Podcast: Rent or Buy, Healthcare Costs, Estate Planning

Gain financial insights from episode 5 of the 6-part podcast series by Kiplinger. This episode, learn more about:

• When renting is better than buying
• How to reduce healthcare costs
• How to create a digital estate plan

Click play to listen now!

Transcript:

Kiplinger’s Talk About Money podcast

Sponsored by Synchrony Bank

[WELCOME AND SEGMENT 1: When Renting is Better Than Buying]

[Soft theme music playing]

MICHAEL: Every year, the cost of health care keeps going up. Insurers continue to raise premiums, while employers shift a larger share of the burden onto workers. Today, in our main segment, we’ll talk about some strategies to lower your health care bills by hundreds or even thousands of dollars a year.

We’ll also discuss how to set up a digital estate plan for your social media and other online accounts. BUT FIRST, we’ll tackle the age-old question: Is it better to buy a home or rent? The answer may surprise you.

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 if renting might be a better financial move for you than buying a home. 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.

You hear it all the time … buying a home is an investment … renting is throwing money away. Once renters move, all they have to show for their months or years of rent is a lot of canceled checks.

Or, that’s the conventional wisdom.

MICHAEL: I have a feeling you’re about to tell me that this isn’t always the case?

KIM: You’re right. Don’t get me wrong. Buying makes sense for many people. And many buyers will come out financially ahead of renters in the long run. But renting, too, can be the right financial choice for many.

MICHAEL: Okay, so when should someone rent rather than buy?

KIM: One simple rule is you should rent if you’re not going to stay in a city or town for at least five to seven years.

MICHAEL: Why that timeframe?

KIM: Because buying a house has some steep upfront costs, as well as some ongoing expenses. It can take five to seven years before the amount you pay in rent surpasses the amount you would have to shell out to get into a home and maintain it.

MICHAEL: What sort of housing costs are you talking about?

KIM: Well, you have closing costs, like an appraisal and loan origination fee, that can run two to five percent of the home purchase price.

You’ll need a down payment of at least 20 percent. Or if you put down less, you’ll have to pay for private mortgage insurance. You’ll have ongoing property taxes, which could rise over time.

And you should plan on spending 1 percent of the home’s value each year just for maintenance.

MICHAEL: Okay, buying a house suddenly sounds more of a money pit than I thought. Are there any resources to help people figure whether renting or buying makes the most sense for them?

KIM: Yes, and they’re quick and easy, too. You can find online buy-versus-rent calculators at Zillow.com and SmartAsset.com that will run the numbers for you.

But even if it turns out buying comes out ahead, there are other reasons why you might consider renting. Renting, for instance, gives you flexibility that being tied down by a house doesn’t.

MICHAEL: Are there any other considerations?

KIM: Well, a study in the Journal of Housing Research found that renters on average could actually accumulate more wealth than homeowners.

MICHAEL: That’s surprising! How so?

KIM: Renters can come out ahead if they invest the equivalent of one down payment in a diversified portfolio. On top of that, each month they should invest the difference between what a mortgage payment would be and what they’re paying in rent. Let’s say a mortgage payment would be $2,000 a month. If your rent is $1,500, you would need to invest an extra $500 a month.

MICHAEL: Wow. That’s a lot of money for renters to save. Do many people do this?

KIM: Unfortunately, no. And as I said earlier, for most people buying will be the better financial move over the long run. Paying off a mortgage is a means of forced savings. After years of payments, you end up with a house you can sell.

But one thing I would like people to take away from this, Michael, particularly millennials who might feel pressure to buy: You don’t need to rush into buying a home. And shouldn’t feel guilty about renting, either.

MICHAEL: Kim, this is good information, and provides a new way to look at renting. Thanks for sharing it with us today.

KIM: You’re welcome, Michael.

MICHAEL: Later in this episode, we’ll find out what happens when you’re gone, but your Facebook page and other social media accounts live on. Does anyone inherit those cat videos you posted?

But first, we’ll talk about how you can lower your health care costs. The strategies may take a bit of legwork, but the savings can be worth it. 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.

MICHAEL: Welcome back, everyone. In today’s main feature, we’re talking about ways you can reduce your health care costs. It seems with every open enrollment, workers come to expect that they’ll be paying more for health care. They just wonder how much more.

KIM: Yes, and the stats back them up.

A report last year by Kaiser Family Foundation found that families on average saw their premiums go up by 54 percent over a decade. And that’s not including prescription drug prices, which also continue to climb.

But never fear, an associate editor for Kiplinger’s Personal Finance magazine, Kaitlin Pitzker, is here today to give us all advice on how to make our medical dollars go further. Welcome, Kaitlin.

KAITLIN: Hi, Michael and Kim. Thanks for having me on the episode.

MICHAEL: Well, my health care costs have been rising steadily, so I’m especially happy to hear what you have to say!

