Paying for any additional education and training you can’t get for free
Taking tax deductions to offset the costs of job hunting or running a business
Putting together your own benefits package
Whether you’re unemployed, underemployed, or planning to change careers or start your own business, a solid financial platform gives you the time and options needed to successfully navigate your transition. You’ll want to make sure you can afford the basics: food, shelter, healthcare, and so on. If you’re out of work, you may need to slash expenses and take advantage of government-sponsored safety-net programs to support yourself and your family through a period of unemployment. If you’re planning a career change, you may need to take a job for significantly less money than you had been making to get started in the new field. And if you’re planning to start a business or become a contract worker, you can expect to work for several months before you see any income or profit.
Being unemployed is a double whammy; you have no income plus some added expenses. If you need additional training to enter the workforce, for instance, you may have to pay for it, along with transportation to and from the training center or school. Creating, printing, and mailing applications, résumés, and cover letters also cost money, especially if you need to hire someone to help you. And if your employer supplied health insurance, even if you choose to continue that coverage through COBRA, you’re faced with paying the entire premium or dropping coverage.
This chapter offers guidance on how to tighten your belt and take advantage of tax breaks and other government programs. This two-pronged attack — spending less while tapping available resources — puts you in a better position to support yourself and your family as you work toward achieving your career goals.
Filing for Unemployment Benefits
When you lose a job, you may be able to apply for unemployment benefits. To qualify, you must meet the following conditions:
You’re unemployed through no fault of your own, meaning you didn’t quit or get fired for gross misconduct — committing a dangerous or illegal act, such as stealing from your employer.
You received enough wages to establish a claim. Requirements on wages earned vary among states. Contact your local unemployment office or visit your state’s unemployment website for details.
In most states, you also need to be physically able to work, actively looking for work, and ready and willing to accept work.
If you qualify, don’t let pride get in the way of filing for unemployment insurance benefits. These programs are in place to alleviate some of the financial pain and pressure of being unemployed.
Getting Your Financial House in Order
When money gets tight, your options are limited. You can earn more money, spend less, or do both. You may need to make some painful choices, such as downsizing or even moving to a more affordable city or town. In dire circumstances, you may even consider asking friends or family members for help or taking advantage of government-sponsored assistance programs.
This section aims to help you get motivated to make the changes that are often necessary to firm up your finances. It suggests ways to cut expenses and tap your own financial resources for temporary relief.
Motivating yourself to get started
Spending money is much more fun than cutting expenses, but debt is a dream killer. It drives people to make choices out of desperation that often limit their opportunities to achieve future wealth. If you need additional motivation to get started, consider the following reasons to strive toward financial fitness:
When you’re nimble financially, you have more choices. You can accept a job that may not pay as much as your last one because you want the job instead of need the job. You can turn down a job that’s not right for you, because you can afford to wait for the right opportunity. You can choose to become a contract worker or start your own business knowing that you can survive for months without pay as you establish yourself.
You’re more confident and less apt to appear desperate or needy. As you search for a job, engage in interviews, and negotiate the terms of your employment, you can operate from a position of strength, and your confidence shows.
You can focus on finding your ideal job. Having to worry less about paying bills, you can focus more time, energy, and effort on finding the job you want or launching your own business.
You can afford to pay for the additional training and services you need to pursue your career goals. By having savings socked away, you have the resources available to ramp up your skill set.
Focusing on the fundamentals
If you never had to concern yourself with finances in the past, focus first on these fundamentals:
Chart a budget. Write down your income, what you owe, and what you have socked away. Look at what you’re spending every day, every month, and every year. This will help you find ways to pare back your spending. Begin by keeping track of how much you spend each day and on what. (Pay in cash or put everything on a credit or debit card, as long as that doesn’t lead to increased spending.) Then, on a monthly basis, study your credit card, bank statements, and log of cash payments to see where your money is going and what can be trimmed back or eliminated. Do you dine out too often? Are you traveling too much? Do you spend a lot on groceries or clothes? Do you have magazine or newspaper subscriptions you don’t even read? (See Book 4, Chapter 2 for more about budgeting.)
