The ‘Find’ Print

 In case you hadn’t noticed, Friday is Valentine's Day — and, as usual, there’s been the typical seasonal promotions for flowers, candy, teddy bears (and other stuffed creatures) and even pajamas.

I’ve been pretty good over the years remembering those type events — anniversaries (wedding AND dating), birthdays and, yes — Valentine’s Day. But sometimes the time gap between my remembering the date and actually getting around to doing something to commemorate it has been problematic. With Valentine’s Day that can be particularly painful, if only because so many others are scrambling to do the same thing — and at a time when delivery services (and costs), not to mention growing season(s) can be in short supply, relative to the need.

Several years back, I was running exceptionally late in my preparations — and spotted an email touting a dozen roses for $24.99 (they’re a LOT more expensive now — and apparently caught up in all this tariff stuff). Of course, for that price (even then), you could only get them in red (though it was Valentine’s Day, after all), and you actually got a glass vase included in that price (with options to “upgrade,” of course).

So, at that point I was feeling pretty good about my bargain-hunting “skills” — well, at least until the “other” charges emerged. As the final payment screen popped up, I discovered that “standard” delivery was another $12.99, and — at least at that (late) date, it cost (another) $9.99 to guarantee Valentine’s Day delivery, yet another $14.99 if you want it there in the morning. Oh, and there was a “care & handling charge” of $2.99, regardless of delivery date or time. In fact, by the time you add in taxes, those $24.99 roses will run you… well, quite a bit more than $24.99.

Not that you’ll see that all presented in one place — well, until the very last screen, anyway.

Hardship ‘Shifts’

I wonder sometimes if that isn’t how those who request a hardship withdrawal feel —though, disclosures notwithstanding, it’s not like they can see what it’s actually going to cost at the point they make the request. Those surprises tend to come…later.

Oh, they know the amount they need and presumably request. But then there’s the 20% withholding that comes off the top, but then, come tax time (probably months after the event), they’ll “discover” if that 20% withholding was “enough.” At the same time, they’ll likely discover the 10% early withdrawal penalty (for those who aren’t yet 59½[i]). Less obvious is the retirement savings “ground” they’ve lost to the customary six-month suspension of contributions (and match). And that’s not considering the 401(k) loan they likely had to take first because, after all, we have to make really, really sure that you absolutely have no other way to get to that money.

The good news — of a sort — is that those “surprises” are likely to be lessened with the emergency savings and withdrawal provisions of the SECURE 2.0 Act of 2022.[ii]

Retirement ‘Find’ Print

And then there are the surprises that come WITH retirement. That’s when you “discover” the DIS-advantage of pre-tax savings, as Uncle Sam (and his state and city “cousins”) line up for their postponed “cut.” It’s also when Social Security (and Medicare) look to that as fresh income against which benefits (and the cost of benefits) are now means-tested (a.k.a. reduced/taxed). And remember[iii] that your Medicare premiums are based on INCOME.     

Now, if all that seems like a particularly depressing theme for Valentine’s Day, fear not. The fine print impact of these “hidden” costs — like the hidden costs of that floral arrangement can be muted, if not mitigated, by not waiting until the very last minute to make preparations…

- Nevin E. Adams, JD

 

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[i] There are some other exceptions. See Retirement topics - Exceptions to tax on early distributions | Internal Revenue Service.

[ii] Speaking of “fine print,” while hardship withdrawals are allowed only for "immediate and heavy" financial needs, under this new provision, you can withdraw up to $1,000 per year for unforeseeable emergency needs without the 10% penalty — you can (do not have to) repay that within three years. However, that amount is subject to tax, though not if you repay it. No other emergency distributions can be taken in the following three years — unless the original distribution is repaid, or the aggregate elective deferrals and employee contributions equal the amount distributed.

[iii] See The Biggest Surprise About (My) Retirement.

Love and Money

  How well do you (think you) know your significant other?

The passage of time—shared experiences and the process of getting to know each other reveals much—and yet I learned something new about my partner of some four decades just last week!

That brought to mind one of the favorite game shows of my youth was The Newlywed Game. The show featured four couples—all of which were to have been married less than two years. Each of the contestant couples were separated—then asked a series of questions designed to test these newlywed couples’ knowledge of each other, and in some cases their collective memories (and willingness to share publicly). Points were assigned based on answers that matched—but the most memorable, of course, were the missed matches—and the inevitable response of the spouse who was absolutely CERTAIN of the response of their partner.  

