The Princeton Union-Eagle http://unioneagle.com Community newspaper of Princeton, Minn. Wed, 29 Jul 2015 16:02:59 +0000 en-US hourly 1 Annuity? Depends on Needs http://unioneagle.com/2015/07/annuity-depends-on-needs/ http://unioneagle.com/2015/07/annuity-depends-on-needs/#comments Wed, 29 Jul 2015 16:02:59 +0000 http://unioneagle.com/?guid=3054c653a4bc4e27de95fce8478e22e3 With an annuity, you invest a lump sum of cash to produce a monthly stream of income for a fixed period or for life. Whether annuities are good, bad or ugly rides on the type you choose and what you want it to do. Here’s what to know.

The income from your annuity can start now (aka an immediate annuity) or in the future (a deferred annuity). The issuers neither protect nor insure your funds, though, and the size of your future monthly check isn’t always a given. Your payout depends if the annuity is fixed or variable (where your payout depends on the performance of the managed portfolio fueling your annuity fund).

Also, not everyone needs an annuity. If you receive Social Security or a pension, you already have a variety of fixed annuity that pays you for the rest of your life. If you still want to pursue this kind of investment, here’s what to look for:

The good. If you’re a high-income earner in a high tax bracket, low-cost variable annuities can make sense if you max out your tax-advantaged 401(k) and individual retirement account deferrals and expect to land in a lower bracket when you retire. These variable annuities typically charge less than 1% per year.

A low-cost fixed or variable annuity may work if you want to convert a lump sum into a stream of income and you can afford to tie up a certain amount of your money for an extended time – possibly forever.

Longevity annuities, which you can set up to begin an income stream late in your life, can help if you’re concerned about outliving your assets and can afford to lock up some of your money.

Let’s say Alice is 73, in good health and comes from a long-lived family. She puts no more than 15% ($150,000) of her investments into a deferred (as in, until later in her life) fixed annuity to begin receiving monthly income when she turns 80; these payments will continue until she dies.

If she dies before any payments, the principal may be returned to her estate without interest. She might also forfeit the entire annuity if she dies after beginning to receive her stream of income.

New government initiatives allow you to put a portion of your 401(k) into an annuity. This option provides greater predictability and certainty for retirees, as investors don’t always invest wisely and retirement plan returns can suffer.

Finally, charitable annuities can be a beneficial way to make a tax-deductible donation to a charity and to receive a portion of your donation as a stream of income for life.

The bad and the ugly. Variable annuities can tie you down with 3% to 4% annual fees and surrender penalties – what you pay to cash in your annuity before it matures – applicable for up to 15 years or longer. Looking at variable annuities that you really don’t understand? Get a second opinion from an impartial advisor.

Are you in a low or moderate tax bracket? Buying an annuity with after-tax dollars (to defer investment income) may prove disappointing if your bracket ends up as high or higher in your retirement. Further, buying an annuity with after-tax money may be a poor tax decision: You swap lower capital gains rates on taxable income for higher ordinary income tax rates on all annuity gains.

You don’t need an annuity in an IRA, which is already tax-deferred. Holding an annuity in an IRA is largely redundant unless you specifically want the insurance/death benefit for your heirs.

A fixed annuity may augment your overall financial and investment strategy – but interest rates do remain unappealingly low. You’re better off waiting until rates rise to buy a fixed annuity that locks in those higher rates.

After-tax annuities also can’t be undone – once your money is in an annuity structure, it remains there. If you need or want to exit an annuity, you can only roll it over to a less-expensive annuity if you no longer face surrender penalties.

Are you planning to leave heirs your variable annuity? Annuities invested in equities make poor inheritances, with no step-up in basis (adjustment from the asset’s original price) to the current value when the initial owner (you, the annuitant) dies.

Fixed annuities can be attractive when interest rates move higher. I think that variable annuities come with more cons than pros. Buyer beware.

Follow AdviceIQ on Twitter at @adviceiq.

Eve Kaplan, CFP, is a fee-only advisor in Berkeley Heights, N.J. Kaplan Financial Advisors is a Registered Investment Advisor in New Jersey and New York.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

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With an annuity, you invest a lump sum of cash to produce a monthly stream of income for a fixed period or for life. Whether annuities are good, bad or ugly rides on the type you choose and what you want it to do. Here’s what to know.