How can we all get started saving money on medical care?

KAITLIN: One of the first steps is to understand the coverage that you already have.

For example, most plans are required to provide several kinds of preventive care – free of charge – even if you haven’t met your deductible yet.

KIM: What sort of preventive care does this include?

KAITLIN: Flu shots and other immunizations. Mammograms and colonoscopies for older patients. Diabetes and cholesterol tests. And lots of other testing.

You can find the entire list online by going to healthcare.gov and searching for preventive care benefits.

MICHAEL: Great, that seems to cover a lot of the basics – for free. What’s next?

KAITLIN: Well, before you visit the doctor – or schedule a procedure – make sure to use the tools on your insurer’s website to find a medical provider that’s covered in your plan’s network.

And then ask the provider to confirm it’s in network – just in case their status has changed, but the website doesn’t reflect this.

KIM: Yes, we all know by now how expensive medical care can be if you go outside a plan’s network.

KAITLIN: Right. And if you are scheduling a procedure, don’t forget to make sure everyone involved – from the facility to the doctor and anesthesiologist – are in network, too.

KIM: Good point!

KAITLIN: Of course, if you decide to go to a doctor who is out of network, there’s a way you might be able to save money, too. Your doctor may be willing to give you a steep discount if you pay with cash. It never hurts to ask.

MICHAEL: Kaitlin, it seems like the cost of a test or medical procedure can vary widely from facility to facility – even in the same city.

How do you know if you’re paying a fair price or too much?

KAITLIN: You can check out the cost of specific procedures in your area online at HealthcareBluebook.com. It will tell you what the fair price of that procedure – or what you would likely pay if you shopped around.

In fact, most insurers also have their own online tools. And you can compare costs among in-network facilities with those.

You can also ask your doctor how much a medical procedure will cost and where it will be performed. If it’s higher than the fair price, don’t be afraid to ask if the procedure could be done at a less expensive facility. The surgeon’s bill will remain the same, but you might save thousands of dollars on the facility fee.

KIM: Kaitlin, is there a way to save on more minor health issues? Like sometimes I’m not sure whether something is worth the time or money to go to the doctor or not.

KAITLIN: Yes, many plans now offer telemedicine, in which you can talk with a doctor or nurse over the phone or via video chat. You can even email photos of, say, your rash or ailment and get a prescription. These consultations often cost only ten to forty dollars.

MICHAEL: You mentioned prescriptions. Now that’s where many of us encounter sticker shock. What can we do to reduce those expenses?

KAITLIN: Many employers and insurers offer online tools or apps to help you compare drug costs. They might suggest generics that can cost as much as 85% less than brand-name drugs.

You could also save money ordering your medications via mail. For instance, you might get a three-month supply of drugs through the mail for the same price as a one or two-month supply from a traditional pharmacy.

KIM: Kaitlin, more and more employees are enrolled in high-deductible health plans.

Along with these policies comes the option of signing up for a health savings account. Can you explain how these accounts work and why someone might want one?

KAITLIN: Yes, there’s a lot to like about health savings accounts or HSAs. For starters, HSAs offer a triple tax break: One, your contributions aren’t taxed. Two, the money grows tax deferred. And three, it can be used tax free for eligible medical expenses at any time.

MICHAEL: What sort of expenses qualify?

KAITLIN: It’s a wide range, from acupuncture to x-rays. And if you’re on Medicare, you can use the money to pay the premiums for Medicare Part B, Part D and Medicare Advantage plans.

KIM: Since you mentioned Medicare, we should note that once you enroll in Medicare, you can no longer contribute to an HSA.

KAITLIN: That’s right, although you can still tap your HSA to pay medical expenses when you’re on Medicare.

MICHAEL: What if you don’t use your HSA money for health care bills? I can see someone in a pinch tempted to pull money out of the account.

KAITLIN: If you withdraw money for non-qualified expenses before the age of 65, you’ll pay a 20% penalty. Plus, you’ll owe income taxes on the amount you took out.

Once you turn 65, the penalty disappears. But you’ll still owe income taxes on any withdrawals that aren’t medically related.

MICHAEL: Okay, so how do you open an HSA?

KAITLIN: The easiest way is enrolling in an HSA offered through your employer. Many employers will also kick in some money to workers’ accounts or pick up the tab for administrative expenses.

But if you don’t have an HSA through work, you can open one at most banks and brokerages.

You’ll want to shop around, though. HSA providers charge different fees and offer different investments.

KIM: Any there any tools to help those shopping for an HSAs on their own?

KAITLIN: Yes, you can compare HSAs offered by hundreds of providers at a website called HSASearch.com. The site also includes ratings by users so you can see if customers are happy.

MICHAEL: All right, once you open an HSA, how much can you contribute?

KAITLIN: In 2020, the maximum contribution is $3,550. That’s if you have single coverage. It’s double that if you have family coverage. And if you’re 55 or older, you can salt away an extra $1,000.

