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Posts Tagged ‘Social Security’

Social Security benefits can be complex to calculate and understand for almost anyone who doesn’t work at Social Security or do this every day.

And the bottom line impact can be huge in terms of cash flow and potential tax liability.

Special Rule for 1st Year Retirees

You may be interested in knowing that there is a special rule for the first year you retire.

Sometimes people who retire during a year already have earned more than the yearly earnings limit. That is why there is a special rule that applies to earnings for one year, usually the first year of retirement. Under this rule, you can get a full Social Security check for any whole month you are retired, regardless of your yearly earnings.

So for the months that you did not work or earn less than the maximum, you will receive your full benefit but not have the SSI benefit reduced.  If you are retired and under Full Retirement Age, you are considered “retired” if your earnings are under $1,180 for that month and are not for all intents and purposes performing work as “self-employed”.

And the earnings test is limited to earned income above $14,160 in a year.  This number does not include dividends, interest, capital gains or IRA distributions.  Only if your earned income is above the limit will there be a reduction of benefits ($1 less in benefits for every $2 earned above).

In the year that you reach your Full Retirement Age (FRA) which is also known as Normal Retirement Age (NRA), the calculation is a little different.  Benefits are reduced $1 for every $3 earned above a different limit. If you were born between in 1945 or 1946, your FRA is 66 and that limit is $37,680.

Taxing Social Security Benefits

Now taxation of benefits is a different issue. During the last tax season, I had a few individuals who came in and didn’t realize that their benefits needed to be reported on their taxes.  They were more than shocked when they found out that their benefits were taxable and the refund that they thought they were getting was never going to happen.

Everything is added in including municipal bond income (which is otherwise and usually non-taxable).  Then up to 85% of SSI benefits may be taxed at your current rate if it is above certain exemption limits.  These start around $25,000 for a single taxpayer and around $32,000 for joint filers.

If you are married filing separately, you will likely be subject to taxes on the benefits without the help of an exemption.

To avoid a surprise when you file your taxes, you may want to get help in calculating your potential tax liability.  And if necessary file a Form W-4V to have a portion of your benefits withheld to defray your tax liability.

For more specific help with financial planning issues related to this or other issues or help in preparing your taxes, please call or email me and we can arrange to help.

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It’s easy to get tripped up in retirement.  I’m reminded of the expression by the octogenarian to the recent newlywed fretting about life but rejecting out of hand the advice of his experienced senior:

A long time ago I was where you are now.  And later you’ll be where I am now.  But just as you haven’t been your age before, I’ve never been old before.

So for new retirees who “not been there or done that” it’s a whole new world filled with possibility and pitfalls.

Transitioning

Most retirees have an imperfect vision of retirement at best.  And if it hasn’t been discussed or communicated, it could be vastly different from that of your spouse.

Finding meaning in a post-work world can be a real challenge.  If your identity has been wrapped up in what you do, then you might now feel lost.  Your social networks might change.  Your activities might change.

It’s important to reassess your values and envision how you want to live in this next chapter of your life.

Initially, there may be more travel to visit family, friends or places.  You may want to tackle that “bucket list.”

But to live a truly fulfilling and rewarding retirement may require you to take stock in yourself, your values and what gives you meaning.  You may benefit from working with a professional transition coach or group that can help guide you through this period of rediscovery.  One such resource can be found here at the Successful Transition Planning Institute.

Lifestyle Budget

Typically, most retirees may take the rule of thumb bandied about that you will need from 60% to 70% of your pre-retirement income to live on in a post-retirement world.  This is because it is assumed that many expenses will drop off:  business wardrobe, commuting to work, professional memberships, housing, new cars, etc.

The reality is far different.  According to research conducted by the Fidelity Research Institute 2007 Retirement Index, more than two-thirds of retirees spent the same or higher in retirement.  Only eight percent spend significantly lower and about 25% spend somewhat lower. The Employee Benefit Research Institute  reported in its 2010 Retirement Confidence Survey that while 60% of workers expected to more than half of retirees didn’t see a drop in retirement expenditures while 26% of this group reported that their spending actually rose.