The income from your annuity can start now (aka an immediate annuity) or in the future (a deferred annuity). The issuers neither protect nor insure your funds, though, and the size of your future monthly check isn’t always a given. Your payout depends if the annuity is fixed or variable (where your payout depends on the performance of the managed portfolio fueling your annuity fund).

Also, not everyone needs an annuity. If you receive Social Security or a pension, you already have a variety of fixed annuity that pays you for the rest of your life. If you still want to pursue this kind of investment, here’s what to look for:

The good. If you’re a high-income earner in a high tax bracket, low-cost variable annuities can make sense if you max out your tax-advantaged 401(k) and individual retirement account deferrals and expect to land in a lower bracket when you retire. These variable annuities typically charge less than 1% per year.

A low-cost fixed or variable annuity may work if you want to convert a lump sum into a stream of income and you can afford to tie up a certain amount of your money for an extended time – possibly forever.

Longevity annuities, which you can set up to begin an income stream late in your life, can help if you’re concerned about outliving your assets and can afford to lock up some of your money.

Let’s say Alice is 73, in good health and comes from a long-lived family. She puts no more than 15% ($150,000) of her investments into a deferred (as in, until later in her life) fixed annuity to begin receiving monthly income when she turns 80; these payments will continue until she dies.

If she dies before any payments, the principal may be returned to her estate without interest. She might also forfeit the entire annuity if she dies after beginning to receive her stream of income.

New government initiatives allow you to put a portion of your 401(k) into an annuity. This option provides greater predictability and certainty for retirees, as investors don’t always invest wisely and retirement plan returns can suffer.

Finally, charitable annuities can be a beneficial way to make a tax-deductible donation to a charity and to receive a portion of your donation as a stream of income for life.

The bad and the ugly. Variable annuities can tie you down with 3% to 4% annual fees and surrender penalties – what you pay to cash in your annuity before it matures – applicable for up to 15 years or longer. Looking at variable annuities that you really don’t understand? Get a second opinion from an impartial advisor.

Are you in a low or moderate tax bracket? Buying an annuity with after-tax dollars (to defer investment income) may prove disappointing if your bracket ends up as high or higher in your retirement. Further, buying an annuity with after-tax money may be a poor tax decision: You swap lower capital gains rates on taxable income for higher ordinary income tax rates on all annuity gains.

You don’t need an annuity in an IRA, which is already tax-deferred. Holding an annuity in an IRA is largely redundant unless you specifically want the insurance/death benefit for your heirs.

A fixed annuity may augment your overall financial and investment strategy – but interest rates do remain unappealingly low. You’re better off waiting until rates rise to buy a fixed annuity that locks in those higher rates.

After-tax annuities also can’t be undone – once your money is in an annuity structure, it remains there. If you need or want to exit an annuity, you can only roll it over to a less-expensive annuity if you no longer face surrender penalties.

Are you planning to leave heirs your variable annuity? Annuities invested in equities make poor inheritances, with no step-up in basis (adjustment from the asset’s original price) to the current value when the initial owner (you, the annuitant) dies.

Fixed annuities can be attractive when interest rates move higher. I think that variable annuities come with more cons than pros. Buyer beware.

Follow AdviceIQ on Twitter at @adviceiq.

Eve Kaplan, CFP, is a fee-only advisor in Berkeley Heights, N.J. Kaplan Financial Advisors is a Registered Investment Advisor in New Jersey and New York.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

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Earnings: Good News? http://unioneagle.com/2015/07/earnings-good-news/ http://unioneagle.com/2015/07/earnings-good-news/#comments Wed, 29 Jul 2015 13:01:58 +0000 http://unioneagle.com/?guid=a9a36ca58b977ec8c635f6bf5b3e82f4 Corporate earnings seem to be doing better in the June-ending quarter than were projected several weeks ago, though that’s not saying much.

The good news is that earnings are climbing steadily out of the well of projected red ink for the second quarter. Apparently, analysts played it extra-safe again this quarter, much like the last one, with an increased cushion of about five percentage points (also known as 500 basis points) for estimates, in place of the usual three.

