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College Planning 101

The dreaded Free Application for Federal Student Aid will be available October 1st of this year and should be easier to complete because you can use 2015 tax returns and not have to do any updates in the spring after filing your 2016 returns.  The following link summarizes the changes and gives some tips on obtaining the most aid possible. http://money.cnn.com/2016/09/25/pf/college/fafsa-application-changes/    But for those people who are new parents or still have children younger than college age there is still the daunting question of “How will I pay for college”.  As is the case with all long term goals, the earlier you start saving, the better your account balance should look over time.  This is due to the power of compounding interest.  If you start to save for college from the time your children are born, separating those accounts from all other funds, you will have at least part of the balance covered. There are many strategies out there, most focus on some ratio of parental savings, financial aid, current income and in some cases, help from family.  It is impossible to know what a newborn child will want to do when they are 18 years old: Will they want to go to a 4 or 2 year school? Public or private?  Trade school? Travel the world?  So what are the best steps for a parent to take now? Fund your retirement accounts first. Students can get loans for education, there are no “retirement loans” available at this point! Save money in college savings accounts. The money will grow tax deferred and can be withdrawn tax free if used for educational purposes.  The funds can also be transferred among family members for educational purposes if necessary. Save money in Roth IRA accounts in the parent’s names. Any contributions into the account can be withdrawn tax and penalty free if used for education and the account is not included in assets on the FAFSA form.   http://www.marketwatch.com/story/3-reasons-to-use-a-roth-ira-to-save-for-college-2015-03-25 Stress academics over athletics for scholarship purposes. Yes, there are plenty of athletes with full scholarships at the larger schools, but many more kids get grants and scholarships for academic achievement.  Volunteer hours can lead to extra money as well. Most importantly, don’t give up hope that your child will not be able to afford college or will be saddled with huge loans. Make smart economic choices about the college they choose and discuss the finances of college with your child early in high school. We have software available that can help you plot your course for the best possible outcome for you and your family. Cheryl Sternasty,...

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You are the parent? So What?

The applications are in, standardized tests are complete and a college decision has been made.  Now all there is to do is outfit the dorm room and drop the kids off, right?  Maybe not.  A recent visit to an attorney’s office to update our estate documents opened our eyes to something that we hadn’t thought of before. Consider a horrible, but not unthinkable situation:  Your adult child is no longer living in your home. You get a call from a roommate or friend saying that there has been a medical emergency and your child is in the hospital.  Your first instinct is to call or rush to the hospital to find out what is happening and…you are denied access to any information.  What happened? HIPPA rules prohibit you from having the right to obtain medical information on your adult child, even if you are paying for their health insurance and they are covered by your plan.  It is up to the medical provider to disclose information to family members if they feel it is in the patient’s best interest, but it’s not a requirement. There are 3 pieces of documentation that you should consider putting in place for your adult children: A HIPAA authorization, Medical Power of Attorney and a Durable Power of Attorney.  Each form has a specific purpose that can best be explained by a trusted attorney. A brief description of each, along with links to the sources is below: http://www.consumerreports.org/health/help-your-college-age-child-in-a-medical-emergency/ http://www.forbes.com/sites/deborahljacobs/2014/08/15/two-documents-every-18-year-old-should-sign/#4d75a6d6fefd HIPAA authorization A signed HIPAA authorization is like a permission slip. It permits health-care providers to disclose your health information to anyone you specify. A stand-alone HIPAA authorization (not incorporated into a broader legal document) does not have to be notarized or witnessed. They can stipulate not to disclose information about sex, drugs, mental health, or other details they might want to keep private. Medical power of attorney/Health care proxy In signing a medical POA you appoint an “agent” to make medical decisions on your behalf in case you are incapacitated and cannot make such decisions for yourself. Each state has different laws governing medical POA and, therefore, different legal forms. In many states, the HIPAA authorization is rolled into the standard medical POA form. Durable power of attorney As an additional step, young-adult children might consider appointing a durable power of attorney, enabling a parent or other designated agent to take care of business on the student’s behalf. If the student were to become incapacitated or if the student were studying abroad, the durable power of attorney would be able to, for example, sign tax returns, access bank accounts, and pay bills. Cheryl Sternasty,...