Track your finances on a website or smartphone app, such as Mint (www.mint.com) or You Need a Budget (www.youneedabudget.com). These services are designed to help you streamline your bill paying and dissect your monthly spending.
Increase your savings. If you’re unemployed, increasing your savings obviously is not an option, but if you’re still working and planning ahead for a career change or business startup, grow your nest egg. A savings cushion of six months to a year of living expenses will stave off dipping into your retirement savings or taking on debt. (Aim for a year’s worth of expenses, if you can swing it.)
Stay liquid. Emergency funds typically belong in bank accounts or money market funds that don’t fluctuate in value and are easily accessible by check, ATM, or teller window. You might also put some of your emergency cash in bank CDs with maturity dates of six months or less so you can eke out a little more interest than from a savings account. You generally find the highest rates at online banks and credit unions. A great place to comparison shop is Bankrate (www.bankrate.com).
Review your credit report and score. Get a free annual report at www.annualcreditreport.com and check it for errors. Pay a little extra to get your credit score. Your credit score is important for two reasons:
With a higher score, you can borrow more money at lower interest rates, which gives you more choices. Good credit can provide the funds you need to start a business or pay bills as you transition to contract work.
Many employers are now checking credit scores prior to hiring. (They must ask your permission to do so.)
If your credit score is lower than 700, work toward improving it. Pay all bills on time, don’t open new accounts, transfer balances, and pay off balances on credit cards. Note: It’s usually a better idea to keep a paid-off credit card account open, with no balance, than to close it. Part of your credit score is age of credit, which looks at how long you’ve had each credit account, and the longer the better.
Consider opening an account with creditkarma.com — it’s free and gives you real-time updates to your credit score.
Consolidate debt. If you have several sources of debt, you may be able to consolidate loans and credit card balances into a single loan with a lower overall interest rate.
Review credit card offers. Paying 0 percent on balance tansfers is a great way to pay off debt without interest. Just make sure to pay off the debt before the 0 percent promotion ends.
Reduce or eliminate debt. Pay down credit card balances and refinance your mortgage at a lower rate, if possible. Consider downsizing your home, depending on where you live and the real estate market. If you have enough equity built up in your current home, you may be able to sell it and pay cash for a more affordable home, eliminating your mortgage.
If you’ve experienced a financial setback, such as unemployment, contact your creditors and try to negotiate payment options. Banks are often willing to work out arrangements with people who are responsible enough to call them and make a sincere effort to work out a solution.
Consult with a fee-only financial planner. Look for experienced, credentialed advisers. As a rule, an adviser should have the Certified Financial Planner (CFP) designation, awarded by the nonprofit Certified Financial Planner Board of Standards. These national groups of financial planners offer searchable databases with contact information: the Certified Financial Planner Board of Standards (www.cfp.net), Financial Planning Association (www.plannersearch.org), Garrett Planning Network (www.garrettplanningnetwork.com), and National Association of Personal Financial Advisors (www.napfa.org).
Take a personal finance course or read a book. Many community colleges offer personal finance courses. Check out Personal Finance After 50 For Dummies, by Eric Tyson and Bob Carlson (Wiley, 2015).
Tapping your financial resources
If you’re over 50, you may have built up quite a nest egg in the form of equity in a home, savings and retirement accounts, and other valuable possessions. Although you don’t want to deplete these resources, you may be able to borrow against some of them and cash out portions of others to make it through a rough patch or fund a career change or business startup. Think creatively — and then consult with your financial adviser. Here are a few suggestions to kick your imagination into gear:
Take out a home equity line of credit. If you have equity built up in your home, a home equity line of credit enables you to cash out that equity on an as-needed basis.
Use a home equity line of credit only as an emergency fund — perhaps to cover mortgage payments to avoid foreclosure while you try selling the property. It’s a great safety net to have in an emergency.
Downsize. Look for a more affordable housing option. Many people who downsize enjoy the resulting increase in financial freedom and wish they had made the move sooner.