As the reporting season got under way, analysts estimated Standard & Poor’s 500 earnings to have fallen by about 4.5%, not very different from the original forecasts for the first quarter. According to research firm FactSet, the "blended" rate (the mix of actual results and estimated ones for those yet to report) had risen to a loss of 2.2% through last Friday.

With more than two-thirds of companies left to report, the clear implication is that the quarter will finish in the black, just as the first quarter did (up about 0.7%).

If you follow the market at all, you've heard about the recent, wondrous great leaps forward by the stock prices of Amazon (AMZN) and Google (GOOG).

Alas, the leaps were not quite enough to offset disappointment elsewhere, most notably from Apple (AAPL). The maker of i-stuff reported a perfectly respectable quarter and confirmed once again its ability to make gobs of money – $10.7 billion

in profit for the second quarter alone, nearly 50% more than it made in the second quarter of 2014. So of course Apple stock tanked. The problem, you see, is that it didn't report results and guidance that topped every estimate everywhere.

Amazon did. The company reported a heroic profit of $92 million, versus a loss of $126 million a year ago. For that, it was awarded an extra $20 billion or so in valuation. Why, it can make that back in a mere 200 quarters.

For 15 years, Amazon has proved several things in a consistent manner. One is that it is possible to grow sales rapidly by making it easy to buy products at or below cost. The second, not surprisingly, is that a company rarely makes any money this way. A third is that an occasional profitable quarter, however little the profit, is all that is necessary to get momentum investors to slap themselves silly in excitement.

The company's has also proved to be a double-edged "widow-maker," lethal to short during a bull market, fatal to hold during a bear. Years from now, wonks like the CFA Institute will have case studies on how it was possible for Amazon to have a valuation in defiance of reality for so long. Traders, though, will talk reverently of the money that was there to be made.

Not so much when it comes time to talk about the stock market of the second quarter of 2015 The normal rhythm of the market at this point is to be watching a couple of weeks of gains crest, though they often start to melt away in the last week of July. It's a pattern that typically gives way to early August weakness, followed by a silly season of light volume, vacation-fueled price levitation in the run-up to Labor Day and its immediate aftermath.

But the run-up in the S&P 500 that recently looked set for a breakout to another level stalled out, leaving prices barely above their June lows. (The index edged up 1.2% yesterday after China's troubled stock market steadied.) Such weakness isn't that unusual, to be sure, and it is surely perilous to attempt to be precise about the days the earnings rally will stop and start.

Still, earnings haven't been an inspiring show so far, with a lot of weak results and weak guidance from a lot of big companies, particularly the ones that make up the venerable Dow Jones Industrial Average.

Follow AdviceIQ on Twitter at @adviceiq.

M. Kevin Flynn, CFA, is the president of Avalon Asset Management Company in Lexington, Mass. Website: avalonassetmgmt.com.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

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Corporate earnings seem to be doing better in the June-ending quarter than were projected several weeks ago, though that’s not saying much.

The good news is that earnings are climbing steadily out of the well of projected red ink for the second quarter. Apparently, analysts played it extra-safe again this quarter, much like the last one, with an increased cushion of about five percentage points (also known as 500 basis points) for estimates, in place of the usual three.

As the reporting season got under way, analysts estimated Standard & Poor’s 500 earnings to have fallen by about 4.5%, not very different from the original forecasts for the first quarter. According to research firm FactSet, the "blended" rate (the mix of actual results and estimated ones for those yet to report) had risen to a loss of 2.2% through last Friday.

With more than two-thirds of companies left to report, the clear implication is that the quarter will finish in the black, just as the first quarter did (up about 0.7%).

If you follow the market at all, you've heard about the recent, wondrous great leaps forward by the stock prices of Amazon (AMZN) and Google (GOOG).

Alas, the leaps were not quite enough to offset disappointment elsewhere, most notably from Apple (AAPL). The maker of i-stuff reported a perfectly respectable quarter and confirmed once again its ability to make gobs of money – $10.7 billion

in profit for the second quarter alone, nearly 50% more than it made in the second quarter of 2014. So of course Apple stock tanked. The problem, you see, is that it didn't report results and guidance that topped every estimate everywhere.

