Chapter_14

Annuity or Lump Sum?

Posted on March 18, 2023 by Melissa Hart

Many people with a retirement plan are asked to choose between receiving lifetime income (also called an annuity) and a lump-sum payment to pay for their day-to-day life after they stop working. An annuity provides a lifetime steady stream of income while a lump sum is a one-time payment.

Deciding which option works best for you takes careful consideration because there are many factors to think about, such as your health, cost of living, assets and savings, and any other income you may have.

Why is this important?

Your employer may ask you to choose between an annuity and lump sum. For example, your employer may ask you to make this choice (1) if you change jobs, (2) when you stop working, or (3) even after you have begun to receive monthly annuity payments.

When making this decision, explore the benefits and risks because whichever option you choose will affect your financial future.

What are the benefits and risks?

 AnnuityLump Sum
BenefitsYou will receive a steady income for the rest of your life, like keeping a part of your paycheck for life You may be able to provide a lifetime income to your spouse or to another beneficiaryYou can use the money to pay off large debts If you don’t spend all of the lump sum, you can pass it on as an inheritance
RisksAnnuities may give you less financial flexibility and may not pay benefits to your survivors If you are in poor health, an annuity may not provide enough money to cover medical billsYou may outlive your retirement funds It’s your responsibility to manage the money to provide you with future income

Factors you should consider:

  • Your health (and your spouse’s)
  • Your investment skills (and your spouse’s), and how they may change as you age
  • Your living expenses (now and future)
  • Your savings (and your spouse’s)
  • Other steady income (Social Security, pensions from other employers)
  • Debt (mortgage, car, credit cards, student loans, child support payments)
  • Taxes on the annuity or lump sum
  •  

Are there online tools that can help me calculate my lifetime income?

Yes. The Department of Labor has a lifetime income calculator that allows you to estimate the amount of monthly income you will receive when you stop working and start receiving monthly payments.

The results shown are estimates, not guarantees, of the level of the account balance or of the lifetime income streams of payments.

For more information, click here.

Teaching Suggestions:

  • Ask students to make a list of benefits that an annuity may provide.
  • Ask students to interview their parents or relatives if they had to make a choice between an annuity or a lump sum option.  If so, which option did they choose and why?

Discussion Questions:

  1. What are the benefits and risks of choosing an annuity or a lump sum payment?
  2. What sources are available if you need assistance in making a decision to choose annuity or lump sum option?
  3. Why is it important to discuss all of the possible options with a financial advisor or an insurance agent?
Categories: Chapter_10, Chapter_14, Retirement Planning | Tags: , | Leave a comment

Are Americans Financially Educated on Retirement Savings?

Posted on March 4, 2023 by Melissa Hart

Financial education helps people learn about savings, credit, and loans. It also helps prepare people for life changes and to face the unexpected. This knowledge is essential when planning for retirement. So, how prepared are U.S. adults for their future retirement? According to a recent poll conducted by the National Endowment for Financial Education:

  • Eighty-five percent of respondents confirmed some part of their personal finances was causing them stress. For 31% of respondents, that concern was “having enough saved for retirement.”
  • In that same poll, 70% said they made financial adjustments due to the COVID-19 pandemic. Of that group, 27% increased contributions to their emergency savings, retirement savings, or other savings or investments. In comparison, 21% tapped into emergency savings—or borrowed against retirement savings.
  • About financial education mandates, 80% of U.S. adults said they wish they were required to complete a semester- or yearlong course focused on personal finance education during high school and 88% think their state should require a semester- or year-long course for high school graduation.
  • In that same poll, 84% of those approaching retirement age (60+ years old) said “spending and budgeting” should be taught in schools.

People who champion financial education typically live by the mantra “the earlier, the better.” It’s also important, though, that people keep learning throughout their lives to ensure they have the knowledge they need to make the best financial decisions.

Lifetime financial education can be a helpful tool in preparing for retirement. This includes understanding Social Security retirement benefits and making the most of retirement income.

For More Information, click here.

Teaching Suggestions:

  • Have students discuss the statement, “Financial education in high schools should be mandatory for graduation.”
  • Ask students how a financial literacy course is helping them to better manage their finances?