It all depends on your goals, lifestyle and what curve balls life throws at you.  If you have adult children who end up in a financial crisis of their own caused by job loss, health issues or divorce, you may be spending more than you expected to help out. Maybe the home you live in will require higher outlays for maintenance or to upgrade the home so you can live there independently. In reality all of that travel and doing things on your bucket list will cost money, too.  So it’s more the rule than the exception to expect spending to increase while you’re still healthy to get up and go.

Over time, the travel bug and other activities will probably decline but even after that these may be replaced by other expenses.

Healthcare

There is an old saying that as you get older you have more doctors than friends.  This is a sad reality for many including my parents.

My father is on dialysis and has complications from diabetes.  His treatments probably cost Medicare (and ultimately the US taxpayer) more than $30,000 each quarter as I figure it.  He takes about 13 prescriptions each day and enters the dreaded “donut hole” about mid-year each year. At one time their former employers (a Fortune 500 company) provided medical insurance benefits to retirees but that became more and more cost prohibitive for their employer and for my parents as premiums, co-pays and deductibles rose.  So now they rely on a combination of Medicare and Blue Cross/Blue Shield and a state program called Prescription Advantage.

As private employers and cash-strapped state and municipal governments tackle the issue, you can expect to pay more for your health care in retirement.

Wealth Illusion

It’s not uncommon to feel really rich when you look at your retirement account statements.  (Sure, the balances are off where they may have been at the peak but it’s probably still a large pot of money). The big problem is that retirees may have no comprehension about how long that pot of money will last or how to turn it into a steady paycheck for retirement.

In reality the $500,000 in your 401k or IRA accounts may only provide $20,000 per year if you plan on withdrawing no more than 4% of the account’s balance each year. Then again if you take out more early on in retirement, you could be at risk of depleting your resources quickly.

Misplaced Risk Aversion & The Impact of Inflation

So as you get older, you’ll be tempted to follow the rule of thumb that more of your investments need to be in bonds. Although this may seem to be a conservative approach to investing, it is in fact risky.

Setting aside that this ignores the risks that bonds themselves carry, it is ignoring the simple fact that inflation eats away at your purchasing power.  Even in a tame inflationary world with 1% annual inflation, a couple spending about $80,000 a year when they are 65 will need over $88,000 a year just to buy the same level of goods and services when they turn 75.  Given the potential for higher inflation in the future that may result from a growing economy and/or current monetary policy, investments need to be positioned to hedge against inflation with a diverse allocation into stocks and not just bonds even when in retirement.

The other risk is trying to play catch up.  As a retiree sees the balances on his accounts get drawn down, he might even be tempted to “shoot for the moon” by investing in illiquid investments like stocks in small, thinly traded markets or in sectors that are very speculative.

Ball games are one by base hits and consistency on the field and at the plate.  Home runs are dramatic but not a sure thing.

Underestimating How Long You’ll Live

We all want a long and productive life.  Many will even say that they don’t want to live to be a burden to their families.  But here again the reality is that most folks do a bad job of guessing how long they’ll live.  A report by the Society of Actuaries notes that 29% of retirees and pre-retirees estimate that they’ll outline the averages but in fact there is a 50% chance of outliving them.

So while they may have enough resources to carry them through the average life expectancy, they will not have enough when they live longer than the averages. And if a couple attains the age of 65, there is a better than 50% chance that at least one of them will live into their 90s.

Given the fact that most women become widows at the age of 53 (Journal of Financial Planning, Nov. 2010), this has a big impact on the availability of resources for retirement.  Too often, a short-sighted approach to maximize current retirement income from a pension is to choose the option that pays the highest but stops when one spouse dies. All too often this puts the widow who may live longer without a reliable source of income to provide for her.

Conclusion

Too often people underestimate how long they will live in retirement, how much they will actually need for living in retirement and how to invest for a sustainable retirement paycheck using appropriate product, asset and tax diversification.

Many people do not save enough for their own retirement.  The social safety net providing support for old age income and healthcare may not be enough to maintain a desired lifestyle.  Women need to understand the risk of living long into retirement and manage resources accordingly.  And because more than 40% of Americans are at risk of retiring earlier than expected because of job loss, family care needs or personal health, there is a real need for proper planning to address these issues.