Amazon did. The company reported a heroic profit of $92 million, versus a loss of $126 million a year ago. For that, it was awarded an extra $20 billion or so in valuation. Why, it can make that back in a mere 200 quarters.

For 15 years, Amazon has proved several things in a consistent manner. One is that it is possible to grow sales rapidly by making it easy to buy products at or below cost. The second, not surprisingly, is that a company rarely makes any money this way. A third is that an occasional profitable quarter, however little the profit, is all that is necessary to get momentum investors to slap themselves silly in excitement.

The company's has also proved to be a double-edged "widow-maker," lethal to short during a bull market, fatal to hold during a bear. Years from now, wonks like the CFA Institute will have case studies on how it was possible for Amazon to have a valuation in defiance of reality for so long. Traders, though, will talk reverently of the money that was there to be made.

Not so much when it comes time to talk about the stock market of the second quarter of 2015 The normal rhythm of the market at this point is to be watching a couple of weeks of gains crest, though they often start to melt away in the last week of July. It's a pattern that typically gives way to early August weakness, followed by a silly season of light volume, vacation-fueled price levitation in the run-up to Labor Day and its immediate aftermath.

But the run-up in the S&P 500 that recently looked set for a breakout to another level stalled out, leaving prices barely above their June lows. (The index edged up 1.2% yesterday after China's troubled stock market steadied.) Such weakness isn't that unusual, to be sure, and it is surely perilous to attempt to be precise about the days the earnings rally will stop and start.

Still, earnings haven't been an inspiring show so far, with a lot of weak results and weak guidance from a lot of big companies, particularly the ones that make up the venerable Dow Jones Industrial Average.

Follow AdviceIQ on Twitter at @adviceiq.

M. Kevin Flynn, CFA, is the president of Avalon Asset Management Company in Lexington, Mass. Website: avalonassetmgmt.com.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

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School District opens online academy http://unioneagle.com/2015/07/school-district-opens-online-academy/ http://unioneagle.com/2015/07/school-district-opens-online-academy/#comments Tue, 28 Jul 2015 22:14:36 +0000 http://unioneagle.com/?p=116871 mug Julie Williams
Julie Williams

The Princeton School District received word June 30 that it achieved the state-approved status it needed to open the Princeton Online Academy and offer classes to any student in grades 3-12.
Julie Williams , Princeton’s director of teaching and learning said, “We went through a very rigorous, comprehensive process in order to go through the MDE (Minnesota Department of Education) and become an online vendor.”
Before, Princeton could only offer online classes to children in grades nine through 12 who live within the school district, but the state approval as an online academy means the district can offer the online classes to any student. Students can choose full-time or part-time participation in online classes, which she said can be helpful to a range of students, from those who want to do everything online to those who need a certain class or two and could do online classes during a study period or after school.
Once a child is approved to enroll in online classes, they receive a free, loaned Chromebook to use so that access to technology is not a barrier to participation, according to Williams. She said Princeton chose to make the technology available to any student, not just those who meet low-income requirements. Money for the startup of the academy came from district initiative funds, and Williams said the online learning should be self-sustaining once it gets started.
With the laptop computer in hand, a student can access the classes and communicate with their teachers anywhere that has Wi-Fi Internet access. Online academy students receive an email address and password and can log into the system for teacher guidance and other kinds of tutorial help.
Williams said the online school will use Google’s Hangout feature to hold some meetings. The program is likely to include some virtual field trips. She said another feature of the academy is that students enrolled in full-time online classes may participate in any of the Princeton School District’s sports or extracurricular programs.
“When you join that school,” Williams said, “you’re joining the district and can benefit from that.”
The move to become a full-service online academy responds to changing education needs and the fact that the many options for education make it a somewhat competitive industry. Williams said the district will strive to win back some of the students who previously went elsewhere to find the online programming they want.
The Princeton Online Academy includes classes for special education students. Expectations for the overall program are that it might be slow the first year but is bound to grow. The Princeton district is one of few in the state offering the online classes to younger kids as well as the older ones, Williams said.
People can visit the district website and find the online academy under the “schools” tab. On the site are answers to often-asked questions, an assessment form to see if online learning is a good match for a student and the means to begin registration or a virtual dialogue with someone at the school.
The academy will hold in-person informational meetings 5:30 p.m. Aug. 6 and an open house 3-7 p.m. Sept. 2, as well as a virtual open house 6 p.m. Sept. 2. Get more information about the online academy at www.princeton.k12.mn.us.