Now, a year of marriage is arguably not long enough to know EVERYTHING about your partner. But, and with Valentine’s Day looming, a couple of industry surveys remind us that, while money can’t “buy me love,” it can be a relationship “breaker.”

Indeed, a new survey by Empower asserts that spending habits (38%) and budgeting (33%) are the money topics most likely to lead to disagreements in relationships followed by financial priorities/goals (20%). Over a third of couples (37%) say money is a big relationship stress point, with Gen Zers feeling the most strain around financial issues (48%). Retirement planning/savings, while on the disagreements list, was pretty far down—cited by only 10%—though one assumes that is largely because of its relatively distant timing impact(s).

Fidelity Investments’ 2024 Couples and Money study notes that 45% of partners admit they argue about money at least occasionally—and more than 1 in 4 couples identify money as their greatest relationship challenge. Fidelity’s survey is interesting in that it—like that old Newlywed Game show—surveys couples individually before bringing their answers together to analyze and identify where couples are doing well with their communication and finances. Those couples give themselves high marks on that score—with nearly 9 in 10 claiming they communicate well or very well with their partner.

On that account, the Fidelity report notes that more than a third of couples miss the mark when it comes to how much income their significant other makes—and more than a quarter (27%) admit to being often frustrated by their partner’s money habits, but say they let it go for the sake of keeping the peace. More than half—but just over half (54%) cite as their top financial concern having enough money saved for retirement. Only about half (57%) work together on making decisions about retirement savings and other long-term goals.[i] The good news is more than half of respondents feel very good or excellent about their financial health and 27% of Boomers say building a financial plan together is their love language.   

Inevitably couples are comprised of individuals who have different interests and aptitudes—and money and finances, in particular, can be a sensitive subject. We’re often caught between a fear of being judged—or convinced that judgement is required in order to achieve financial order, but worried that expressing that concern will lead to arguments—or worse. It’s something to bear in mind this Valentine’s Day amidst all the candy, flowers and romantic dinners. 

One thing seems certain, however; just as healthy long-term relationships are built on trust and openness—so are their healthy finances.

- Nevin E. Adams, JD 

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[i] When it comes to having a vision for retirement, Fidelity found that couples are mostly aligned on how they want to be spending their time—with family, friends, traveling, and their hobbies—though about half (53%) of couples who have not yet retired express conflicting views on how much they need to have saved to retire.

'Hidden' Figures

This week was Valentine's Day—and, as usual, there’s been the typical seasonal promotions for flowers, candy, and even pajamas. 

I’ve been pretty good over the years remembering those type events—anniversaries (wedding AND dating), birthdays and, yes—Valentine’s Day. But sometimes the time gap between my remembering the date and actually getting around to doing something to commemorate it has been problematic. With Valentine’s Day that can be particularly painful, if only because so many others are scrambling to do the same thing—and at a time when delivery services (and costs), not to mention growing season(s) can be in short supply, relative to the need.

Several years back, I was running late in my preparations—and spotted an email touting a dozen roses for $24.99 (they’re a LOT more expensive now). Of course, for that price (even then), you could only get them in red (though it was Valentine’s Day, after all), and you actually got a glass vase included in that price (with options to “upgrade,” of course). 

So, I’m feeling pretty good about my bargain-hunting, but then the “other” charges emerged; “standard” delivery was another $12.99, and—at least at that (late) date, it cost (another) $9.99 to guarantee Valentine’s Day delivery, another $14.99 if you want it there in the morning, and there’s a “care & handling charge” of $2.99, regardless of delivery date or time. In fact, by the time you add in taxes those $24.99 roses will run you… well, quite a bit more than $24.99.

Not that you’ll see that all presented in one place—well, until the very last screen, anyway.

Surprise ‘Zing’ 

I wonder sometimes if that isn’t how those who request a hardship withdrawal feel—though, disclosures notwithstanding, it’s not like they can see what it’s actually going to cost at the point they make the request.