Discussion Questions:

  1. Why is financial literacy knowledge essential when preparing for retirement?
  2. Do students feel more prepared for financial challenges of adult life after taking a personal finance course? Explain.
Categories: Chapter_14, Retirement Planning | Tags: , | Leave a comment

How to Spot a Government Imposter Scam

Posted on February 4, 2023 by Melissa Hart

Scammers are pretending to be government employees. They may threaten you and may demand immediate payment to avoid arrest or other legal action. These criminals continue to evolve and find new ways to steal your money and personal information. Do not fall for it! We want you to know how you and your loved ones can avoid becoming victims!

 Be Alert

If you owe money to Social Security, you’ll receive a letter by mail with payment options and appeal rights. They only accept payments electronically through Pay.gov, Online Bill Pay, or by check or money order through its offices. The SSA will never:

  • Threaten you with arrest or legal action because you don’t agree to pay money immediately.
  • Suspend your Social Security number.
  • Promise a benefit increase in exchange for money.
  • Ask you to send gift cards, prepaid debit cards, wire transfers, Internet currency, cryptocurrency, or cash through the U.S. mail.

Know What to Look for

  • The caller or sender says there is a problem with your Social Security number or account.
  • Any call, text, or email asking you to pay a fine or debt with retail gift cards, wire transfers, pre-paid debit cards, internet currency, or by mailing cash.
  • Scammers pretend they are from Social Security or another government agency. Caller ID, texts, or documents sent by email may look official, but they are not.
  • Callers threaten you with arrest or other legal action.
  • Internet scammers may use “phishing” schemes to trick a recipient into revealing personal information by clicking on malicious links or attachments.

For more information, click here.

Teaching Suggestions:

  • Ask students if they or their families have received calls from imposters?  If so, what was their response and how did they handle the situation?
  • Ask students to make a list of schemes scammers use to trick people into revealing personal information?

Discussion Questions:

  1. What should you do if you receive a suspicious call, text, or an email from an imposter?
  2. What can local, state, or federal governments do to minimize these scams and protect people?
Categories: Chapter_14, Frauds and Scams | Tags: , | Leave a comment

Personal Finance Simulations for Budgeting and Investing

Posted on December 17, 2022 by Melissa Hart

Question:  What is a Personal Finance simulation? 

Answer:  A Personal Finance simulation allows students to fine-tune their decisions when they encounter real-life scenarios while taking a Personal Finance course. 

The authors of Personal Finance, 14e and Focus on Personal Finance, 7e have partnered with StockTrak.com to provide students with an interactive learning experience before they leave the classroom.   

The simulation that accompanies the Kapoor Personal Finance texts includes two components–a personal budgeting simulation and an investing simulation.

The Budgeting Simulation

  • Students assume the role of a full-time employee or part-time employee living on their own.
  • Over a virtual 12-month period, students review their estimated income and expenses, create monthly budgets and savings goals, and try to build an emergency fund. Each month takes about 20 minutes to complete.
  • Each month students manage their checking, savings, and credit card accounts as they deal with life’s expected and unexpected events that affect their budget.  
  • Within the simulation, additional personal finance tutorials are available to make sure students are learning about budgeting, banking, credit, employment, taxes, insurance, and more.
  • A class ranking based on net worth, credit score, and quality of life keep the students fully engaged and professors informed of each student’s progress.

The Investing Simulation

  • Students receive a virtual $25,000 in a brokerage account.
  • They can research U.S. stocks, ETFs, bonds and mutual funds and create their own investment portfolio.
  • All investment trades are based on real-time market prices.
  • Within the simulation, interactive tutorials help students get started and provide additional information during the simulation.
  • Students can monitor their performance versus their classmates.  At the same time, professors can track each student’s progress.

And BEST of ALL, with the new partnership between Stock-Trak and McGraw Hill, classes using the Kapoor Personal Finance textbook get a 50% savings when students register for the simulation – only $9.99 per student instead of retail price of $19.99.