Use your assets to earn money. For example, you may be able to lease one or more rooms in your home (or your entire home, if you move to more affordable accommodations). You can use your car or van to provide delivery services or work as a driver for a service such as Uber (www.uber.com) or Lyft (www.lyft.com).
Sell your assets. You can always sell your assets, for example on eBay or craigslist, to turn them into cash. (For guidance on listing and selling items on eBay, check out eBay For Dummies, 9th Edition, by Marsha Collier (Wiley, 2016).
Financing Any Additional Education and Training
If you need additional education or training to return to the workforce or to change careers and you can’t find it for free, you need to come up with the cash to cover the costs of the training and any books and other materials required for the courses you take. Fortunately, student financing is available even for older students, some of which is available exclusively for older students. This section helps you explore your options.
Paying for your education
Although certain educational offerings are entirely free, many programs, especially those that offer a degree or certification, cost money. If you’re currently employed, you may be able to take advantage of employer-reimbursed education and training opportunities, or you may have enough money and time to work on your degree or certification one course at a time. If you’re unemployed and strapped for cash, the financial aid department at the school you’re interested in can help you explore available options, including scholarships, grants, fellowships, and student loans. This section reveals several options to help pay for your education.
Taking advantage of employer education/training opportunities
Roughly half of employers offer tuition assistance to employees, according to the Society for Human Resource Management. Many employers offer tax-free tuition-assistance programs (up to $5,250, not counted as taxable income), and the contribution doesn’t have to be attached to a full-degree program.
You may have to repay the funds, though, if you don’t stay with the company for a certain number of years afterward. And you may need to earn a minimum grade or get your manager’s approval for the curriculum to be eligible for this workplace perk.
Admittedly, if you choose a field that doesn’t directly relate to your current employment, you may need to convince your boss that your course of study will resonate, even tangentially, with your job. But nothing ventured, nothing gained. In essence, you’ll need to explain how continuing education will make you a more productive and creative worker. In other words, what’s in it for the company?
Getting a break from Uncle Sam
The federal government has a vested interest in keeping you in the workforce. The longer you continue to work, the more tax revenue you generate. So don’t hesitate to seek out government assistance to fund your continuing education. Government assistance typically comes in the form of tax breaks and low-interest loans. Here are a few resources to check out:
Visit the Tax Benefits for Education Information Center on the IRS website (www.irs.gov/newsroom/tax-benefits-for-education-information-center). The Lifetime Learning Credit, for example, can give you a tax credit of up to $2,000 to cover up to 20 percent of annual tuition; you don’t have to be enrolled in a degree program. (The benefit phases out completely for married couples earning $131,000 and singles earning $65,000.)
Consider a low-interest federal Stafford loan. There’s no age limit, and you’re eligible as a part-time student, too.
Search the web for your state followed by “college financial aid” to find links to sites that contain information about state financial aid programs for higher education.
Certain forms of financial aid are often available only to students working toward their first bachelor’s degree, but some schools will waive this requirement for older students returning to college to pursue a career change.
For an undergraduate degree, check out federal Pell grants. They’re interest-free and don’t need to be repaid; the most recent maximum award is $5,730. The amount you’ll qualify for depends on factors such as your financial need, tuition costs, and whether you’ll be a full- or part-time student. For more on this type of aid, go to the Pell grant area of the U.S. Department of Education’s website at www2.ed.gov/programs/fpg/index.html.
Paying with tax-free money: 529 plans
To make the most of the money you have available to pay for classes, consider socking away money in a 529 plan. This tax-favored program, run by the states, isn’t just for your child’s or grandchild’s college tuition. People of any age can invest money in a 529 plan and use the cash for their future education costs. A 529’s earnings are tax-free when you withdraw the money to pay higher education expenses. Some states even let residents deduct 529 contributions from their state income taxes. And if you wind up not using some or all of the money, you can transfer the funds to another beneficiary, such as your child or grandchild. You can research 529 plans at the College Savings Plans Network (www.collegesavings.org).