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Palmer Bus Service calls for good drivers http://unioneagle.com/2015/07/palmer-bus-service-calls-for-good-drivers/ http://unioneagle.com/2015/07/palmer-bus-service-calls-for-good-drivers/#comments Tue, 28 Jul 2015 22:11:16 +0000 http://unioneagle.com/?p=116863 Tim Wilhelm,, manager of Palmer Bus Service in Princeton, said there’s a reason everybody sees those big, yellow school buses parked along high-profile roads bearing banners that say “now hiring drivers.”
“It seems like our eligible workforce has shrunken a lot,” Wilhelm said.
Wilhelm said the local bus service has not displayed such a banner but is hiring drivers right now. Wilhelm said a lot of hiring is done through drivers’ referrals and word of mouth. He is hopeful that since work opportunities are slowing in North Dakota, it might make for better driver recruitment this year.
Those who drive a bus tend to be either young people raising children who need part-time hours or retired people who aren’t ready to not work at all. He said the routes typically ensure at least an hour of work in the morning and afternoon, sometimes more depending on the day and week.
Wilhelm said some busing districts are naturally more competitive on hours because they have midday runs for field trips and other needs. He said Palmer’s Princeton location does not offer midday hours, and the work is almost always part time.
It is “tough” to hire people, he said, considering that the person must pass four written tests, a road test and a background check plus are subject to random drug screening. Beginning pay for a school-bus driver starts around $13.70 per hour.
“Obviously if you have a license and experience, you’ll be worth more to us,” Wilhelm said.
He said local drivers would probably drive either a 77- or 84-passenger bus, though Princeton does have a few smaller vehicles. Potential drivers must practice and pass the road test in the same kind of vehicle they’ll be driving daily. They can’t test in a minivan and then drive a big bus for the job, Wilhelm said.
Drivers receive continuing education throughout the year, starting with an orientation at the beginning and usually including at least one session with a highway patrol officer each year. The officers spend a lot of time on the road, so they share what they see and know a lot about the road rules and changes to them.
Wilhelm said the owner of the 20-location bus service, Floyd Palmer, recently donated an older bus to the public safety teams of Princeton. He said the police and fire departments will use the bus for training and possibly develop a type of tool that all of central Minnesota could use.
Drivers undergo emergency training, but evacuation drills can only be done for scenarios where everyone exits from the back or front of the bus. For more information on  Palmer Bus Service, call Princeton’s bus garage at 763-631-5315, email to timw@palmerbusservice.com, or go online to www.palmerbusservice.com.

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Get-away gone bad http://unioneagle.com/2015/07/get-away-gone-bad/ http://unioneagle.com/2015/07/get-away-gone-bad/#comments Tue, 28 Jul 2015 22:06:21 +0000 http://unioneagle.com/?p=116856 Monday rollover pix
A suspect in a vehicle pursuit rolled his vehicle into the vegetation along Fourth Avenue N, north of the Princeton Area Library, on Monday, July 27. Princeton Police attempted a traffic stop because the driver of the vehicle was wanted on outstanding warrants. The driver suffered injuries and was transported by ambulance to Fairview Northland Medical Center where he remained Tuesday. He was in custody while at the hospital with charges pending, Police Chief Todd Frederick said. A female passenger in the vehicle was not injured. The library, which was hosting a regular reading program, went on lock down until the situation was under control, Frederick said.

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Retirement Fear: Inflation http://unioneagle.com/2015/07/retirement-fear-inflation/ http://unioneagle.com/2015/07/retirement-fear-inflation/#comments Tue, 28 Jul 2015 19:31:55 +0000 http://unioneagle.com/?guid=309b574c7c001f0d8225df45f8443512 When you were a kid, did you fear monsters hiding in your closet or under your bed? You’re no kid anymore and new fears haunt you – such as running out of money in retirement after a lifetime of watching prices go up. You can still plan now to enjoy enough to spend as well as how to spend it.

