807 $82,569
First 10 years withdrawals $400,105 $533,473 $666,842 $799,851
Balance 12/31/1979 $1.34 million $1.15 million $960,032 $771,725
Withdrawal 1980 $61,091 $81,455 $101,819 $122,183

If your retirement were supposed to last only 10 years, you would be fine taking out the 6%. But the figures on the last two lines show that big trouble is ahead if you chose the 6% route.

At the start of 1980, you would remove $122,183 from a portfolio worth $771,725. That is a withdrawal rate of about 15.8%, obviously too much to last very much longer.

If on the other hand you were following the 3% route, in 1980 your portfolio would be worth more than it started with, but you’d be taking out much less for living it up in retirement.

Most people expect their retirement to last more than 10 years. So let’s look at the second 10 years of these four scenarios.

Table 2: The second 10 years
Withdrawal rate 3% 4% 5% 6%
Withdrawal 1980 $61,091 $81,455 $101,819 $122,183
First 15 years withdrawals $763,038 $1.02 million $1.27 million $1.53 million
Balance 12/31/1984 $2.04 million $1.5 million $958,243 $419,272
Withdrawal 1985 $83,900 $111,867 $139,834 $167,800
First 20 years withdrawals $1.21 million $1.61 million $2.02 million $2.03 million
Balance 12/31/1989 $3.51 million $2.2 million $832,131 No $$ left
Withdrawal 1990 $100,466 $133,955 $167,444 No $$ left

As table 2 shows, the 6% withdrawal rate meant this portfolio could not keep up with inflation for 20 years. By the end of 1986, the portfolio was flat broke.

Note also that the 5% withdrawal plan was in obvious trouble by the end of 20 years. The 1990 withdrawal of $167,444 amounted to 20% of the portfolio value; in fact, that portfolio ran out of money in 1994 — less than 25 years after you retired.

By the end of 1999, representing a full 30 years of retirement, the 4% portfolio was holding up just fine, worth $3.9 million. The 3% portfolio was worth a whopping $9.3 million.

I’m guessing that if you started out withdrawing 3%, at some point you decided to take out more — which you could easily afford to do by sometime in the 1980s.

But there’s a tradeoff in that choice, too. In your early years of retirement, when you were presumably more healthy and able to travel and otherwise be active, the 3% withdrawal rate left you with less money. By the time you loosened the purse strings, so to speak, you had more money but perhaps less ability to take full advantage of it.

If you’re interested in how all this played out year-by-year for these four withdrawal rates, check out this page with four tables on it.

There’s good news and bad news here.

One piece of bad news is that there’s no way to avoid the tradeoff between spending now or spending later. You can spend a dollar only once.

Another piece of bad news is that in most cases you cannot know in advance how long you will live. You could plan for a very long life and adjust your finances accordingly, only to fall seriously ill after only a few years of retirement.

The good news: There are very worthwhile options for dealing with this tradeoff.

The best option, assuming you have saved enough money, is to ditch the idea that your withdrawals have to go up with inflation regardless of how well or how poorly your portfolio is doing.

If your withdrawal every year is a constant percentage of what your portfolio is worth, then you will never go totally broke. This is called a variable distribution plan, and I’ll dig into this option in an upcoming article.

Another option is to change your allocation between stocks and bonds.

A portfolio with a 60/40 percentage mix of stocks and bonds and a 6% variable distribution plan held up nicely for 49 years…well beyond the typical span of anybody’s retirement. You can see this in this table of returns from 1970 through 2018.

Retirement can be tricky. But if you start with ample savings and make sound distribution choices, you can live it up without outliving your money.

For more, check out my latest podcast, “Ten things you should know about fixed distributions.”

Richard Buck contributed to this article.

Connecticut could become the first U.S. state to allow prisoners to make free phone calls

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Inmates serving time in Connecticut could soon be off the hook for expensive phone bills.

Legislation approved Tuesday by lawmakers in Connecticut has been passed along to the General Assembly and, if approved, would make that state the first in the country to allow inmates to make free phone calls.

Currently, people must pay $3.85 for a 15 minute phone call with an inmate in Connecticut, the second-highest rate in the nation after Arkansas, which charges $4.80 for a 15-minute phone call.

Currently, family and friends must pay $3.85 for a 15 minute phone call with an inmate in that state, the second-highest rate in the nation after Arkansas, which charges $4.80 to make a prepaid 15-minute call from a state prison.

Inmates in Connecticut made $13.2 million worth of calls. Of that, the state took $7.7 million in revenue, the Associated Press reported.