Teaching Suggestions

  • Visit StockTrak.com/kapoor to learn more about the Personal Finance Budgeting and Investing Simulation.  You can learn even more by watching a short video or accessing the Kapoor demo materials located toward the bottom of the above site. 
  • It’s easy to get started.  All you need to do is access the above site, register your classes for Spring 2023, and indicate the dates you want your student to have access to the Personal Finance Simulation.  The site will generate a unique link for you to give to your students.
Categories: Budget, Chapter 1, Chapter 2, Chapter 3, Chapter 4, Chapter 5, Chapter 6, Chapter 7, Chapter 8, Chapter 9, Chapters, Chapter_10, Chapter_11, Chapter_12, Chapter_13, Chapter_14, Financial Planning Topics, Teaching Tools | Tags: , | Leave a comment

The Future of Social Security

Posted on September 10, 2022 by Melissa Hart

In June 2022, the Social Security Board of Trustees released its annual report on the financial status of the Social Security Trust Funds. The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035, one year later than projected last year, with 80 percent of benefits payable at that time.

The OASI Trust Fund is projected to become depleted in 2034, one year later than last year’s estimate, with 77 percent of benefits payable at that time. The DI Trust Fund asset reserves are not projected to become depleted during the 75-year projection period.

In the 2022 Annual Report to Congress, the Trustees announced:

  • The asset reserves of the combined OASI and DI Trust Funds declined by $56 billion in 2021 to a total of $2.852 trillion.
  • The total annual cost of the program is projected to exceed total annual income in 2022 and remain higher throughout the 75-year projection period.

“It is important to strengthen Social Security for future generations. The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually,” said Kilolo Kijakazi, Acting Commissioner of Social Security. “Social Security will continue to be a vital part of the lives of 66 million beneficiaries and 182 million workers and their families during 2022.”

Other highlights of the Trustees Report include:

  • Social Security paid benefits of $1.133 trillion in calendar year 2021. There were about 65 million beneficiaries at the end of the calendar year.
  • During 2021, an estimated 179 million people had earnings covered by Social Security and paid payroll taxes.
  • The cost of $6.5 billion to administer the Social Security program in 2021 was a very low 0.6 percent of total expenditures.
  • The combined trust fund asset reserves earned interest at an effective annual rate of 2.5 percent in 2021.

For more information, click here.

Teaching Suggestions

  • Ask students if they or their family and friends are concerned about the future of Social Security?  If so, what are their concerns?
  • Ask students to make a list of documents they will need to establish their social Security account.

Discussion Questions

  1. What might be some reasons for the asset reserves to decline by $56 billion in 2021?
  2. Do you agree that Social Security will continue to be a vital part of the lives of 66 million beneficiaries and 182 million workers and their families during 2022?  Why or why not?
  3. What percent of individuals age 65 and older would live in poverty without Social Security benefits?
  4. Would it be better for you to start getting benefits early with a smaller amount for more years, or wait for a larger monthly payment over a shorter time period?
Categories: Chapter_14, Retirement Planning | Tags: | Leave a comment

Digital Investments in Retirement?

Posted on May 21, 2022 by Melissa Hart

Your retirement savings represent years of hard work and sacrifice. The assets held in retirement plans, such as 401(k) plans, are essential to financial security in old age – covering living expenses, medical bills and so much more – and must be carefully protected.  That’s why plan fiduciaries, including plan sponsors and investment managers, have a strong legal obligation under the Employee Retirement Income Security Act to protect retirement savings.  These fiduciaries must act solely in the financial interests of plan participants and adhere to a high standard of care when managing plan participants’ retirement holdings.

In recent months, some financial services firms have started marketing investments in cryptocurrencies as potential investment options for participants in 401(k)s.  At this early stage in the history of cryptocurrencies, however, the U.S. Department of Labor has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets.

President Biden’s recent executive order on ensuring responsible development of digital assets highlights the significant financial risks digital assets can pose to consumers, investors and businesses in the absence of appropriate protections. 

Cryptocurrencies can present serious risks to retirement savings, including: 

  • Valuation concerns.
  • Obstacles to making informed decisions.  
  • Prices can change quickly and dramatically. 
  •  Evolving regulatory landscape.

Based on these concerns, the United States Department of Labor has issued a compliance assistance release for plan fiduciaries focused on 401(k) plan investments in cryptocurrencies.

