Day: October 6, 2024

A week after Hurricane Helene overwhelmed the Southeastern U.S., homeowners hit the hardest are grappling with how they could possibly pay for the flood damage from one of the deadliest storms to hit the mainland in recent history.

The Category 4 storm that first struck Florida’s Gulf Coast on September 26 has dumped trillions of gallons of water across several states, leaving a catastrophic trail of destruction that spans hundreds of miles inland. More than 200 people have died in what is now the deadliest hurricane to hit the mainland U.S. since Katrina, according to statistics from the National Hurricane Center.

Western North Carolina and the Asheville area were hit especially hard, with flooding that wiped out buildings, roads, utilities and land in a way that nobody expected, let alone prepared for. Inland areas in parts of Georgia and Tennessee were also washed out.

The Oak Forest neighborhood in south Asheville lives up to its name, with trees towering over 1960s era ranch-style houses on large lots. But on Sept. 27, as Helene’s remnants swept through western north Carolina, many of those trees came crashing down, sometimes landing on houses.

Julianne Johnson said she was coming upstairs from the basement to help her 5-year-old son pick out clothes that day when her husband began to yell that a giant oak was falling diagonally across the yard. The tree mostly missed the house, but still crumpled part of a metal porch and damaged the roof. Then, Johnson said, her basement flooded.

On Friday, there was a blue tarp being held on the roof with a brick. Sodden carpet that the family torn out lay on the side of the house, waiting to go to the landfill. With no cell phone service or internet access, Johnson said she couldn’t file a home insurance claim until four days after the storm.

“It took me a while to make that call,” she said. “I don’t have an adjuster yet.”

Roof and tree damage are likely to be covered by the average home insurance policy. But Johnson, like many homeowners, doesn’t have flood insurance and she’s not certain how she’ll pay for that part of the damage.

Those recovering from the storm may be surprised to learn flood damage is a completely separate thing. Insurance professionals and experts have long warned that home insurance typically does not cover flood damage to the home, even as they espouse that flooding can happen anywhere that rains. That’s because flooding isn’t just sea water seeping into the land – it’s also water from banks, as well as mudflow and torrential rains.

But most private insurance companies don’t carry flood insurance, leaving the National Flood Insurance Program run by the Federal Emergency Management Agency as the primary provider for that coverage for residential homes. Congress created the federal flood insurance program more than 50 years ago when many private insurers stopped offering policies in high-risk areas.

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North Carolina has 129,933 such policies in force, according to FEMA’s latest data, though most of that protection will likely be concentrated on the coast rather than in the Blue Ridge Mountains area where Helene caused the most damage. Florida, in comparison, has about 1.7 million flood policies in place statewide.

Charlotte Hicks, a flood insurance expert in North Carolina who has led flood risk training and educational outreach for the state’s Department of Insurance, said the reality is that many Helene survivors will never be made whole. Without flood insurance, some people may be able to rebuild with the help of charities but most others will be left to fend for themselves.

“There will absolutely be people who will be financially devasted by this event,” Hicks said. “It’s heartbreaking.”

Some may go into foreclosure or bankruptcy. Entire neighborhoods will likely never be rebuilt. There’s been water damage across the board, Hicks said, and for some, mudslides have even taken the land upon which their house once stood.

Meanwhile, Helene is turning out to be a fairly manageable disaster for the private home insurance market because those plans generally only serve to cover wind damage from hurricanes.

That’s a relief for the industry, which has been under increasing strain from other intensifying climate disasters such as wildfires and tornadoes. Nowhere is the shrinking private market due to climate instability more evident than in Florida, where many companies have already stopped selling policies — leaving the state-backed Citizens Property Insurance Corporation now the largest home insurer in the state.

Mark Friedlander, spokesman for the Insurance Information Institute, an industry group, said Helene is a “very manageable loss event,” and estimates insurer losses will range from about $5 billion to $8 billion. That’s compared to the insured losses from the Category 4 Hurricane Ian in September 2022 that was estimated in excess of $50 billion.