While retirees will benefit from having a good plan and road map before the final paycheck ends, it’s never too late to start. And for the newly retired with the time to address these issues, now’s as good a time as any to speak to a qualified professional who can help.

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“The safest way to double your money is to fold it over once and put it in your pocket.” Kin Hubbard

Investing takes time.  As humans our brains are more wired toward the flight-or-flight survival responses that got us to the top of the food chain.  So we are more prone to panic moves in one direction or another and this is not always in our best long-term interests.

So to retire richer requires a little work on understanding who we are and what we can do to improve our sustainable retirement odds.

There are lots of things in life that we cannot control.  And humans in general are easily driven to distraction. We are busy texting, emailing, surfing the web, and all other manner of techno-gadget interruptions from phone, computer and office equipment around us.

It’s no wonder that folks find it difficult to focus on long-term planning.  We hear a snippet of news on the radio or watch a talking head wildly flailing his arms about one stock or another and think that this is the ticket to investing success.

For those who remember physics class and one of Newton’s great discoveries, you can just as easily apply the rules of the physical world to human financial behavior:  A body at rest will tend to stay at rest; a body in motion will tend to stay in motion.

For most investors, inertia is the dominant theme that controls financial action or inaction.  Confronted with conflicting or incomplete information, most people will tend to procrastinate about making a commitment to one plan or another, one action or another.  Even once a course of action is adopted, we’re more likely than not to leave things on auto-pilot because of a lack of time or fear of making a wrong move.

To get us to move on anything, there has to be a lot of effort.  But once a tipping point is reached, people move but not always in the direction that may be in their best interests. Is it any wonder that most people end up being tossed between the two greatest motivators of action – and investing:  Greed and Fear.

So while someone cannot control the weather (unless you remember the old story line from the daytime soap General Hospital in the 1980s), the direction of a stock index or the value of a specific stock, we can all control our emotions.

Easier said than done?  You bet.  That’s why you need to approach investing for retirement or any financial goal with a process that helps take the emotional element out of it.  And you need to develop good habits about saving, debt and investment decisions.

What Does Rich Mean To You?

So you say you want to retire rich?  Sure, we all want to.  But what does “rich” look like to you.  There are surveys of folks who have $500,000 or $1million in investable assets describing themselves as middle class.  There are those I know who live quite comfortably on under $30,000 a year and would never describe themselves as poor.

Be Specific

First you should get a good picture of where you expect to be and what kind of life you envision.  Be clear about it.  Visualize it and then go find a picture you can hang up in a prominent place to remind you of your goal every day.  (That’s why I have pictures of my family on this blog reminding me of why I do everything I do).

Appeal to Your Competitive Streak

We are better motivated when we have tangible targets for either goals or competitors.  Ever ride a bike or run on the road and use the guy jogging in front of you as a target?  Same thing here.

So assuming you know what your retirement will look like, you’ll be able to put a number to it.  Now find out how you’re doing with a personal benchmark.  One way is to go to www.INGcompareme.com, a public website run by the financial giant ING which allows you to compare your financial status with others of similar age, income and assets.  Or try the calculators found at the bottom of the home page for www.ClearViewWealthAdvisors.com. This might help give you the motivation you need to save more if needed.

Use Checklists

They can save your life.  And even the lives of your passengers.  Just ask Captain Sully who credits his crew with good training and following a process that minimized the distractions from a highly emotional scene above the Hudson River.

The daily grind can be distracting.  Often we may be unable to see the big forest because of the trees standing in our path to retirement.

