Gain financial insights from the final episode of the 6-part podcast series by Kiplinger. This episode features:
• How you can cut your prescription drug expenses
• Tips on figuring out how you want to spend your retirement
• Our quiz testing your personal finance knowledge
Click play to listen now!
Transcript:
Kiplinger’s Talk About Money podcast
Sponsored by Synchrony Bank
[WELCOME AND SEGMENT 1: How to Pay for Pricey Prescriptions]
[Soft theme music playing]
MICHAEL: Everyone spending more time this year working from home got a little taste of what retirement might be like. Some discovered they definitely need more hobbies or, at least, more structure to their days. Others came to appreciate the importance of the social connections they get from work.
Today, we’ll talk about test-driving your retirement – ways to experience what your post-career life might be like while you still have time to make changes and improve your actual retirement.
We’ll also have a personal finance quiz that everyone listening will surely ace. BUT FIRST, we’ll talk about how to pay for expensive prescription drugs, an issue for many of us in a high-deductible health insurance plan.
That’s all coming up on today’s episode of Kiplinger’s Talk About Money, sponsored by Synchrony Bank. We’ll be right back.
[theme music gets louder; plays for 5 to 10 seconds, then fades]
MICHAEL: Welcome back to Kiplinger’s Talk About Money, sponsored by Synchrony Bank. I’m your host Michael Causey, and today we’re discussing ways to cut the cost of pricey prescription drugs. Joining me now is Kim Lankford, money expert and former Ask Kim columnist for Kiplinger’s Personal Finance magazine. Kim, thanks for being here.
KIM: Glad to be here, Michael.
It’s no secret that the price of prescription drugs – brand-name and even generics – has been rising faster than inflation. And for specialty drugs – the increase is even more dramatic.
Last year, a Consumer Reports study found that many people simply skip filling their prescriptions in response to rising prices. Some even report taking expired medications.
MICHAEL: That’s a prescription for trouble!
KIM: It certainly could lead to more health problems – and maybe more medical bills -down the line.
But, Michael, consumers don’t have to resort to those measures. There are ways to reduce the cost of pricey prescriptions.
MICHAEL: That’s good news for some of us in a high-deductible health insurance plan.
KIM: You’re right. Workers increasingly are enrolling in these insurance plans. And that means they can pay hundreds - or even thousands - of dollars in prescription drug costs out-of-pocket before insurance kicks in.
MICHAEL: So, what can we do to rein in runaway drug prices?
KIM: Well, if you are in a high-deductible plan, let your doctor know and ask if there are cheaper alternatives to the drug being prescribed. For instance, there may be a generic version. Or maybe that expensive new drug is a combination of older, less expensive treatments that would work for you.
MICHAEL: And if cheaper alternatives aren’t available?
KIM: Then, you’ll need to do some comparison shopping between pharmacies in your area.
Check out free sites such as GoodRX.com and WellRX.com to see if they offer coupons or discounts for the drugs you use. GoodRX, for instance, says it can save consumers up to 80% on some medications.
And ask your doctor or pharmacist if the drug manufacturer offers a co-payment assistance program – similar to a coupon - that can offset prescription costs. Be aware, however, this program might only apply to a certain number of prescription refills. Make sure you read the fine print.
MICHAEL: There’s more help out there than I realized.
KIM: Manufacturers often offer one more assistance option as well. The details and qualifications can vary from one drug company to another, but under these programs, some drugs may be free for lower-income customers.
MICHAEL: Where do you find these programs?
You can search online for the name of the manufacturer and patient assistance program. Some sites compile a list of the programs. For example, you can go to NeedyMeds.org to find out if there is a program for your medication and where to apply for it.
And when applying, you might have to submit a copy of your W-2. Your doctor may also have to fill out part of the application as well as sign it. This may take a bit of effort and time, but the savings can make it well worth it.
MICHAEL: Kim, this is very helpful. Thanks for the tips.