Friedlander and other experts point out that less than 1% of the inland areas that sustained the most catastrophic flood damage were protected with flood insurance.

“This is very common in inland communities across the country,” Friedlander said. “ Lack of flood insurance is a major insurance gap in the U.S., as only about 6% of homeowners carry the coverage, mostly in coastal counties.”

Amy Bach, executive director of the consumer advocacy group United Policyholders, said the images of the flood destruction in North Carolina shook her despite decades of seeing challenging recovery faced by victims of natural disasters.

“This is a pretty serious situation here in terms of people disappointed. They are going to be disappointed in their insurers and they are going to be disappointed in FEMA,” Bach said. “FEMA cannot match the kind of dollars private insurers are supposed to be contributing to the recovery.”

This week, FEMA announced it could meet the immediate needs of Helene but warned it doesn’t have enough funding to make it through the hurricane season, which runs June 1 to Nov. 30 though most hurricanes typically occur in September and October.

Even if a homeowner does have it, FEMA’s National Flood Insurance Program only covers up to $250,000 for single-family homes and $100,000 for contents.

Bach said that along with homeowners educating themselves about what their policies do and don’t cover, the solution is a national disaster insurance program that does for property insurance what the Affordable Care Act did for health insurance.

After Hurricane Floyd in 1999, the state of North Carolina started requiring insurance agents to take a flood insurance class so they could properly advise their clients of the risk and policies available, Hicks said. The state also requires home insurance policies to clearly disclose that it does not cover flood.

“You can’t stop nature from doing what nature is going to do,” Hicks said. “For us to think it’s never going to be this bad again would be a dangerous assumption. A lot of people underestimate their risk of flooding.”

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Associated Press Staff Writers Jeff Amy in Asheville, North Carolina, Lisa Leff in London and Paul Wiseman in Washington contributed to this report.

For 72-year-old Jacqueline Withers, retirement has been rocky. And she’s not alone, as it turns out.

Eight years ago, the Jacksonville, N.C. resident stepped away from her job as a home healthcare aide because of a heart condition. She tapped into her Social Security. But it was not — then or now — enough to make ends meet. Her $1,700 monthly check only covers 90% of her very basic living costs. The remaining 10%? A measly pension takes care of that.

The trouble is, she said, “I don’t have enough income to pay my medical bills and buy decent food to live on.”

Retirement in America is a disaster for many like Withers. And no one — politicians, financial planners, pick your own expert — seems to know what exactly to do about it.

I have been covering all this for years as a journalist, book author, and public speaker. Trust me, the state of retirement in America has never been this bad since the federal law that molded the majority of today’s retirement landscape, the Employee Retirement Income Security Act, or ERISA, was signed into law 50 years ago.

Of course, the system has worked for many of us. Especially if you’ve been lucky enough to have worked for a company with an old-timey pension, received a match-enhanced 401(k) plan, and/or are a close relative of a Connecticut hedge fund guy.

And, for sure, there’s hope for the current generation of workers if there’s a will to fix the system and educate the masses. (Spoiler: It will be a tough slog to change things.)

Read more: Retirement planning: A step-by-step guide

The heart of the matter is this: ERISA, which was designed to protect our interests by overseeing things like 401(k) and pension plans, only works for some of us. It sets minimum standards for retirement plans in the private sector and requires plan administrators to act in your best interest. It does not, however, require any employer to establish a retirement plan.

There are reasons behind this mess.

Many small businesses, for instance, steer clear of the plans; owners claim they are too costly and complex to navigate. Another reason: Employers have slashed traditional pension plans over the years, partly because of those stricter ERISA rules and costs associated with those plans.

Those who won that traditional pension plan lottery were guaranteed lifetime income streams. Today, just 11% of private employees participate in traditional, or so-called defined-benefit, pensions, compared with around 35% in the early ’90s, according to Mark Miller, a retirement expert and author of “Retirement Reboot.”