Oh, they know the amount they need, and presumably request. But then there’s the 20% withholding that comes off the top, but then, come tax time, they’ll find out if that 20% withholding was “enough.” At the same time, they’ll likely discover the 10% penalty (for those who aren’t yet 59½). Less obvious is the retirement savings “ground” they’ve lost to the customary six-month suspension of contributions (and match). And that’s not considering the 401(k) loan they likely had to take first because, after all, we have to make really, really sure that you absolutely have no other way to get to that money. Those “surprises” are likely to be lessened with the emergency savings and withdrawal provisions of the SECURE 2.0 Act of 2022, of course.[i] 

And then there are the surprises that come WITH retirement. That’s when you “discover” the DISadvantage of pre-tax savings, as Uncle Sam (and his state and city “cousins”) line up for their postponed “cut.” It’s also when Social Security (and Medicare) look to that as fresh income against which benefits (and the cost of benefits) is now means-tested (a.k.a. reduced/taxed).   

Now, if all that seems like a particularly depressing theme for Valentine’s Day, fear not. The impact of the “hidden” costs of retirement—like the hidden costs of that floral arrangement can be muted, if not mitigated, by not waiting until the very last minute to make preparations …

- Nevin E. Adams, JD 

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[i] We’ll save for another day the potential impacts on future retirement savings.

'Hidden' Costs

Valentine's Day was this week, and you have perhaps seen those increasingly ubiquitous advertisements for a certain online florist.

Now, I’ve used that particular service on many an occasion over the past several years; they are not only convenient, they deliver a quality product, and on time. In sum, I’ve used them before, have, in fact, used them this year, and will doubtless use them again.

The ads tout the ability to get a dozen roses for $24.99. That’s in red only (but hey, it’s Valentine’s Day), and you do actually get a glass vase included in that price (with options to “upgrade,” of course).

That said, “standard” delivery is another $12.99, and – at least at this (late) date, it’ll cost you $9.99 to guarantee Valentine’s Day delivery, another $14.99 if you want it there in the morning, and there’s a “care & handling charge” of $2.99, regardless of delivery date or time.

In fact, by the time you add in taxes those $24.99 roses will run you… well, quite a bit more than $24.99.

Not that you’ll see that all presented in one place – well, until the very last screen, anyway.

Hardship Costs

I wonder sometimes if that isn’t how those who request a hardship withdrawal feel – though, disclosures notwithstanding, it’s not like they can see what it’s actually going to cost at the point they make the request.

Oh, they know the amount they need, and presumably request. But then there’s the 20% withholding that comes off the top, but then, come tax time, they’ll find out if that 20% withholding was “enough.” At the same time, they’ll likely discover the 10% penalty (for those who aren’t yet 59½). Less obvious is the retirement savings “ground” they’ve lost to the customary 6-month suspension of contributions (and match). And that’s not considering the 401(k) loan they likely had to take first because, after all, we have to make really, really sure that you absolutely have no other way to get to that money.

Still – and though the 61st Annual Survey of Profit Sharing and 401(k) Plans from the Plan Sponsor Council of America (PSCA) indicates that more than 80% of plans offer a hardship withdrawal option – only 2.3% of workers who have access to them take them. Data from the nonpartisan Employee Benefit Research Institute puts that at fewer than 2%, and Vanguard’s “How America Saves” study says that only about 3% of participants do.

Expanded Access

Then late last year, Congress passed the Bipartisan Budget Act of 2018, which, among other things, set aside several of these “hidden” costs, notably the requirement to take a plan loan first (it’s now optional), and more significantly, the suspension of contributions. They broadened not only the categories of contributions eligible for hardship (it now includes matching contributions and non-elective contributions, as well as earnings on those accounts), but also included changes in the ability to qualify for a hardship distribution in the case of casualty losses and losses associated with federal disaster areas. The IRS also loosened the rules for determining the status of a hardship – which should lessen the burden of both requesting and approving these distributions.

Now, despite the retirement focus of these savings, I’ve always thought that it was important to provide emergency access. After all, if you thought that there was no way you could ever tap into those funds in a dire situation no matter what, wouldn’t you hold back on savings? And while there are almost certainly abuses, the relatively low take-up rates despite the widespread availability suggest that those are the exception, not the rule. The new rules, while they certainly open the door to pre-retirement withdrawals a bit wider, seem, for the most part, a thoughtful extension of potential relief to individuals that surely need it.

What remains to be seen – the new provisions were only just effective for plan years beginning on or after Jan. 1, 2019, after all – is how that expanded access will influence the historically low take-up rates on hardships.

And what the ultimate cost will be.

- Nevin E. Adams, JD