KIM: You’re welcome, Michael.
MICHAEL: Later in this episode, Kim will quiz me on how well I’ve been paying attention to her personal finance advice all this time. And you can follow along.
But first, we’ll talk about retirement and how to test whether the retirement you think you want is the one that will make you happy. That’s all ahead on Kiplinger’s Talk About Money, sponsored by Synchrony Bank. Don’t go away!
[promo break 1]
In addition to consistently competitive rates, Synchrony Bank offers you convenient ways to manage and access your hard-earned money, including their mobile app available for both iOS and Android devices. Download it today from the App Store or Google Play. Synchrony Bank, Member FDIC.
[MAIN SEGMENT: Test-Driving Retirement]
MICHAEL: Welcome back, everyone. In today’s main feature, we’re talking about test-driving your retirement. This means getting a feel for what life might be like when you’re no longer working, but while you still have time – and a job – to adjust your retirement plans.
KIM: Michael, we usually focus on saving for retirement and making sure your nest egg will be large enough to support a retirement that may last for decades. And that’s important.
But there are many more aspects to retirement that workers overlook in their planning. Such as, what are you going to do with all your free time?
MICHAEL: Yes, there’s only so much golf you can play.
KIM: Exactly! That’s why trying to test your retirement beforehand can be helpful. To share some insight about how to do this is my colleague Eileen Ambrose, a senior editor at Kiplinger’s. Welcome, Eileen.
EILEEN: Hello, Michael and Kim.
MICHAEL: So, Eileen, I’m intrigued by this idea of taking my retirement out for a test run while I’m still working. Sort of like test-driving a car before you buy it. So how do you get started?
EILEEN: A good place to start is by testing your expected budget in retirement. This can help you know if you’re on the right track with your savings.
MICHAEL: Let’s stop here for a moment. How do you calculate your retirement budget if you haven’t done so already?
EILEEN: Look at what you’re spending now and think about how that might change when you’re retired. For example, in retirement you won’t be spending hundreds of dollars each month commuting to the office. Then again, you might spend more on hobbies.
One rule of thumb is that you can anticipate needing 70% to 80% of your current annual income to maintain your standard of living in retirement. That said, rules of thumb don’t fit everyone.
KIM: Precisely. Some retirees finally take their dream vacations once they have unlimited time to travel. They can end up spending even more during the early years of retirement than they did when they were working.
EILEEN: And spending can fluctuate. Once you no longer have the travel bug, your expenses may drop during mid-retirement. And then your spending might kick up again in your later years when health care bills increase.
MICHAEL: And once you have your retirement budget? Then what?
EILEEN: Then try living on that amount for a period. Many of us assume our expenses will go down in retirement. But trying to live on less money can test this assumption.
Or if you’re married and both of you work, you can live on just one spouse’s income while saving the other’s paycheck. That will show you what it’s like living on a reduced income.
You might find that it’s not so comfortable. Maybe this test tells you that you need to cut expenses, save more or work longer.
KIM: Eileen, so many people talk about moving to a state with a milder climate in retirement. How can you test-drive a move?
EILEEN: That’s what long vacations are for. You can spend weeks now visiting the places where you hope to eventually settle. And visit those places at different times of the year – not just in the peak season.
For instance, many snowbirds who vacation in Florida or Arizona in the winter underestimate how hot those states get in the summer.
KIM: This is where short-term rentals, such as Airbnb and VRBO, come in handy.
EILEEN: Yes, and you may be able to find these rentals in neighborhoods that you are thinking of moving into. Then you can experience what it’s like to live in specific areas of town.
For example, you might find out that one neighborhood has a livelier – and noisier – night life than you thought.
MICHAEL: What if you’re not planning to move?
EILEEN: Take a staycation. In other words, spend your vacation days at home. You’ll be able to slow down and figure out how to structure your days when you’re not working full-time.
Like, what time should you get up? How much time do you want to spend alone – or doing things with others?