People do feel slightly better about their golden years’ money these days, according to the latest Employee Benefit Research Institute survey on retirement confidence. More than one out of five workers are now very confident – though almost one in every four express little faith that they’ve saved enough, with future medical expenses being a major concern.

(Good news: Actual retirees are the most confident of all that they have enough money.)

Nagging worry about what’s missing in our retirement plans can be very justified. Additional good news is that you can manage such fears.

You need to consider many risks in your planning process, especially the often-ignored creep of inflation. While a bad price spiral is hardly inevitable, a more muted pace of inflation remains a good bet. Best estimates put the coming years’ overall price jumps at about 2% annually – much as anyone can predict such a figure.

My firm sees many individuals who factor in zero inflation when calculating their future income stream. In other words, their investment plan generates a retirement income stream that will never rise even if they live 25 years or more after working. Other folks project an inflation rate (3% is the norm) and then figure out how much they can spend today with their income increasing every year, from bigger withdrawals from their retirement funds, until they die.

Both approaches contain inherent flaws in logic. Planning your retirement income needs to address the money to maintain your standard of living, not just replace your current income.

Your plan also needs to allocate funds between two areas of expense: fixed, or essential, expenditures such as shelter, phone service and insurance, among others. Fixed expenses will most likely increase with inflation over time. This is one reason that monthly Social Security benefits receive an annual cost-of-living adjustment (1.7% this year).

The second type of expense we call “social” and includes such fun stuff as travel, hobbies and activities we all hope to enjoy forever – but that we may need to give up as we age.

During the last 27 years as a financial planner, I saw many families not plan for inflation and run out of purchasing power. Perhaps even worse, others spent less when younger (and healthier) and then later found themselves older with plenty of money and little energy to spend it.

How can you create a revenue stream that provides adequate funding for the life you want throughout your retirement?

For one, make a careful budget going into retirement. Make a list that includes all expenditures you know will arise and add the ones you anticipate enjoying. Assign each item to the fixed or social expense category.

When calculating the income you’ll need for fixed expenditures, better you account for inflation. You don’t want to have more life than money left when you need to eat and a place to sleep.

Regarding social expenses, flat line the income, especially for after age 68. Due to inflation, this approach does reduce the purchasing power of your social budget over time. It also allows you more social income while you’re still younger and able to enjoy the fun things in life.

Follow AdviceIQ on Twitter at @adviceiq.

Joseph “Big Joe” Clark, CFP, is the managing partner of the Financial Enhancement Group LLC, an SEC Registered Investment Advisory firm in Indiana. He is the host of Consider This with Big Joe Clark, found on WQME and iTunes. Big Joe can be reached at bigjoe@yourlifeafterwork.com, or (765) 640-1524. Follow him on Twitter at @Big Joe Clark and on Facebook at http://www.facebook.com/FinancialEnhancementGroup.

Securities offered through and by World Equity Group Inc. Member FINRA/SIPC. Advisory services can be offered by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

]]>
When you were a kid, did you fear monsters hiding in your closet or under your bed? You’re no kid anymore and new fears haunt you – such as running out of money in retirement after a lifetime of watching prices go up. You can still plan now to enjoy enough to spend as well as how to spend it.

People do feel slightly better about their golden years’ money these days, according to the latest Employee Benefit Research Institute survey on retirement confidence. More than one out of five workers are now very confident – though almost one in every four express little faith that they’ve saved enough, with future medical expenses being a major concern.

(Good news: Actual retirees are the most confident of all that they have enough money.)

Nagging worry about what’s missing in our retirement plans can be very justified. Additional good news is that you can manage such fears.

You need to consider many risks in your planning process, especially the often-ignored creep of inflation. While a bad price spiral is hardly inevitable, a more muted pace of inflation remains a good bet. Best estimates put the coming years’ overall price jumps at about 2% annually – much as anyone can predict such a figure.