So try these tips:

Mid-thirties to early 40s:

  • Target a savings goal of 1.5 times your annual salary
    • Enroll in a company savings plan
    • Take full advantage of any 401k match that’s offered
    • Automatically increase your contributions by 5% to 10% each year (example: You set aside 4% this year; then next year set aside at least 4.5%)
    • If you max out what you can put aside in the company plan, consider adding a Roth IRA
    • Get your emergency reserves in place in readily available, FDIC-insured bank accounts, CDs or money markets
    • Invest for growth: Consider an allocation to equities equal to 128 minus your current age
    • Let your money travel: More growth is occurring in other parts of the world so don’t be stingy with your foreign stock or bond allocations.  Americans are woefully under-represented in overseas investing so try to look at a target of at least 20% up to 40% depending on your risk profile

Mid-Career (mid-forties to mid fifties)

  • Target a savings goal of 3 times your annual salary
    • Rebalance your portfolio periodically (consider at the very least doing so when you change your clocks)
    • Make any “catch-up” contributions by stashing away the maximum allowed for those over age 50
    • Consolidate your accounts from old IRAs, 401ks and savings to cut down on your investment costs and improve the coordination of your plan and allocation target

Nearing and In Retirement (Age 56 and beyond)

  • Target savings of six times your annual salary
    • Prune your stock holdings (about 40% of 401k investors had more than 80% in stocks according to Fidelity Investments)
    • Shift investments for income:  foreign and domestic hi-yield dividend paying stocks, some hi-yield bonds, some convertible bonds
    • Map out your retirement income plan – to sustain retirement cash flow you need to have a retirement income plan in place
    • Regularly review and rework the retirement income plan that incorporates any pensions, Social Security benefits and no more than 4% – 4.5% withdrawals from the investment portfolio stash accumulated
    • Have a Plan B ready:  Know your other options to supplement income from part-time work or consulting or tapping home equity through a reverse mortgage or receiving pensions available to qualifying Veterans.

Don’t be afraid to get a second opinion or help in crafting your plans form a qualified retirement professional.  You can find a CFP(R) professional by checking out the consumer portion of the Financial Planning Association website or by calling 617-398-7494 to arrange for a complimentary review with your personal money coach, Steve Stanganelli, CFP(R).

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10 Year Rule. Benefits are calculated based on the monthly average earnings of the covered person. A spouse can receive benefits based on his or her own work record or that of a spouse.  For a spouse who has not worked or had low wages, then the lower-earning spouse is entitled to as much as one-half of the retired worker’s full benefit referred to as the Primary Insurance Amount (PIA).  Eligible workers who are fully insured participants in the Social Security system will receive the greater of their own PIA or 50% of the benefit of the spouse if it is higher.

Example:  If a Sally has a PIA calculated at $250 per month and her spouse Jack has a PIA of $1,000 per month, then Sally is eligible for a benefit of $500 per month (or 50% of Jack’s higher PIA).

Divorced spouses who have been married for at least ten years are eligible for benefits based on the PIA of the other spouse.

To begin receiving benefits, one has to be at least age 62 and not remarried. If the ex-spouse remarries, then benefits will be calculated and compared to the PIA of the new spouse. If that marriage ends by death or divorce, the ex-spouse may be eligible to PIA based on the prior marriage.

The amount of benefits that an ex-spouse receives does not impact the benefit available to the other spouse.

Either spouse who is at least age 62 and been divorced for at least two years may begin to collect benefits even if not yet retired.

Example:

Which of the following persons is eligible for retirement benefits under her first husband’s retirement benefits provision of Social Security?

A.) Helen, age 62, married from 1966 to 1980 whose ex-husband was employed from 1963 through 1998.  Helen got divorced in 1995, never remarried and her ex-husband has died.

B.) Jane, age 62, was married from 1969 to 1983.  Her first husband was employed from 1963 to 2000.  Jane has remarried, divorced and remarried again.

C.) Judy, age 63, was married from 1961 to 1990 to her first husband who was employed from 1968 to 2003.  After the divorce she remarried in 1993 to her second husband who eventually died in 2004.

D.) Emily, age 60, was married to her first husband from 1963 to 1988. She remarried in 1994. Her husband had worked from 1968 to 1998.

E.) Susan, age 68, was married from 1980 to 1988 to her first husband who had been employed from 1963 to 2003. She remarried and divorced her second husband after 6 years.

Based on these examples, only Helen (example A) is eligible to collect a benefit based on her first husband’s work record.  They had been married for more than 10 years, divorced for at least 2 years and is eligible based on age (over 62).

Jane (example B) is not eligible to collect based on the first husband because she is remarried.