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Teach Your Children Well

Several of the people in our office have college-age children as do our clients, so conversations around topics to prepare us for when our children enter the work force full-time occur frequently. In general, we find that the young people want to be independent and are willing to learn what is necessary to make informed financial decisions. The area that recent graduates have the most questions about is 401ks and other retirement plans: what they are, how they work, what a company match is and how much they should save?  Our recommendation is generally to contribute enough to receive the full match, because why forgo free money?  That leads to a discussion of Roth vs. Traditional contributions.  The appropriate choice will depend on the income tax situation, and the answer may be 100% Roth, 100% Traditional or some combination of both. Next, a discussion about budgeting.  There are several online tools available to aid in the budgeting process. We have one that guides our clients step by step, and can aggregate all of their financial accounts together so they can be seen in one spot, and therefore, more easily tracked.  It also has several informational videos for young people to learn the basics of personal finance. What if their compensation package included a signing bonus?  What is the best use for that money?  Pay down student loans or save it for an emergency fund? Use it to decorate the new apartment?  Buy a new wardrobe in honor of joining the work force? Budgeting can lead to a discussion of debt.  There is a widely used rule of thumb that student loans shouldn’t total more than your expected first year’s salary.  This rule acknowledges that those students moving into a higher-paying field can afford to take on more debt, because they should have the wherewithal to pay it back. Our suggestion is often to set aside enough to cover at least 6 months of expenses in case of job loss or other unforeseen emergency.  They can add the student loan payments to the budget and start chipping away at it monthly.  If they apply the full amount to student loans they would lower the balance, but what would they do in case of an emergency or financial setback without a “cushion”? While many young people rely on the internet to provide them with advice on virtually everything, it makes sense to talk to an understanding professional to get those initial questions answered.  Opening up a line of communication can be valuable down the road as careers progress and issues become more complicated.  Our advisors welcome the opportunity to counsel the children of our clients.  We can provide basic information and online tools to help recent graduates navigate financial decisions surrounding entry into the work force, repaying student loan debt, budgeting and preparing for a successful adult life. by Cheryl Sternasty,...

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Kids, Retirement and a Sandwich?

Pardon me? The Sandwich Generation has been defined as the group of adults in their 40s and 50s in the US that has a parent over age 65 and who are financially supporting at least one child. But wait, kids are supposed to move out and parents can take care of themselves, right? This phenomenon is occurring because while many baby boomers are reaching retirement age, many young people in recent years are “boomerang” children who continue to live with their parents after graduating from high school or college. So what’s the big deal? Not surprisingly, the health of those of us getting “sandwiched” is suffering.  We are more stressed and pressed for time.  We feel guilty because it seems that someone is always getting shortchanged, whether it’s our kids, our parents, our spouses, our employers or ourselves.  We have trouble sleeping because of anxiety and depression.  We worry about how we can keep supporting our loved ones before it starts to impact our own retirement lifestyle, and the cycle continues. Is there anything we can do? In the words of flight attendants everywhere “Secure your own oxygen mask first!”. But how?  Like the old commercial says “Calgon, take me away!” is often our first response.  But there are strategies to help us climb out of the bubble bath and face the world.  Dealing with the issues before reaching a crisis point is important.  Ask yourself how YOU feel about elder care and what role you would like to play in the care of your loved ones. Some of us are suited to the day to day duties of caregiving while others are more comfortable helping from behind the scenes, paying bills, managing finances, etc. The Talk Now for the hard part:  “The Talk”.  Look for clues that the time is right.  Maybe you are doing more basic home repairs for your loved ones, or providing transport, or they are including you in meetings with tax, investment or legal professionals. Include siblings if possible and realize that you might have to broach the subject more than once.  Be sure to focus on their wishes for later life, not death or inheritance.  Including a trusted, outside advisor can be helpful  because they can take the emotion out of the situation and help everyone see clearly. Phew, I’m glad that’s over, Now what? Now that expectations are clear, you can enlist the help of professionals like financial advisors, attorneys or accountants to get any necessary documentation in place and handle the business end of things. Your goal is a flexible plan that everyone involved can agree upon.  Stay healthy, share duties and be honest with your immediate family about the situation, and cherish the time you have with your loved ones. by Cheryl Sternasty...