For more information, click here.

Teaching Suggestions

  • Ask students if they, their friends or relatives have 401(k) plans.  If so, has anyone invested in Cryptocurriencies in their retirement plans and what have been their experiences?
  • Ask students to prepare a list of potential dangers in investing in cryptocurrencies or other digital investments.

Discussion Questions

  1. Why is the U.S. Department of Labor concerned about people investing in digital assets for their retirement plans at this time?
  2. Should the federal government prohibit 401(k) plan providers from investing in cryptocurrencies in participant’s retirement plans?  Why or why not?
Categories: Chapter_14, Retirement Planning | Tags: | Leave a comment

Your Baby’s Social Security number

Posted on April 23, 2022 by Melissa Hart

If your child is born in a hospital, the most convenient way to apply for a Social Security number is at that hospital before you leave.

When you give information for your child’s birth certificate at the hospital, you’ll be asked whether you want to apply for a Social Security number for your child. If you answer “yes,” you will be asked to provide both parents’ Social Security numbers. Even if you don’t know both parents’ Social Security numbers, you can still apply for a number for your child.

There are many reasons why your child should have a Social Security number. You need a Social Security number to claim your child as a dependent on your income tax return. You may also need a number for your child if you plan to do the following for your child:

  • Open a bank account.
  • Buy savings bonds.
  • Get medical coverage.
  • Apply for government services.

You can find more information by reading the publication, Social Security Numbers for Children. Share this information with people who are having a baby. Applying for a Social Security number at the hospital will save them time and let them focus on their new bundle of joy.

For more information, go to:

How To Get Your New Baby’s Social Security Number

Teaching Suggestions

  • Ask students to make a list of reasons why their child should have a Social Security number?
  • What might be the consequences of not getting a Social Security card for your new born?

Discussion Questions

  1. Why should you get a Social Security card for your child?  Is it mandatory?
  2. What is the best and easiest way to apply for a Social Security card for a newborn?
  3. Why must all the documents be either originals or copies certified by the issuing agency?
Categories: Chapter_14 | Tags: | Leave a comment

Lost Your Social Security Card?

Posted on April 9, 2022 by Melissa Hart

Consider whether you really need to get a replacement card. Knowing your number is what’s important, after all. You’ll rarely need the card itself — perhaps only when you get a new job and have to show it to your employer. If you really must replace your card, go to www.socialsecurity.gov/ssnumber before visiting your local Social Security office.

The first step is to learn what documents you need. The Social Security Administration requires a U.S. driver’s license, a state issued non-driver identification card, or a U.S. passport to prove your identity. Sometimes you may also need to prove your current U.S. citizenship or lawful noncitizen status with a birth certificate or passport.

All documents must be either originals or copies certified by the issuing agency. The Social Security office won’t accept photocopies or notarized copies of documents. They also can’t accept a receipt showing you applied for the document.

Once you’re clear on what documents you’ll need, the second step is to print and fill out the Application for a Social Security Card.  Finally, the third step is to bring or mail your application and original documents to a Social Security office. Then, the online process will take you to a screen where you can find the address of your local office.

In some areas, you can request a replacement Social Security card using your online my Social Security account if you meet certain requirements. Simply access your account and follow the instructions to replace your Social Security card. It’s safe, convenient and secure.

You can replace your Social Security card for free if it’s lost or stolen. Avoid service providers who charge you a fee to get your replacement card. You’re limited to three replacement cards in a year, and 10 during your lifetime. Legal name changes and other exceptions don’t count toward these limits. Changes in immigration status that require card updates may not count toward these limits. Also, you aren’t affected by these limits if you can prove you need the card to prevent a significant hardship.

The Social Security office will mail your card as soon as all of your information has been verified. Your replacement card will have the same name and number as your previous card.

For more information, go to:

So You’ve Lost Your Social Security Card

Teaching Suggestions

  • Ask students if anyone has lost his/her Social Security card.  If so, did they replace it?  Why or why not?
  • Under what circumstances should you replace your lost Social Security card?  Explain.