Judy (example C) can collect under her second husband.

Emily (example D) is not yet eligible to collect because she is under age 62.

Susan (example E) is not eligible because she has been married for fewer than 10 years to both husbands.  She would have to rely on her own work record for calculating her PIA.

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Like the mythical siren’s call, the pitch is enticing – a seemingly perfect investment.

Investors can buy into a contract offering a minimum return with the potential to capture the upside of increases in the stock market while avoiding portfolio value declines if – and when – the market goes down.

This blend of promises can be found in ‘equity-indexed annuities” or EIAs offered by insurance companies.

And these offerings have become popular given the steep declines in the stock market.  According to a report in the WSJ (9/02/09), sales of EIAs during the first half of 2009 rose 20% compared to a year ago to $15.2 billion.

As compelling as these products may sound, they are anything but simple.  There are many complicated moving parts to each EIA contract. So buyer beware!

Think of investing as finding the route to your destination (a goal) and matching that with the appropriate mode of transportation (or investment vehicle) to get you there.  You may be traveling from Boston to New York and can choose highways or back roads. You can choose hi-speed rail, a car, a bus, a bike or even a plane.  You can drive or fly yourself or hire someone else to drive. All will get you to where you want to go but it’s a question of what kind of comfort level you want on the ride, how much time you have to get there and at what cost – in fees or simply mental health.

For those who may not have the stomach for the gyrations of the stock market but are looking to be more venturesome, the EIA may be a suitable compromise. It’s sort of like someone hiring a driver for the trip but traveling on main roads while avoiding highways.

First, understand that an annuity is offered by an insurance company and backed by the credit-worthiness and deep pockets of the insurer.  There is no FDIC backing. This is not a bank product (although you may find them sold by brokers with desks in banks).

Next, understand that an index can be any benchmark for any asset class or market.  The most common benchmarks include the Dow Jones Industrial Average (DJIA), the S&P 500 and NASDAQ in the US.  Overseas, indexes include the NIKKEI in Japan for instance.

An equity-indexed annuity (EIA) ties the amount that will be credited to an investor’s account to the performance of a particular index. 

But don’t expect to receive a one-for-one increase in your account value based on the index’s increase.  Instead, these contracts include a “participation rate” that sets a percentage of the index gain that is used.

The index-based interest credit may be further limited by “caps” that set a maximum amount of gain.

For anyone who has ever had an Adjustable Rate Mortgage, the process is very similar to how loan rates are recalculated.

Calculating the interest credit is further complicated by the method of measuring the change in the index value.  For instance, the insurer can determine the index change based on the “Annual Reset” – the difference between the index value at the beginning and end of each contract annual anniversary date.  Or a “point-to-point” method may be chosen that compares the index value at the beginning date with some future date like the fifth anniversary. Or the insurer will use “index averaging” taking multiple index returns and averaging them.

By the way, the index value won’t include changes resulting from dividends. While total return on the S&P 500 averaged 9.5% between 1969 and 2008, more than one-third of the return was attributed to dividends.  So these EIA market participation formulas will be calculated on a lower base when dividends are not considered part of the index return.

Typically but not always, there is a minimum amount of interest that is credited. But be aware that this minimum interest credit may not apply to 100% of the contract value.  It may apply an interest rate of 3% to only 90% of the value.  It may apply 1.5% interest to 85% of the total value.  It all depends on the terms of the contract.

EIA contracts have dual values:  the one based on the index value, participation rate and cap; the other based on the minimum interest credit.  And if you get out of the contract before the full term, you may be forfeiting the index-based account value. The insurer would then pay out the amount based on the minimum guaranteed portion which may be lower than what you expected compared to the index formula.

And how many football fans would be happy if their favorite team was on the 1-yard line and the referees moved the goal post?  Well, most EIA contracts reserve the right to unilaterally change terms reducing the participation rate or using stiffer lower, caps for example.

And most contracts have very steep surrender charges that can start at 10% to 15% of the contract value in the first year and declining from there for up to 10 years.