MICHAEL: So, how does this differ from a flexible spending account that also allows you to pay for health care expenses with tax-free money?

KAITLIN: Good question! Once your health savings account balance reaches a certain amount, you can invest the money – often in mutual funds or exchange traded funds. Flexible spending accounts don’t have an investment component.

You also must spend the money in a flexible spending account by a certain time, or you’ll lose it. A health savings account has no time limit. And when you leave your job, you can take the HSA with you.

KIM: So, how can you make the most of a health savings account?

KAITLIN: You’ll get the biggest bang from the account by paying current medical bills out of pocket. That way, your money invested in the HSA has more time to grow. Then you can use that money later in life, when you might have more – and bigger - medical bills.

MICHAEL: Kaitlin, this is a lot of practical advice to managing one of the most expensive items in our budget. Thank you and Kim for showing us ways to limit our health care bills.

We’ll take a break here for a word from our sponsor, Synchrony Bank. When we return, we’ll talk about a relatively new estate planning wrinkle: What’s going to happen to your digital accounts? Stick around, we’ll right back.

[promo break 2]

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: Creating a Digital Estate Plan]

MICHAEL: Welcome back to our final segment! Today, Kim and I are going to talk about creating a digital estate plan.

Many of us have developed extensive online lives. But what happens to all of it once we’re no longer around to manage it?

KIM: Michael, this is an issue people often overlook when they do estate planning.

Typically, they’re thinking about the big financial picture. Who’s going to inherit a 401(k) or IRA? Who should get the vacation home or family cars? Who will be the beneficiaries on insurance policies or brokerage accounts?

But most of us also have a digital footprint. And we need to decide what will come of that.

MICHAEL: What sort of footprint are we talking about?

KIM: Think about all the ways you use your computer or smart phone. That’s the kind of digital trail I’m talking about.

Maybe you regularly check your Facebook page or post on Twitter, Instagram or some other social media account. Think of all the photos and videos you upload. Do you pay bills using an online banking account? Do you have any online subscriptions?

MICHAEL: Yeah, I have all that … and more. But can’t I just write a note to my executor and say, “Shut it all down?” That’s easy enough, right?

KIM: That would certainly be easier, but unfortunately, it doesn’t always work that way.

What happens to all your online accounts will depend on the laws in your state, the types of accounts you have and even the terms of service of those accounts. Unless you made specific arrangements ahead of time, your executor won’t automatically get access to these accounts, either.

MICHAEL: So, not even my family can handle these online accounts?

KIM: Not necessarily. Heirs often find they don’t have clear authority to access or manage a relative’s account.

MICHAEL: This sounds complicated. So, help us out here, Kim. What can be done to make sure our online accounts don’t remain active indefinitely?

KIM: Start by creating an inventory of your digital assets, including all your online accounts. As you draw up this list, identify what you want done with each one. And don’t forget to include all the usernames and passwords!

MICHAEL: You mean, like, “Delete my Twitter and Facebook accounts. But forward my file of the funniest cat videos to Kim?”

KIM: Appreciate that, Michael, but I’m more of a dog person. But yes, you’ve got the idea.

Then give this list to a trusted person, who can access your accounts at the appropriate time and carry through your wishes. That said, glitches can happen.

MICHAEL: Uh oh. What sort of glitches?

KIM: Sometimes passwords expire or change, and people forget to update the list. Or, sites might require two-factor authentication going to a cell phone or email address that is no longer accessible. And some websites’ terms of service don’t allow anyone other than the original owner to access the account.

MICHAEL: This seems like a problem that’s only going to become bigger as more people conduct more transactions over the internet.

KIM: You’re not wrong, Michael. But many states have stepped up to help.

In recent years, many have passed laws allowing you to designate a legal representative, say, an executor or lawyer, to access your digital accounts. You can grant this person access through a will, trust or power of attorney.

MICHAEL: But what about the businesses that run these websites or online accounts? Are they doing anything to make it easier for people to control their digital lives?

KIM: Yes, some sites will delete accounts when they are notified that the original owner will no longer be using the account.

Facebook, for instance, gives you the option to have your account deleted. Or you can designate a friend or family member as your legacy contact. This person will be able to manage your account after it’s been turned into a memorial page – within limits. He or she, for instance, won’t be able to read your old messages or remove your friends.

MICHAEL: Google is another big player. Does it offer something similar for its users?

KIM: With Google, you can select up to 10 trusted contacts to access say, your Gmail or photos, if your account is inactive for several months.

MICHAEL: Well, Kim, this adds a whole new layer to estate planning that many of us are not even thinking about. Thanks 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, member FDIC. Thanks for listening!

[final promo break and disclaimer]

And don’t forget… Synchrony Bank offers award-winning rates on 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.

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Disclosure: 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.