Scoring scholarships, grants, and fellowships
Try to score an older-student grant, scholarship, or fellowship. Some groups and foundations offer them, though it may take some investigating to track down this interest-free financing. The American Association of University Women, for example, offers fellowships and grants for women going back to school to advance their careers, change careers, or reenter the workforce. For more on grants, scholarships, and fellowships, check out the sites www.fastweb.com and www.finaid.org.
Choosing the right loan for you
If you must borrow, be conservative. The Consumer Financial Protection Bureau (www.consumerfinance.gov) has excellent college financing advice to help you choose the right loan and pay the least amount of interest. Try to get a Federal Direct Loan. Rates on these loans are fixed and low.
You may be able to get your monthly student loan payments reduced if you work in public safety, public health, education, social work, or the nonprofit sector. Learn more at the Public Service Loan Forgiveness Program area of the Department of Education site (www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/public-service).
Avoiding additional debt
Consider your future finances before taking on any significant student debt. Look at it as a short-term investment and weigh the potential return on that investment and the risk. Ask yourself how likely each educational opportunity will produce a return on your investment. Consider your future financial condition if everything goes as planned and if the outcome doesn’t live up to your expectations. Is it worth the risk?
If you’re already strapped for cash, do your best to avoid taking on more debt. Spending $5,000 for training to become a truck driver, for example, may make sense if you’re certain to land a job soon after graduation that pays enough to cover your expenses and the loan in your first year on the job. If you can find a trucking company to cover the cost, even that expense can be avoided.
Applying for student financial aid
The first step to take to pay for additional education and training is to contact the financial aid department at the school or training center you plan to attend to find out whether the program you plan to enroll in is eligible for student financial aid. If it is, you’ll probably be required to submit a Free Application for Federal Student Aid (FAFSA). Nearly all educational institutions require that students submit their FAFSA to become eligible for any form of student financial aid, regardless of whether the aid is based on financial need. Students of any age can submit the FAFSA and are eligible for federal student financial assistance. Soon after submitting your FAFSA, schedule an appointment to meet with someone in the financial aid department of the school or training center you plan to attend.
If you’re quitting a job to return to school, request a “professional judgment” review to adjust your income, so your financial aid package is based more on projected income than on your past year’s income.
The school’s financial aid rep will put together a financial aid package for you that shows the various forms of financial aid and the amounts you qualify for and how much cash you’re expected to contribute. For example, a financial aid package may show the amounts you qualify for in the form of scholarships, grants, fellowships, work-study programs, and subsidized student loans. You may be able to secure additional student loans not included as part of your financial aid package if you can’t come up with the cash to meet your projected obligation.
Be sure to submit your FAFSA by your state’s or school’s deadline — typically early to mid-February for the school year starting in the fall. You’ll need information from your tax return to complete the FAFSA, which is kind of tricky; if you don’t have all your W-2s and other documents to complete your tax return, you’ll have to estimate your income for the year and then file an amended FAFSA later if your estimates are off.
If you’re currently employed, ask your employer’s human resources office about the availability of employer tuition assistance. Many large employers provide some form of tuition assistance. Up to $5,250 (in some cases more) in such assistance is excluded from gross income for income tax purposes. They may require you to maintain a minimum GPA to get the assistance and commit to working for the organization for a certain number of years after receiving the assistance (or you have to pay it back). Often the assistance is provided as a reimbursement after the fact, so you’ll need to budget for your cash flow needs.
Visit FinAid (www.finaid.org), click Other Types of Aid, and click Other and Non Traditional for more information. FinAid is a free comprehensive source of student financial aid information, advice, and tools — on or off the web.
Applying for grants and scholarships
Although your financial aid package may contain one or more grants or scholarships, you can find and apply for additional grants and scholarships on your own. Research scholarships at Fastweb (www.fastweb.com), where you can find more than 50 awards that have a minimum age restriction of 30 years or older, more than 230 awards with a minimum age restriction of 25 years or older, and more than 1,800 awards with no age restrictions.