And be aware of the financial incentives that are part of these contracts.  Some EIAs offer “bonuses” to investors – an extra 5% or 10% added to the initial deposit.  But there is no free lunch.  In exchange for such a bonus, the insurer will likely increase the surrender penalty.  So as much as the bonus is an incentive to open the contract, the penalty is an incentive to not move the money out.

Follow the money, too.  Many EIAs pay out commissions to brokers between 6% and 10% and sometimes more.  An investor should be aware that there may be an incentive by a salesperson to offer this as a catch-all solution whether or not it fits the investor’s particular situation. 

The advantages to an EIA include the opportunity to participate in the upside of a market index as an alternative to investing directly through mutual funds for instance.  When an investor opens up an annual statement, there may be less apparent volatility because the account balances aren’t fluctuating wildly.  So this may help a conservative investor dip a toe in the market and sleep better.  And like most annuity products, investors have free access to a portion of their money without surrender charge (usually 10%). And like any other insurance product, it provides a guaranteed death benefit.  Like other annuities, it offers an income stream that you cannot outlive.

The average return on such EIA contracts has been reported to be in the 5%-6% range.  Given the complexities of these contracts and the average returns, it may be a costly way to limit your market exposure but it may make sense for those looking for a principal-protected CD alternative for the cash portion of their portfolios as well as a source of income to supplement retirement.

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When your salary stops at retirement, will you have enough to pay your bills, travel and live the lifestyle that you want in your Golden Years?

 

Sure, you may be one of the lucky ones with a pension.  Social Security may even still be around. But if you want to live your vision of retirement, then saving and investing properly is important.

 

And how you pay for college for your kids will impact your own retirement.

Think about this:  College tuitions, books, fees and housing continue to increase at a rate faster than inflation in general.  Based on current trends, the cost of sending just two kids to a private or elite college for a total of eight years will cost more than $360,000 if paid after taxes.  This means that those in the 28 percent tax bracket need to earn more than $500,000 in order to meet the costs from cash flow.

 

Regardless of where you send your kids to school, the bottom-line fact is this:  How you pay for college impacts how much you save for retirement.  For every dollar that you save on college costs means more for your personal retirement down the road.

 

There are a number of strategies you can use to improve your chances at a better retirement and a solid education at a lower personal cost.

 

There are more than thirteen strategies for increasing needs-based aid.  There are at least a dozen cost-cutting ways that any family can use to improve their bottom line.

 

Ultimately, it depends on how well you know how to use the IRS code for your advantage to lower your own Expected Family Contribution (or EFC in financial aid parlance).

 

Regardless of whether you expect to qualify for needs-based aid or not, here are some examples of cost-cutting strategies available to you.

 

Strategy 1:  Get College Credit Through Exams

By taking Advanced Placement exams or even a “challenge” exam for basic college courses, a student can get through school quicker potentially saving thousands in tuition and fees.  Opportunities are available for Advanced Placement (AP), College-Level Examination Program (CLEP) or DSST exams for 37 different courses.  For more information on these, check out www.collegeboard.com or www.getcollegecredit.com.

 

 

Strategy 2: Stay Local

In-state tuition and fees at a public higher education institution is a bargain compared to the elites and even crossing the border to go to another state’s public college.  If you are considering going across the border or away, consider having your child establish residency in that state.  Find out what the residency requirement are ahead of time by contacting the admissions office.

 

Strategy 3:  Get the Credit You Deserve from the IRS

Use the Hope Education Credit, renamed the “American Opportunity Tax Credit.” This was recently increased to $2,500 (from $1,200) and now applies to all four years of college, not just the first two.  In addition, forty-percent of the credit is now refundable. Another helping-hand comes in the form of the Lifetime Learning Credit which is available for one family member and allows you to take up to 40% credit on educational expenses up to $10,000.  Income limits apply so be sure to consult a qualified tax professional or visit www.irs.gov.

 

Strategy 4: Employ Your Child

If you own a business, work as an independent contractor or own rental real estate, consider hiring your child to work for you. Maybe your child can provide administrative support or help with marketing or real estate related chores. By hiring a child and paying him or her, you will lower your own personal taxable income through a business expense deduction and provide income for your child.  In addition, the child can use the earnings to open a Roth IRA, a tax-favored retirement account which is not assessed as an asset for financial aid purposes.  And if needed, a child can withdraw a portion of the proceeds to pay for qualified educational expenses.  There are certain limits and time restrictions that apply.  