MICHAEL: Or, what time to get out of my pajamas.
EILEEN: Yes, that too. More often, people start thinking about pursuing interests they haven’t had time to do before, like taking classes.
KIM: And if you’re married, a staycation will allow you to test a retirement in which both of you will be at home.
EILEEN: That’s right. You and your spouse may not realize that you both have very different ideas of how to spend your days in retirement. This can start that conversation.
KIM: Eileen, I’ve heard that retirement can be a shock. One day you’re working with colleagues you’ve known for years. People are sending you emails and need your input. The next day, you’re retired, and it’s all gone. And once you finish some projects around the house, you soon get bored.
EILEEN: That’s why so many retirees go back to work part time. Work provides us with more than a paycheck. It fills up much of our days. It gives us an identity and purpose. And work provides valuable social connections. When you retire, you’re suddenly cut off from all that.
So, many of us have been working from home this year, that it has been, in a way, a retirement test.
MICHAEL: I know what you mean. I have many friends who go stir crazy when they’re stuck at home.
EILEEN: Financial advisers tell me that the biggest surprise for new retirees isn’t about finances. It’s that they never thought about how they would spend their days. And if they haven’t rehearsed retirement ahead of time, they can easily drift for a long time.
The takeaway here is that before you retire, have a plan for how you will spend your days. Not just in the first few months, but in the years ahead.
KIM: Yes, a lot of people say they will volunteer in retirement. But it can take a lot of time to find the right fit for you, and an organization that needs your help.
EILEEN: That’s why it’s a good idea to start researching and reaching out to organizations you might be interested in a year or more before retirement.
MICHAEL: That raises another question, Eileen. When should people start to test-drive their retirement?
EILEEN: Several years before retirement is not too early. You want to give yourself time to visit locations if you’re thinking of moving. Or enough time to test out your budget. And if you’re going to volunteer or work part-time in retirement, you’ll need time to make these connections before you retire.
KIM: And you need to give yourself enough time to correct course if your retirement assumptions don’t pan out.
MICHAEL: Well, this is all very good, actionable advice for anyone approaching retirement in the next few years. Thanks, Eileen and Kim, for sharing it with us.
We’ll take a break here for a word from our sponsor, Synchrony Bank. When we return, you can test your personal finance skills by playing along with our quiz.
Stick around, we’ll be right back.
For more great practical tips and helpful insights that can help you achieve your financial ambitions, be sure to check out the Synchrony Bank blog. Visit synchronybank.com forward slash blog today. That’s synchronybank.com forward slash blog, member FDIC.
[CLOSING SEGMENT: Test Your Financial Smarts]
MICHAEL: Welcome back to our final segment, in which Kim is going to give me a personal finance quiz. You can play along and test your financial smarts.
KIM: All right, Michael. I have eight questions on a wide range of personal finance issues – from college savings plans and credit scores to interest rates and taxes. Don’t worry, the questions are multiple choice.
MICHAEL: Thank you!
KIM: Okay, first question. True or false? If you don’t owe taxes, you won’t be penalized for filing your federal income tax return after Tax Day.
MICHAEL: I think I know this one. True!
KIM: You’re correct. The penalty for missing the filing deadline is a percentage of the tax owed with the return. If you don’t owe taxes – or the IRS owes you – there is no penalty.
Okay, next question.
How high must your FICO credit score be for you to qualify for the best interest rate? A, 600. B, 650. C, 700. Or D, 750.
MICHAEL: Okay, I know that the higher the score the better. So, I’m going to go with D, 750.
KIM: Right again! A credit score in the mid-700s will usually allow you to qualify for the best rates.
Question three: If a 25-year-old investor deposits $100 a month in a mutual fund with an annualized return of 10%, he’ll have about $640,000 at age 65. If he waits until age 40 to start saving, how much will he have to deposit each month to have the same amount at age 65. A, 150 dollars. B, 225 dollars. C, 475 dollars. Or D, 800 dollars.