Ask the financial aid rep at the school you plan to attend about Silver Scholarships. The Serve America Act authorizes the Corporation for National and Community Service (CNCS) to award fixed-amount grants to community-based nonprofit entities to carry out a Silver Scholarship Grant Program, which provides $1,000 higher education scholarships to individuals age 55 or older who complete at least 350 hours of service in a year in an area of national need. The grant may be transferred to a child, grandchild, or foster child.
Leveraging tax breaks to lower costs
The federal government provides tax deductions and credits to offset educational costs. (A deduction lowers the income on which taxes are calculated, whereas a credit lowers the taxes owed by a certain amount.) Here are a few of the more substantial federal tax deductions and credits available:
You can deduct the interest you paid on student loans. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year. Note: The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.
The Lifetime Learning Credit allows you to claim up to $2,000 per student per year for any college or career school tuition and fees as well as for books, supplies, and equipment required for the course.
You may be able to withdraw from an IRA to pay for qualified higher education expenses for yourself, your spouse, your child, or your grandchild without having to pay an early withdrawal penalty. You will still owe federal and state income tax on the amount withdrawn.
Consult a tax specialist to find out more about federal, state, and local tax breaks to help cover education expenses.
For more information, read IRS Publication 970, “Tax Benefits for Education” (www.irs.gov/publications/p970) to see which federal income tax benefits may apply to your situation.
Writing Off Your Job-Hunt Expenses
When you’re looking for a job, you need all the breaks you can get, and depending on your situation, you may qualify for federal and state income tax deductions to help offset your job-hunting costs. Be obsessive about saving receipts.
Job-hunting deductions apply only to searching for a job in your current field. If you’re switching careers, you can’t use them.
Depending on your situation, you may be able to itemize your expenses for a tax deduction, using Form 1040 and Schedule A. You can claim a federal tax deduction only for job-hunt costs exceeding 2 percent of your adjusted gross income. That said, you may want to seek professional tax help for your situation. Here are a few deductions that may apply:
Outplacement and employment agency fees: These costs are acceptable whether or not you land a new job, assuming, of course, that you’re looking for a job in the same line of work. Career-coaching fees may also be deductible.
Résumé preparation and postage: Paper, ink-jet cartridges, fees paid to a résumé writer, printing costs, and postage are all probable write-offs.
Dues, subscriptions, and association fees: Membership dues to professional organizations and subscriptions to certain industry publications may be deductible if you use the services provided in your job search. If challenged, you will need to show documentation that a job board at your professional association, for example, was a direct source of leads for you.
Business travel: You can deduct the IRS standard mileage rate if you use your personal vehicle for business, but be sure to keep travel mileage logs in case you’re asked for documentation. Airfare, train tickets, and taxi fare are deductible, provided they’re specifically related to your job hunt. You can’t, for instance, take a five-day trip to Washington, D.C., to visit the museums, spend a single day interviewing, and then count the entire trip as a write-off.
Business meals: If you’re job searching and meeting with sources or other business contacts, keep track of whether you pick up lunch or coffee, as 50 percent of the total cost of those meals can be deducted.
Moving costs: If you accept a job that requires you to relocate, you may be able to write off all expenses associated with your move if your new employer doesn’t offer to reimburse you. Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you use your vehicle to move, you can deduct mileage. For more information, see IRS Publication 521 “Moving Expenses” (www.irs.gov/publications/p521).
Internet access: You should be able to deduct work-related Wi-Fi expenses and fees for online job sites and networking services such as LinkedIn (if you upgrade to a paid, professional account). Again, you must be able to show evidence that these were tools used in your job search.
Home office deduction: If you’re working as a freelancer, contract worker, or consultant while you pound the pavement for a new full-time gig, you can write off some of your home office costs if you have set aside a specific place solely for work. You must file Form 8829 “Expenses for Business Use of Your Home.” The IRS now allows a “Simplified Option for Home Office Deduction,” which permits you to deduct $5 per square foot of your home office on your tax return, with a maximum write-off of $1,500 (based on a maximum of 300 square feet). It’s usually a better option to take the traditional home office deduction, but you should run the numbers. You can read all the home office rules in IRS Publication 587, “Business Use of Your Home” (www.irs.gov/publications/p587).