 

Strategy 5: Establish a Section 127 Educational Assistance Plan

As a business owner you can establish a Section 127 employer-paid tuition benefits program for your employees. This plan allows the business owner to pay up to $5,250 per year to employees (including employed children) as a qualified tax deductible expense.  This can be used for both undergraduate and graduate programs of study.  Assuming that Junior was going to work in the family business during the summer and throughout the year, Junior can earn a wage (deductible expense for the business) which he can use for his own support and Roth IRA contribution (which may be eligible for paying educational expenses) and earn a tuition benefit (another deductible business expense).  If you were going to give the child the money anyway, you may as well structure it to be tax deductible.

 

Consider this: There are more than 110 different other strategies for you to consider. All the more reason to have a coordinated plan in place by speaking with a professional advisor who can help evaluate these options with you.

 

Food for thought: 

 

  • Encourage your pre-teen to open a Roth IRA with earnings from their paper route or other jobs.
  • Consider hiring your child to work in your business or help with chores related to your investment property.
  • Use a CollegeSure CD issued by an FDIC-insured bank to accumulate savings
  • Think about using a fixed income annuity to hold a portion of money for college to avoid the potential loss in principal that can happen with a 529 plan invested in mutual funds.
  • Pursue private and merit-based scholarships  (For more information on some of these options, check out www.fastweb.com, the CollegBoard and www.scholarshipexperts.com

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According to a Wall Street Journal article, here are some of the many reasons why the financial planning process is vital for today’s consumer:

 

• Health care and education costs are

rising significantly faster than the general

inflation rate.

 

• Many retirees today will live 25 or more

years in retirement, requiring far more

financial management of resources to

maintain a desired lifestyle.

 

• Social Security and company pensions

no longer provide the majority of retirement

funds for many people.

 

• Tax laws change almost annually.

 

• Downsizing companies no longer provide

cradle-to-grave benefits or job security.

 

• The average American changes jobs

seven times in a lifetime.

 

• According to CardWeb.com, the average

American household today has

$9,300 of credit card debt, up from

$5,800 a decade ago.

 

• The Center for Association Leadership

reported a survey in which 50% of respondents

said they rarely, if ever, use

a household budget to manage their

spending.

 

• There are myriad investment options

available, and not all of them are appropriate choices for you.

 

Given our very busy lives,  is it very likely that a consumer will be able to evaluate all the options out there on their own without guidance? 

How does a consumer know how to make a proper evaluation of the various options on issues?

Most consumers don’t have a plan but a hope.  Yet hope, as important as it is on any difficult endeavor, is not a strategy.

Having a plan that starts with goals – an end in mind – will help focus one’s efforts and keep one on track even if detoured off course by the occasional pothole or market meltdown.

I want to encourage folks to open up and think about what they want their money to do for them.  It’s not enough to simply say, “I want to be rich.”  That is a relative term.  Being rich means something completely different to someone on Rodeo Drive compared to someone living in a hut in the jungle.

Regardless of where one lives there is common agreement that people almost universally want to be free from want, hunger, disease.  And all want to have a safe home for raising a family.

The trappings surrounding the success we call “being rich” are what may be different.

So how does one get there then?  Wishing alone will not make it so.

So take it one step further.  Be SMART about what you want – have goals that are Specific, Measurable, Attainable, Realistic and have a Time limit.

Having a plan is the first step.  Next is staying on track to get between Point A and Point B.  This is where the right coach can do wonders.  If Tiger Woods can have a coach, shouldn’t you?  A good coach can offer advice with an objective perspective, tell it like it is and be brutally honest. 

It’s a complex world out there – whole life versus term insurance, over 10,000 mutual funds, multiple options for elfer care and medical treatment, tax laws that change constantly.

Are you really sure that you’re prepared to handle these details on your own?  Do you really think that the Web or some talking head on TV is the best source of information for your specific needs?

Maybe it’s time to try something different and sit down with a real money coach, not just someone trying to sell you something.

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