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It also doesn’t help that many Americans are nearing retirement or are in retirement with massive amounts of credit card and medical debt, according to Federal Reserve data. Debt for households headed by people aged 65 to 74 has more than quadrupled since 1992, from $10,150 to $45,000 per household in 2022 (the most recent figures). For those 75 and up, debt has increased sevenfold.

Anatomy of a crisis

If you don’t believe me about the sorry state of retirement in America, maybe some of the more than two dozen retirement experts I interviewed can convince you.

They’ll tell you that millions of seniors are living in poverty, and many millions more lack the savings or retirement plans needed to survive comfortably in old age. That’s even before massive healthcare expenses like assisted-care facilities and nursing homes, which is a retirement killer in and of itself. (An assisted-living facility had an average rate of $72,000 a year as of December 2023, according to the National Investment Center for Seniors Housing & Care. For a memory care unit, the average rate is $94,788 annually.)

“Few people are well-prepared for these expenses,” said Edward A. Miller, Department of Gerontology chair at The University of Massachusetts Boston. “Denial is common — or they feel, … erroneously, that Medicare covers long-term care or that Medicaid will do so without them having to impoverish themselves first.”

Others agree we’re in real trouble.

The retirement crisis “is not overblown,” said Richard Johnson, director of the Program on Retirement Policy at the Urban Institute. “We see a large number of people struggling to make ends meet … or [having experienced] a substantial decline in living standards.”

“Undersaving for retirement is a big problem,” said Alicia H. Munnell, the legendary director of the Center for Retirement Research at Boston College.

And this from Surya Kolluri, head of the TIAA Institute: The retirement crisis “is even more severe if you start disaggregating the data by gender, by race, by ethnicity, by geography. Based on our research, over 40% of all US households might expect to run out of money in retirement.”

Here’s some more data to chew on.

According to a simulated model that factors in things like changes in health, nursing home costs, and demographics, about 45% of Americans who leave the workforce at 65 are likely to run out of money during retirement, per Morningstar’s Center for Retirement and Policy Studies. The risk is higher for single women, who had a 55% chance of running out of money versus 40% for single men and 41% for couples.

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Boston College’s National Retirement Risk Index, which is based on the Federal Reserve’s Survey of Consumer Finances, shows that 39% of today’s working-age households will not be able to maintain their standard of living in retirement.

Meanwhile, an analysis by the National Council on Aging and the LeadingAge LTSS Center at UMass Boston shows a little over 27 million households with adults aged 60 and up cannot afford basic living needs.

Even more worrisome, more than 12 million American seniors are already in poverty, per the Schwartz Center for Economic Policy analysis. Measured by global standards, one-fourth of Americans aged 65 or older (23%) are poor.

Americans 65 and older are the fastest-growing group of the homeless population in the US, and by 2030, their numbers are expected to triple, according to Dr. Margot Kushel, a professor of medicine at the University of California at San Francisco and director of the UCSF Center for Vulnerable Populations. Among single homeless adults, approximately half are aged 50 and older.

“It’s chilling,” Ramsey Alwin, chief executive of the National Council on Aging, told Yahoo Finance, and “unacceptable.”

‘A generational cycle of falling short’

Expenses are a killer.

The Elder Index, created by gerontologists at the University of Massachusetts Boston, calculates how much older adults need to meet their basic needs. For example, in the Los Angeles Metropolitan area last year, a single renter over the age of 65 in good health needed $2,997 per month for housing, healthcare, food, transportation, and other expenses, according to the calculator. The same renter in Pittsburgh, Pa., needed $2,194. Nationally, the average Social Security retirement benefit in August came to about $1,784 monthly.

Read more: How to find out your 2024 Social Security COLA increase

All of those factors are already whacking retirement for many Americans. “This is a substantial portion of the population that may have to downsize,” said Anqi Chen, a senior research economist and the assistant director of savings research at the Center for Retirement Research at Boston College.