Skill building: The cost of job-search seminars and networking events is generally deductible, but again, you must be certain you can prove that they’re connected to your job search. Tuition money to acquire or improve job skills may qualify for the Lifetime Learning Credit, which has limitations and income restrictions that are explained in IRS Publication 970, “Tax Benefits for Education” (www.irs.gov/publications/p970).
Accounting for Social Security Benefits Reductions When You Work
If you start receiving Social Security retirement benefits before reaching your full retirement age, your benefits are reduced if you earn more than a certain amount. For example, in 2017, if you’re younger than full retirement age, $1 is deducted from your benefits for each $2 you earn above $16,920. If you reach full retirement age during 2017, $1 is deducted from your benefits for each $3 you earn above $44,880 until the month you reach full retirement age. For people younger than full retirement age during 2017, here’s the breakdown:
If your monthly Social Security benefit is …
And you earn …
You’ll receive yearly benefits of …
$700
$16,920 or less
$8,400
$700
$18,000
$7,860
$700
$20,000
$6,860
$900
$16,920 or less
$10,800
$900
$18,000
$10,260
$900
$20,000
$9,260
$1,100
$16,920 or less
$13,200
$1,100
$18,000
$12,660
$1,100
$20,000
$11,660
If you work for someone else, only your wages count toward Social Security’s earnings limits. If you’re self-employed, only your net earnings from self-employment count. Other income, such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains, don’t count toward your earnings limit. For details, read the pamphlet “How Work Affects Your Benefits” at www.ssa.gov/pubs/EN-05-10069.pdf.
For more about Social Security, read AARP Social Security For Dummies, by Jonathan Peterson (Wiley, 2016).
The amount your benefits are reduced, however, isn’t truly lost. Your benefit will be increased at your full retirement age to account over time for benefits withheld due to earlier earnings.
Taking Advantage of Additional Public Benefits
If you’re unemployed or experience a significant reduction in income, you may qualify for benefits from federal, state, and local governments that you hadn’t previously qualified for, including the following:
When you work, a portion of your taxes goes toward funding these benefits for others. When you’re unemployed or underemployed, take advantage of these benefits to get back on your feet (after all, you paid for them), so you can start paying taxes again to help other unfortunate souls.
To find out which federal benefits you may be eligible to receive, visit www.benefits.gov. To find out about benefit programs in your state, mouse over Benefits in the menu bar near the top, click By State, and click the state you reside in. To find out about local benefit programs, contact a family services organization, community center, or church.
Providing Benefits for Yourself
If you’re self-employed, unemployed, or underemployed, you don’t have access to employer-sponsored benefits, such as health insurance and pension programs, so you need to provide them for yourself or make do without them. The good news is that if you’re not earning enough to fund these benefits yourself, the government may help by subsidizing your health insurance premiums and expanding your tax breaks for any surplus you may be able to squirrel away in a retirement account. This section helps you explore your options.
Planning for retirement
If you’re starting a business, working on contract, moving to a nonprofit, or joining a small firm without an employee retirement plan, open your own. Your three key options are solo 401(k), SEP-IRA, and Simple IRA.
Solo 401(k): This plan is best if you’re self-employed with no employees and have income of $100,000 or more. The maximum amount you can contribute is 20 percent of net self-employment income plus $18,000, up to $53,000 in 2015; if you’re 50 or older, you can contribute up to $6,000 more. The deadline to open an account to be eligible for a deduction is December 31. You can make contributions until your business’s tax-filing deadline.
SEP IRA (Simplified Employee Pension): A SEP is a good choice if you’re running your own business with no employees. The maximum contribution is 25 percent of self-employment income, up to $54,000 for 2017. The SEP has no “catch-up” provision allowing people age 50 or older to invest more than younger people. The deadline to open is April 15 to be eligible for a deduction for the previous tax year or October 15, if you file for an extension.