Discussion Questions

  1. What steps must be taken to replace a Social Security card?
  2. Why must all documents be original to be submitted to Social Security?
Categories: Chapter_14, Retirement Planning, Uncategorized | Tags: , | Leave a comment

Social Security Benefits Increase in 2022

Posted on February 12, 2022 by Melissa Hart

Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 5.9 percent in 2022. The 5.9 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Increased payments to approximately 8 million SSI beneficiaries began on December 30, 2021. (Note: some people receive both Social Security and SSI benefits). The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.

Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $147,000 from $142,800.

Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount. Most people who receive Social Security payments are able to view their COLA notice online through their personal my Social Security account. People may create or access their my Social Security account online at www.socialsecurity.gov/myaccount.

For more information, click here.

Teaching Suggestions

  • What might be a secure and convenient way to receive COLA notices online and save the message for later?
  • Ask students to trace the history of automatic Cost-of-Living Adjustments (COLA).

Discussion Questions

  1. How can you avoid falling victim to fraudulent “Social Security” calls and internet “phishing” schemes?
  2. What is the purpose of the COLA adjustments?
  3. What is the official measure used by the Social Security Administration to calculate COLA?
Categories: Chapter_14, Retirement Planning | Tags: | Leave a comment

Resources to help you avoid scams during the COVID-19 Pandemic

Posted on October 10, 2020 by Melissa Hart

Scammers are taking advantage of the coronavirus pandemic to con people into giving up their money. During this time of uncertainty, knowing about possible scams is a good first step toward preventing them.

Beware of these corona-related scams:

Vaccine, cure, air filters, and testing scams

The FTC warned  about an increasing number of scams related to vaccines, test kits, cures or treatments, and air filter systems designed to remove COVID-19 from the air in your home. There is no vaccine for this virus, and there is no cure. If you receive a phone call, email, text message, or letter with claims to sell you any of these items–it’s a scam.

What to do instead: Testing is available  through your local and state governments, but these tests are not delivered to your house.

Fake coronavirus-related charity scams

A charity scam is when a thief poses as a real charity or makes up the name of a charity that sounds real to get money from you. Be careful about any charity calling you and asking for donations. Also be wary if you get a call following up on a donation pledge that you don’t remember making–it could be a scam.

What to do instead: If you are able to help financially, visit the website of the organization of your choice to make sure your money is going to the right place.

“Person in need” scams

Scammers could use the circumstances of the coronavirus to pose as a grandchild, relative or friend who claims to be ill, stranded in another state or foreign country, or otherwise in trouble, and ask you to send money. They may ask you to send cash by mail or buy gift cards. These scammers often beg you to keep it a secret and act fast before you ask questions.

What to do instead: Don’t panic! Take a deep breath and get the facts. Hang up and call your grandchild or friend’s phone number to see if the story checks out. You could also call a different friend or relative. Don’t send money unless you’re sure it’s the real person who contacted you.

Scams targeting Social Security benefits

While local Social Security Administration (SSA) offices are closed to the public due to COVID-19 concerns, SSA will not suspend or decrease  Social Security benefit payments or Supplemental Security Income payments due to the current COVID-19 pandemic. Scammers may mislead people into believing they need to provide personal information or pay by gift card, wire transfer, internet currency, or by mailing cash to maintain regular benefit payments during this period. Any communication that says SSA will suspend or decrease your benefits due to COVID-19 is a scam, whether you receive it by letter, text, email, or phone call.

What to do instead: Report Social Security scams to the SSA Inspector General online at oig.ssa.gov .

For more information, go to: click here.

Teaching Suggestions

  • Ask students if they or their families have received calls from scammers. If so, what was their response?
  • Ask students to prepare a list of actions to take if they receive calls from scammers. Share the list with others.

Discussion Questions

  1. Why is it important to do your homework when you donate to a charity? should you donate in cash, by gift card, or by wiring money?  Why or why not?
  2. What should you do if you receive a call, an email, text message, or a letter claiming that an air filter system will remove COVID-19 from the air in your home?
  3. How would you handle any communication which claims that Social Security will suspend or decrease your benefits due to COVID-19 pandemic?
Categories: Chapter 9, Chapter_14, Frauds and Scams | Tags: , | Leave a comment

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