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Planning for Health Care Costs in Retirement

Among the items weighing heavily on a soon-to-be retiree’s mind is health care, and with good reason if you consider the statistics: People age over 60 are expected to spend more on health and medical costs than on recreation and housing combined (Credit Suisse, Longer Lives July 2011) On average $491,039 is spent by the average 65 year old for health care during a 20 year retirement (Jester Financial; retirement health care cost calculator) From 2012-2022 healthcare rates are expected to increasing an average of 5.8% per year. (Centers for Medicare and Medicaid Services) So where do you start?  Medicare is the first step and this handy chart will show the basics of this government program provided to all of us at age 65. Medicare Enrollment Information About 3 months before your Medicare coverage starts, you’ll get an Initial Enrollment Questionnaire (IEQ) in the mail. It asks about other health insurance you have that might pay before Medicare does. Fill out the IEQ so your bills are paid correctly and on time. You can also complete the IEQ online at MyMedicare.gov You can sign up during your 7-month initial enrollment period 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65 If you miss your initial enrollment period you may sign up between January 1 and March 31 of each year. Your coverage will start July 1. You may have to pay a higher premium for late enrollment. Apply online at SocialSecurity.gov, visit your local Social Security office, or call Social Security at 1-800-772-1213   A –hospital stays -care in a skilled nursing facility -hospice care -some home health care no cost, but has some co-pays and deductibles B –certain doctors’ services -outpatient care -medical supplies -preventive services means-tested with a monthly premium C Type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits. Usually includes part D as well. optional choice with premiums D –prescription drug coverage optional choice with premiums         It’s very important to sign up during your initial eligibility period.  Not doing so will subject you to penalties that will cut into your all-important retirement budget. And speaking of your budget, remember things like co-pays, deductibles, pharmaceuticals, eyewear, hearing aids, etc. add to health care expenses. Be sure to shop for Medicare coverage each year.  As time goes on your needs will change and it pays to make sure you still have the right plan. How can your advisor help?  First by including healthcare and long term care as part of your regular review. Secondly, by working with you and your tax professional to be sure everything possible is being done to keep you out of a higher Medicare premium bracket. And finally, an advisor can point you in the direction of a professional who is experienced both with the Medicare program itself and the coverages available to fill in the gaps.  The health care exchanges provided for in the Affordable Care Act do not have to be intimidating and one of these professionals will help you get the most for your money. A final caveat: Long term care costs are not covered by Medicare and can quickly erode a family’s nest egg.  Estimates have put the annual cost of a private room in a nursing home as high as $80,000 – $90,000 per year, and a full time in-home health aide as high as $70,000 per year.  The decision on how...

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Short-Term Volatility

The equity markets have undergone a pullback in recent weeks.  Fixed income markets have been up during this time as investors have sold equity positions in favor of fixed income.  Our more conservative models have reduced equity allocations in favor of fixed income over the last year.  Our models are focused on the long-term and invest according to the fundamentals.   The markets were slightly inflated recently; this is why we have reduced the domestic equity positions in the models. Short-term volatility can be a cause for discomfort, however, over the long-term, managing assets according to a disciplined model has proved to be the best approach.  We are examining value opportunities as the equity markets have receded.  We will continue to evaluate the fundamentals thoroughly during this short-term, volatile period.  Buying opportunities typically arise after a short-term selloff.  As always, if you have any questions pertaining to how we mitigate risk in the portfolios, we are available via phone or email. –HFS Asset Management...

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