Simple IRA: You may opt for a Simple IRA if you have fewer than 100 employees. You can also have a Simple IRA if you don’t have employees. If you do have employees, you typically must match up to 3 percent of their compensation. The maximum contribution is $12,500 up to $15,500 if you’re 50 or older. The deadline to open an account is October 1 to be eligible for a deduction in the current tax year.
Don’t worry about having to max out your contribution; save as much as you can. Opt for an auto-deposit program if your bank and financial firm permit so that you can have a set amount automatically shifted from your business’s bank account into a retirement plan every month.
Low-income individuals or couples can qualify for a special Savers Credit of up to $2,000 for an individual or $4,000 for a couple for retirement plan contributions. To be eligible in 2017, single taxpayers couldn’t earn more than $31,000 (or $62,000 for married couples).
Getting health insurance
If you’re not eligible for an employer-sponsored health insurance plan, shop for insurance on the new healthcare exchanges via Healthcare.gov (www.healthcare.gov). Don’t drop your current job insurance (you can continue it for a time under a law known as COBRA) until you have a new policy in place. Note that with COBRA, you’re likely to lose your employer’s contribution, so be prepared for your health insurance premium to double or worse.
Check your state insurance department website, too, because it may list health insurance choices for residents. Also be sure to ask your doctors which insurance carriers they accept. (See Book 3, Chapter 1 for more about health insurance, and Book 3, Chapter 3 for more on Medicare.)
Crunch the numbers when comparing health insurance plans. You may save money by choosing a high-deductible plan and using a health savings account (HSA) to pay for medical, dental, and medication costs with untaxed money from your HSA. But you may not. To compare plans, take the following steps:
Multiply your monthly health insurance premium by 12 months under one of the plans you’re considering.
Calculate or estimate your total annual out-of-pocket costs under this particular plan.
This is the tricky part. If the plan covers everything except a small deductible, simply use the deductible as your total. Likewise, if the deductible is high and you expect your out-of-pocket costs will meet the deductible, use the deductible as your total. But if you’re healthy and rarely meet your deductible, you may want to estimate your annual out-of-pocket costs based on previous years’ amounts.
Perform Steps 1 and 2 for each plan you’re considering.
Compare the plans.
For example, suppose that you’re comparing a gold plan that covers everything except for a $200 deductible and costs $680 per month to a bronze plan with a $3,000 deductible that costs $180 per month, and you think you’d probably meet that $3,000 deductible under the bronze plan:
Annual cost of gold plan =
Annual cost of bronze plan =
In addition, you could have an HSA under the bronze plan and use it to pay your out-of-pocket expenses with non-taxed dollars, saving you additional money, so the bronze plan would be best, all other things being equal (such as whether the doctors you want to see accept that particular plan).
You may be charged a small annual fee of about $40 for a health savings account from a no-load mutual fund company, such as Vanguard or Fidelity. You can contribute up to $3,400 (2017, going up to $3,450 in 2018) to a health savings account for individual coverage (a maximum of $4,350 if you’re 55 or older). For families, the limit on contributions is $6,750 (2017, rising to $6900 in 2018) and $7,650 if you’re 55 or older. Most banks also have HSAs.
If you’re shopping for an individual health policy, you can also compare premiums, deductibles, and out-of-pocket costs at such websites as eHealth (www.ehealthinsurance.com), GoHealth (www.gohealthinsurance.com), Insure.com (www.insure.com), and NetQuote (www.netquote.com). Always check to see whether your preferred doctors are in-network before you select a plan. Or have a local health insurance agent shop around on your behalf. Look for one at the National Association of Health Underwriters website (www.nahu.org).
Running a tight financial ship
If you qualify, don’t let pride get in the way of filing for unemployment insurance benefits. These programs are in place to alleviate some of the financial pain and pressure of being unemployed.
Track your finances on a website or smartphone app, such as Mint (
Use a home equity line of credit only as an emergency fund — perhaps to cover mortgage payments to avoid foreclosure while you try selling the property. It’s a great safety net to have in an emergency.