In May, New York City implemented a new law, sponsored by Speaker Corey Johnson, earlier this month giving Rikers Island prisoners free phone calls. The city — and private contractor, Securus Technologies — charged inmates 50 cents to use the phone previously, and an additional 5 cents for each minute on the phone.

Individuals incarcerated in New York City — where about three in four held in city jails are pre-trial detainees — can now make 21 minutes of domestic calls every three hours. The total annual bill for those calls: $8 million a year, with $5 million of that going to the city.

However, no call can last more than 15 minutes, and inmates in punitive segregation may only make one 15-minute call per day. Earlier this month, New York City mayor Bill de Blasio spoke about the need to create more “humane jails.”

“With free phone calls, we’re eliminating one of those barriers and ensuring that people in custody have the opportunity to remain connected with their lawyers, families and support networks that are so crucial to re-entry into one’s community,” he said.

Those held in local jails are paying much more. People incarcerated in some local Arkansas facilities could pay as much as $24.82 just to make a 15-minute phone call, according to an analysis by the nonprofit Prison Policy Initiative released in February.

The average cost of an in-state 15-minute call from a jail totaled $14.49 in Arkansas, $12.03 in Michigan, $9.24 in Montana and $8.49 in Kansas in 2018. (In-state calls account for about nine in 10 domestic calls, the PPI estimates.)

The national average for a call of that length is $5.61.

‘High phone rates impact everyone in jail, but those worst affected are people detained pretrial because they cannot afford bail.’

These exorbitant rates and accompanying fees can prove “disastrous” for people in city and county jails, co-authors Peter Wagner and Alexi Jones argue. It jeopardizes their employment, custody arrangements and housing as they await trial, they said. Around 65% of inmates in local jails haven’t been convicted on a charge, per the Bureau of Justice Statistics.

What’s more, forcing pre-trial defendants to pay steep rates to phone their lawyers and family members “punishes people who are legally innocent, drives up costs for their appointed counsel, and makes it harder for them to contact family members and others who might help them post bail or build their defense,” they write.

“High phone rates impact everyone in jail, but those worst affected are people detained pretrial because they cannot afford bail,” Jones said. “When someone has to organize their defense from jail, the cost of phone calls becomes extremely limiting, and that ultimately makes our justice system less fair.”

The American Correctional Association did not immediately respond to a MarketWatch request for comment on the report. Some progress has been made to help inmates make affordable phone calls: The Federal Communications Commission has also capped costs for out-of-state calls from jails and prisons.

These eye-popping figures at the local level come despite progress in the country’s state prisons, the report said: The cost of a 15-minute in-state call from an Illinois state-run facility plummeted 98% from $6.14 to 14 cents between 2008 and 2019; state rates in Maryland and New Hampshire dropped by a respective 93% and 92% over the same period.

The average rate from a local Illinois jail, meanwhile, is 52 times more costly than its state prison rate. But the size of a facility doesn’t necessarily correlate to phone rates, per an analysis by PPI.

Instead, jails fall prey to entering high-rate contracts with phone providers, which have “learned how to take advantage of the inherent weaknesses in how local jails, as opposed to state prisons, approach contracting.” Providers also sneak in additional consumer fees for call-related “services.”

Outside the Box: Should you fund your HSA at the expense of your 401(k)?

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Nearly every retirement article you read suggests that you should contribute every penny you can spare into your 401(k). Generally speaking, that’s pretty good advice. However, if you have access to a Health Savings Account (HSA), you may want to rethink that advice. Before I can explain, let me first outline the features of a traditional 401(k) a Roth 401(k) and an HSA.

Traditional 401(k)

A traditional 401(k) allows for pretax deferrals, which reduces your taxable income and the income tax due in that year. While federal income tax is avoided, FICA taxes (Social Security and Medicare) are still assessed on the contribution amount. In 2019, the maximum you can defer into a 401(k) plan is $19,000, unless you are at least age 50, when you can defer an additional $6,000 for a total of $25,000 a year.

As the investments grow, no tax is due on any gain until you withdraw money from the plan. At that time, you will pay ordinary income tax on all withdrawals (plus a 10% federal penalty if you are not at least 59½, or in the event of a few other less-common situations). You make pretax deferrals but receive taxable distributions.

Read: The house passed a bill that would allow more annuities in 401(k) plans — is that a good thing?

Roth 401(k)

A Roth 401(k), provides that deferrals be made with after tax dollars. This means that you will not save any income taxes at the time of the contribution. The maximum limits for a Roth IRA are the same as a traditional 401(k). Similar to the traditional 401(k) option, the investments grow free of taxation. However, all qualified distributions from a Roth 401(k) are income tax-free. Qualified distributions are those in which the account is at least five years old and the distribution is made due to disability, death or upon reaching age 59½. So, your contributions are taxable but your distributions are generally income tax-free.