MICHAEL: Hmmmm. Math is not my strong suit. Kim, I’d like to phone a friend.
KIM: That’s a different quiz show! No lifelines here.
MICHAEL: Okay, okay, I’ll again go with the highest number. D, 800 dollars.
KIM: No, it’s C, 475 dollars. But that’s almost five times what the 25-year-old was saving each month.
In fact, the 25-year-old would have deposited a total of $48,000 of his own money over those 40 years. But thanks to his investments, his account grew to $640,000.
The procrastinator, on the other hand, would have had to come up with $142,000 out of pocket to have the same amount at 65.
MICHAEL: Okay, that’s math I can appreciate. What’s next?
KIM: It’s a tax question: You and your spouse bought a house for 100 thousand dollars in 2000 and sold it for 500 thousand dollars this year. How much will you owe in capital gains tax? A, 100 thousand dollars. B, Sixty thousand dollars. Or C, zero.
MICHAEL: I believe the answer is C. No capital gains tax.
KIM: And you are correct! As long as they’ve owned the house and lived there for at least two out of the past five years, married couples can exclude up to 500 thousand dollars in home-sale profits from taxes.
The next question is true or false. You can invest in only one 529 college-savings plan per child.
MICHAEL: I’ll say false.
KIM: Correct, again. There is no law limiting the number of 529 plans you can invest in to save for college.
Question six: When do you need to start taking required minimum distributions from Roth IRAs? A, when you retire. B, at age 72. C, at age 70-and-a-half. Or D, never.
MICHAEL: This seems like a trick question. But I know the answer because we have discussed RMDs on a previous podcast. The answer is D, you never have to take RMDs from a Roth.
KIM: You remembered! Yes, it is D.
So far, so good.
Your next question: Which of these expenses can you write off on your federal tax return if you don’t itemize. A, charitable contributions. B, medical expenses. C, mortgage interest. Or D, student loan interest.
MICHAEL: Hmmm. I know it’s not A – charitable contributions. I’ll go with D, student loan interest.
KIM: The correct answer is….
MICHAEL: B! I’ve changed my answer to B, medical expenses.
KIM: Okay, B. Is that your final answer?
MICHAEL: Yes, B. Unless…it’s C. I’ll go with C, mortgage interest.
KIM: The correct answer, Michael, is to go with your first instinct – D, student loan interest. You can deduct up to $2,500 a year of interest paid on student loans, whether you itemize or not, as long as you meet certain income limits.
MICHAEL: I knew it!
KIM: Okay, last question. When interest rates rise, bond prices will, A, rise also. B, fall. Or C, stay the same.
MICHAEL: I’ll go with B. When rates go up, the price of bonds falls.
KIM: Correct! B. The price of your bonds will drop. That’s because when interest rates go up, newer bonds coming into the market will be offering a higher rate to investors. That makes your older bonds with a lower rate less valuable. So, if you sell your bonds, you will have to lower the price to attract buyers.
MICHAEL: So, how’d I do?
KIM: You got six out of eight correct. Not bad!
MICHAEL: Kim, this has been a lot of fun – and informative. Thanks so much for sharing your time and expertise today.
That wraps things up for today’s episode of Kiplinger’s Talk About Money, sponsored by Synchrony Bank. Thanks for listening!
[promo break 3 and disclaimer]
Don’t forget… Synchrony Bank offers a variety of savings products to help you reach your financial goals. Be sure to visit SynchronyBank.com for current rates, and to jumpstart your savings today.
Kiplinger’s Talk About Money podcast was written and produced by The Kiplinger Washington Editors, Inc. Kiplinger is not affiliated with Synchrony Bank or any of its affiliates. The opinions and recommendations expressed in this podcast are solely those of Kiplinger and do not represent the advice, opinions, or recommendations of Synchrony Bank or any of its affiliates. Synchrony Bank, Member FDIC.
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