“And the fallout from not having ‘enough’ or having to cut back in retirement can also include relying on your children to cover shocks, like long-term healthcare, when they should be saving, accumulating assets, and earning returns for their own retirement,” Chen said.

“This,” she added, “creates a generational cycle of falling short in retirement.”

In other words: Ugh.

Solutions?

I’m afraid to say it is what it is in the short term. Long term? There are ways to make some progress, but we need the political will — and would likely have to pay the price in taxes.

Let’s start with AARP Public Policy Institute’s senior strategic policy adviser, David John.

“We need to have a universal retirement savings system,” he said. “It doesn’t necessarily mean a government system. It could be a series of state-facilitated systems. But one way or the other, every American has to have the ability to save for the future from the day they start work until the day they retire.”

There are glimmers of hope here for folks without an employer-provided plan.

A growing number of states have passed laws in recent years to help. These include Oregon, Colorado, Connecticut, Maryland, Illinois, California, and Virginia.

As of June 30, 20 states have enacted new programs for private sector workers, and 17 of these states are auto-IRA programs. They require most private employers that don’t sponsor a savings plan of their own to enroll workers in a state-facilitated individual retirement account (IRA) at a preset savings rate — usually 3% to 5% of earnings — which is automatically deducted from paychecks. The plans typically ramp up their employee’s contribution by 1% each year until it reaches 10% unless an employee opts out.

“While these workers can set up any kind of IRA, there are a lot of choices to make in the private market,” said John Scott, director of Pew Charitable Trusts‘ retirement savings project. “In contrast, the state programs provide a simple, easy option so they can start saving quickly.”

Beginning this year, eligible businesses with 50 or fewer employees can qualify for a credit equal to 100% of the administrative costs for establishing their own workplace retirement plan.

Said Teresa Ghilarducci, a labor economist at the New School and the author of “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy,” “Every worker should be covered by a retirement plan, in addition to Social Security, and enrolled automatically as they are in Social Security.”

Where’s the money?

David John of AARP also said it is important for people to be able to keep track of their savings. And for the most part, “that means having their savings balances move with them, unless they decide otherwise, from job to job,” he said. “Auto portability is a good first step towards that.”

A new law, in fact, aims to keep workers from cashing out their 401(k) retirement savings accounts when they move from one job to another, building on a similar effort launched last year by the private sector. It paves the way for employer retirement plans to provide automatic portability services, so funds can be transferred seamlessly into a new employer plan unless the worker opts out. (The limit for automatic rollovers is $7,000.)

Pulling money out of a tax-deferred retirement fund before you’re 59 and a half is costly. The IRS levies a 10% penalty on distributions taken before the account holder is 59 and a half. And income taxes are due on the funds that are withdrawn. Ultimately, you lose out on the compounding effects if the balance remains untouched.

I admit I did this myself when I was 30 and changing jobs, and it pains me to think what it might have been worth today. Back then, retirement seemed so far away that it never even occurred to me that I would regret that decision.

Turning 401(k)s into old-fashioned pensions

John also believes “we need to have a simple low-cost way of helping people to actually use their retirement savings effectively once they retire.”

What he is talking about is creating some organized way to help people pull money from their retirement accounts to, in essence, predictably pay themselves in retirement without all the angst of deciding which accounts to pull from and navigating the tax implications.

People freeze for fear of running out of money if they spend too much or for not understanding the mechanics of pulling money out of these accounts.

“Perhaps the hardest problem to solve is helping people to convert their savings into retirement income,” John said. “Everyone’s circumstances are at least slightly different, and all too often, people are just handed their money and told they have to make the decisions about how to use it.”

Read more: Here’s what to do with your retirement savings in a market sell-off

This leads some people to spend too quickly and others to hoard their savings so the money will be available when a future crisis appears, he added.