Read: Most Americans have financial regrets — but don’t plan to do anything about it


The HSA was established under the Medicare Modernization Act of 2003 and was created to allow a participant the ability to pay medical expenses with pretax dollars. In order to be eligible for an HSA, you must first be enrolled in a qualified High Deductible Health Plan (HDHP). In order for a plan to qualify as a HDHP, it must require a deductible of at least $1,350 for self-only HDHP coverage or $2,700 for family HDHP coverage and a maximum out of pocket expense (deductibles, copayments and other amounts, but not premiums) of no more than $6,750 for self-only plans and $13,500 for family plans. Not all HDHPs are HSA eligible, so you should check with your insurance carrier to make sure your plan qualifies.

If you qualify to participate in an HSA in 2019, you can contribute up to $3,500 if you have a self-only deductible or $7000 if you have a family deductible. You can contribute another $1000 on top of those amounts if you are at least age 55 during any time of the year.

HSA contributions are federally tax-deductible. Even better, any contributions made through a Section 125 payroll deduction plan also escape FICA (Social Security and Medicare) taxes. This can save an additional 7.65% tax on the amount contributed. If your employer makes contributions on your behalf, those contributions are also tax-free, but the combined contribution is still limited to the annual maximums previously mentioned. You can contribute to an HSA regardless of your income (in fact, you don’t have to have any income to contribute), but you lose eligibility to contribute once you enroll in Medicare (generally age 65). While you may not be able to contribute any longer, you can still keep your plan for distributions. HSA plans are completely portable. You can take them with you when you change employers or when you retire.

Qualified distributions from an HSA are income tax-free for the owner and the owner’s spouse or dependents. In order for the distributions qualify for tax-free status, they must be used for qualified medical expenses, which include medical, dental, vision, and chiropractic expenses. Additionally, once the owner reaches age 65, qualified expenses also include premiums for Medicare (but not Medigap), employer provided health insurance, COBRA, and long-term care Insurance. Distributions that do not meet this criterion, are subject to federal income taxation plus a 20% penalty. However, once the owner reaches age 65, the 20% does not apply. HSA plans do hot have Required Minimum Distributions (RMDs). You are never required to take distributions from the plan regardless of your age. It is important to understand that this discussion relates to federal income taxation only. Each state has laws that govern state taxation of contributions and distributions.

HSA plans can be rolled over from one spouse to the other without taxation. If the participant dies, the spouse can take the plan over as his or her own and use the funds as if he or she is the original owner. However, if the HSA is left to anyone other than a spouse, the funds become taxable immediately in the year of death. There is no “stretch” provision to allow the beneficiaries to take small distributions over their life expectancies. Also, non-spouse beneficiaries cannot use the account for their own medical expenses on a tax-favored basis.

Read: Do pension benefit cuts encourage public employees to leave their jobs?

HSA/401(k) strategy

One of the largest expenses that most of us will face in retirement is medical costs and premiums. According to the Employee Benefit Research Institute (EBRI), a couple retiring today would need $286,000 to have a 75% chance of funding medical expenses and premiums during retirement—that is over $140,000 per person. No matter what size your nest egg is in retirement, $140,000 takes up a pretty large portion of it. So, if we know that we will have significant medical expenses in retirement, we should make certain we prepare for these expenses.

While a 401(k) is a very good vehicle to grow your retirement funds, it is a terrible vehicle for distributing those funds. If, for example, your effective tax rate is 15%, then for every dollar you need in retirement, you will need to withdraw $1.18 to net out that dollar ($1/ (1-.15) = $1.18). So, in order to spend $140,000 in retirement for medical expense, you would need to have nearly $165,000 set aside. The Roth 401(k) does not have the distribution taxation problem, but it does not provide the tax deduction up front.

Consider saving enough in your HSA to both pay for current medical expenses each year and to save for medical expenses in retirement. You will not need to waste valuable 401(k) retirement resources on taxes upon qualified distributions at retirement and you will not lose the tax deduction on your contribution like you would using a Roth 401(k).

Let’s assume a 35-year-old individual makes $65,000 a year and is contributing 10%, or $6,500 a year, of pay divided equally between a traditional 401(k) plan and a Roth 401(k) plan, ($3,250 each). This employee wants to incorporate the HSA into the retirement strategy to provide tax advantaged dollars toward medical expenses in retirement. In order to have $140,000 available for medical expenses at age 65, the participant would have to commit in $2,006 a year into the HSA in addition to the current estimated annual medical costs. (This calculation assumes the HSA plan earns 5% each year which, of course, is not guaranteed.) The remaining $4,493 would be allocated as follows: $3,250 to the Roth 401(k) (the amount currently being contributed) and $1,243 to the traditional 401(k). As the employee’s income grows, simply allocate the incremental increases evenly between the traditional and Roth 401(k) plans and keep the HSA payment level.

This plan provides the most tax advantageous way of funding medical expenses at retirement without sacrificing future retirement savings or current income tax savings. Assuming all of the accounts earn the same rate of return, the HSA will provide the most efficient method to pay for medical expenses at retirement since it provides both tax deductible contributions and tax-free distributions for qualified medical expenses. And if the full balance in the HSA is not needed during retirement, then simply withdraw the money and pay tax on the distribution like a traditional 401(k) distribution. Since the only money allocated to the HSA was money that initially was allocated to the Traditional 401(k), there is no taxation difference if the funds are not needed for medical expenses. One caveat — always make certain that you fund your 401(k) enough to capture the full employer match. Proper funding of a Health Savings Account can be a good way to maximize your retirement dollars. Tax laws are complicated, and penalties for mistakes can be costly. Make sure you seek out the guidance of a tax professional before making important financial decisions.

Examples are hypothetical and for illustrative purposes only. The rates of return do not represent any actual investment and cannot be guaranteed. Any investment involves potential loss of principal.

Clark D. Randall, CFP, is a financial planner, Registered Representative and owner of Financial Enlightenment, a financial services firm. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory Services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Financial Enlightenment & Cambridge are not affiliated.

Bitcoin Price, Will the Bull Run Continue? What’s Next For the Digital Coin?

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Bitcoin Price

In recent weeks, the cryptocurrency market has been a hive of activity. This is largely in part to Bitcoin price’s resurgence of late. And what a resurgence. The world’s largest digital asset by market cap is currently selling for $8,724 USD per coin (to press time and according to It has grown an astronomical 186% in little under 5 months.

Bitcoin Price – A Fall From Grace

As Bitcoin heads towards the $9k mark, it nears almost half of its all-time high of $20,000. Hit in late 2017, those glory days were soon wiped clean in 2018—a bearish downturn took over and across the year, the coin lost 70% of its value.

So at it’s highest high, the digital coin was worth over $20,000. But jump forward to early 2019 and the coin was scraping lows of $3,250 approx.

As expected, the recent comeback has analysts talking and its no surprise. Many now believe that this bull run will eclipse Bitcoin’s iconic 2017 one. There are several key differences between that time and now that make this plausible.

So let’s check out some of the main reasons analysts expect this run to last.

A New Level of FOMO

FOMO, or the Fear Of Missing Out, has always played a role in dictating Bitcoin price. It’s simple psychology that people don’t want to miss out on a good thing. But what is very interesting for Bitcoin this time around, is that investors now know that a climb to $20,000 is possible because it has done just that before.

This time, we know a climb to $20,000 is possible, therefore it’s probable that investors will flock to Bitcoin in their droves for fear of missing out on an expected massive rally.

Industry Involvement

Bitcoin now has a greater variety of platforms than before and this should impact on Bitcoin price. These give investors exposure into the crypto markets and, simply put, make investing in Bitcoin much easier now than in 2017.

Platforms such as Bakkt, Fidelity and Square, among many others, have added support for Bitcoin in their own way. This leads to an overall climate that is more accepting of the coin and encourages other institutions to jump on board.

The Impending Halvening in 2020

There is something called “the halvening” on the horizon for Bitcoin. This is an event written into Bitcoin’s code and it will cut all mining rewards in half. Expected to happen in 2020, it will effectively diminish supply. As with anything, as supply goes down, demand and price tend to go up and we can argue that Bitcoin is no different. So this current run may be spurred on by miner’s and investors hoarding as much Bitcoin as possible now before the halvening occurs and supply is lessened.

>>Is Facebook Launching its GlobalCoin Cryptocurrency Next Year? BBC Says Yes

As it stands, there is no one definite reason as to why this Bitcoin rally began. And there are even more guesses if it will continue. Industry sentiment is bullish of late, however, Bitcoin remains a volatile investment and sudden declines are easily around the corner. So be aware investors!

Do you think Bitcoin price will continue to climb? Are we on the verge of eclipsing Bitcoin’s all-time-high price?

Featured Image: Deposit Photos/SectoR_2010