There are new ideas coming on board all the time to solve this roadblock. A rising number of employers are offering annuities in their 401(k) plans. And more people, for example, are building their own do-it-yourself income stream with a single-premium immediate annuity (or SPIA). SPIA sales are on track to meet or exceed the record sales this year, according to LIMRA.

Currently, a $100,000 SPIA would pay $709 a month for a single 70-year-old man in Washington, D.C., according to immediateannuities.com. You can tack on special terms, called riders, but you’ll generally get smaller monthly payments.

These annuities are the most basic plans: You pass along a chunk of your retirement savings to an insurer, and presto, you begin receiving a guaranteed paycheck until you die. The amount you get paid each month is calculated based on a variety of factors including the amount you put into the annuity, your age, gender, and the current interest rate.

There are a few drawbacks. There are typically no refunds, so once you make that choice, you can’t go back or change the amount you get each month. You can’t have a beneficiary named to them, which means that when you die, the income screeches to a halt. Another niggle is that with SPIAs your payments will not be adjusted upward for inflation.

“Some level of guidance, probably through a flexible default solution, would help new and future retirees to effectively use their savings and have a better retirement,” John said. More widespread use of annuities could be a retirement life preserver, but for now, too many of them are baffling and costly.

Fix Social Security and Medicare?

The 2024 Social Security and Medicare Trustees Reports projected that in nine years Social Security’s key reserve will run low. The upshot is that unless Congress figures out a way to fix it before we hit that flashing light, benefits would potentially get slashed by 20% for seniors.

For years, there have been droves of solutions spinning about what could and should be done to prevent the shortfall, including ratcheting up payroll taxes that fund the program, currently 12.4% split evenly by employees and employers.

But tweaking Medicare is another issue and perhaps as urgent given the health care needs of boomers.

Remember those big long-term care bills I was talking about? This is a big one. Currently, Medicare does not pay for such care, so older adults and their families bear this financial risk directly. Medicaid covers nursing homes, but only after older adults spend down their assets to less than $2,000. This is probably a pipe dream, though, because it would be expensive to pay for it.

Another idea: Earlier coverage for Medicare benefits before age 65, the current age to enroll, would help folks save more for the future. It would also prevent them from draining their finances for medical bills.

A lot of people lose their jobs or take early retirement between the ages of 50-65 and don’t get full-time jobs with health benefits. If you’re self-employed, you can use the individual health insurance marketplace to enroll in health coverage, but I’ve been down that road in my 50s, and it isn’t cheap. My premiums topped $1,200 a month for a high-deductible plan, and I had no health issues.

Have a question about retirement? Personal finances? Anything career-related? Click here to drop Kerry Hannon a note.

Money 101

But the biggest long-term solution of them all might be this: Educate kids early on about how to manage money and save — and on the importance of participating in retirement plans.

Let’s have John Scott, director of Pew’s retirement savings project, tell us why.

“We need more financial education,” he told me. “If it’s delivered at the right point in time and in the right dose to use a medical term, it can be very helpful to people. So, for example, when people are retiring, it is good to know, you know, what is an annuity? You know, or get some information about what are my options for taking money out of my company retirement plan, or, or how should I be taking Social Security?”

It’s too late for Withers, but just in time for younger generations who may be about to fall into the same traps as their parents.

Finding a fiduciary financial adviser doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 financial advisers that serve your area in 5 minutes.

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.

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Customers of genetic data outfit 23andMe may be at greater risk than they realize, suggests a New York Times story that argues the company’s woes could be short-lived compared to the longer-term threats facing those roughly 15 million people if 23andMe can’t continue as a going concern.

Certainly, the hope of founder and CEO Anne Wojcicki to turn around 23andMe seems increasingly unreachable. Following a major breach and resignation en mass of its independent directors, the company, once valued at $6 billion, is now valued at $150 million. It’s poised to be delisted next month. Press stories aren’t helping. (Would you buy one of its DNA kits?)

The company says it remains committed to “follow laws that regulate the data we collect,” but if at some point soon it can’t, that’s worrisome, says a Yale biomedical professor to the Times. He notes that hacked credit cards can be replaced, while a genome cannot. Meanwhile, he adds, the tech that analyzes genomes is advancing. Chances are it will become more revealing, too.

If you invested $100 in Nvidia (NASDAQ: NVDA) at the beginning of 2023, you would now have $830 thanks to the remarkable surge in the company’s shares fueled by artificial intelligence (AI). Even so, the stock could jump from about $120 now to around $800 by 2030, according to one analyst.

Phil Panaro, a former senior advisor at the Boston Consulting Group, believes that the continuing growth of AI and the arrival of Nvidia’s next-generation Blackwell processors could lead to annual revenue of $600 billion in 2030 from $61 billion in fiscal 2024.

Let’s look at the catalysts mentioned by Panaro and check if they are strong enough to help Nvidia sustain its phenomenal growth in the long run.

The increasing demand for accelerated computing

Nvidia CEO Jensen Huang said on his company’s August earnings conference call that accelerated computing is going to be a long-term growth driver. Huang said the transition from general-purpose computing — using central processing units (CPUs) — to accelerated computing based on graphics processing units (GPUs) could help reduce computing costs by 90%.

Because GPUs speed up demanding workloads in data centers that would have otherwise taken longer using CPUs, Nvidia says, accelerated computing is not only faster, but it is also more sustainable because of its smaller energy footprint.

Huang projected “$1 trillion worth of data centers in a few years will be all accelerated computing” based on their energy efficiency.

Data centers are estimated to account for 1% to 2% of global energy consumption, a figure expected to double by the end of the decade. So the much faster pace of GPUs compared to CPUs is expected to help reduce energy consumption long term.

The demand for data center accelerators is forecast to have a compound annual growth rate (CAGR) of 28% through the next five years. And the massive end market that the transition to accelerated computing is likely to create, Huang said, could mean that his company is at the beginning of a phenomenal growth curve.

That’s because Nvidia is the dominant player in the data center GPU market. It reportedly controlled 98% of this space at the end of last year, so it stands to win big from the secular growth in accelerated computing even if it loses some of that market share.

The outlook for Nvidia’s upcoming Blackwell AI GPUs seems to be solid, with the company saying demand is tracking ahead of supply, a trend that’s likely to continue next year as well.

Why a $600 billion top line seems achievable

Nvidia’s solid prospects discussed above help explain why the company’s revenue estimates have received a nice bump for the next three fiscal years.

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As shown in the chart above, Nvidia’s top line is expected to cross $207 billion in fiscal 2027, more than triple its fiscal 2024 revenue. The company’s fiscal 2027 will coincide with the majority of calendar year 2026. So to hit $600 billion in revenue by calendar year 2030 (Nvidia’s fiscal 2031), it will need an annual growth rate of 30% over a four-year period.

Nvidia serves multiple fast-growing markets such as AI chips (expected to grow at an annual pace of 41% through 2032), digital twins, and cloud gaming, so there is a good chance that it could indeed hit $600 billion in revenue by the 2030 calendar year. But it remains to be seen if that growth translates into the potential upside that Panaro predicts for the stock.

Assuming Nvidia does reach $600 billion in sales in 2030, the stock will have to maintain its current price-to-sales ratio (P/S) of 32 to generate 561% returns from this level. That would translate into a market cap of $19.2 trillion, compared to the current level of just under $3 trillion.

If we don’t give Nvidia such a rich sales multiple and assume that it is trading at a P/S of 8 (in line with the U.S. technology sector’s average) by 2030, its market cap would jump to $4.8 trillion.

So, Nvidia could deliver 61% gains from current levels assuming it trades at a more reasonable valuation. But if the market decides to keep rewarding the company with a rich multiple because of its healthy growth, there is a good chance that it could deliver a much stronger upside in the long run — and might even get close to Panaro’s ambitious estimate.

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