My firm sees many individuals who factor in zero inflation when calculating their future income stream. In other words, their investment plan generates a retirement income stream that will never rise even if they live 25 years or more after working. Other folks project an inflation rate (3% is the norm) and then figure out how much they can spend today with their income increasing every year, from bigger withdrawals from their retirement funds, until they die.

Both approaches contain inherent flaws in logic. Planning your retirement income needs to address the money to maintain your standard of living, not just replace your current income.

Your plan also needs to allocate funds between two areas of expense: fixed, or essential, expenditures such as shelter, phone service and insurance, among others. Fixed expenses will most likely increase with inflation over time. This is one reason that monthly Social Security benefits receive an annual cost-of-living adjustment (1.7% this year).

The second type of expense we call “social” and includes such fun stuff as travel, hobbies and activities we all hope to enjoy forever – but that we may need to give up as we age.

During the last 27 years as a financial planner, I saw many families not plan for inflation and run out of purchasing power. Perhaps even worse, others spent less when younger (and healthier) and then later found themselves older with plenty of money and little energy to spend it.

How can you create a revenue stream that provides adequate funding for the life you want throughout your retirement?

For one, make a careful budget going into retirement. Make a list that includes all expenditures you know will arise and add the ones you anticipate enjoying. Assign each item to the fixed or social expense category.

When calculating the income you’ll need for fixed expenditures, better you account for inflation. You don’t want to have more life than money left when you need to eat and a place to sleep.

Regarding social expenses, flat line the income, especially for after age 68. Due to inflation, this approach does reduce the purchasing power of your social budget over time. It also allows you more social income while you’re still younger and able to enjoy the fun things in life.

Follow AdviceIQ on Twitter at @adviceiq.

Joseph “Big Joe” Clark, CFP, is the managing partner of the Financial Enhancement Group LLC, an SEC Registered Investment Advisory firm in Indiana. He is the host of Consider This with Big Joe Clark, found on WQME and iTunes. Big Joe can be reached at bigjoe@yourlifeafterwork.com, or (765) 640-1524. Follow him on Twitter at @Big Joe Clark and on Facebook at http://www.facebook.com/FinancialEnhancementGroup.

Securities offered through and by World Equity Group Inc. Member FINRA/SIPC. Advisory services can be offered by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

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Paying Down Student Loans http://unioneagle.com/2015/07/paying-down-student-loans/ http://unioneagle.com/2015/07/paying-down-student-loans/#comments Tue, 28 Jul 2015 16:32:23 +0000 http://unioneagle.com/?guid=f7b06e8fa1b8f5a4c60c799465bbb69e The debt of student loans can feel like an enormous burden. If you’re a millennial (born in the 1980s and early 1990s), you like many of your contemporaries may hold back as you struggle to afford minimum payments while you save for everything else in life. Here’s how to get your newly graduated head above water.

Fair Isaac Corp. recently found that delinquency rates on student loans made rose to 15% in recent years, to $27,253 in 2012 from $17,233 in 2005. With college costs climbing twice as fast as inflation, outstanding education debt has swelled to $1 trillion, more than what Americans owe on their credit cards.

Still, plenty of young adults successfully pay the debts off. How?

Saving versus debt. Chances are you know that saving your money is just as important as paying off your debt. But how much should you save? What you should save for, and how do you prioritize between putting money away and whittling your debt?

Aim to create a cash cushion of about $1,000, a small emergency fund to help you through unexpected situations without pushing you further into debt. Also keep your big picture in mind: Repayment periods on student loans average 10 years; you probably don’t want to wait that long to save for a house or a wedding.

You can re-evaluate your budget to see if you can cut any costs or lessen some expenses. Be critical about what’s truly a need and what’s a mere want. If your multiple goals must coexist with paying off student debt, you can also earn extra money to fund savings.

Negotiate for what you’re worth at your current job or look for new positions that pay better. You can also take a side job.

Interest rates. Your interest rate is a percentage of your loan charged when you borrow money. The higher your interest rate, the more you pay to borrow. The longer your repayment term, the more you end up shelling out over the life of the loan.

Some believe in paying the minimum if your interest rates are around 2.2% or lower, reasoning that saving money to invest nets a better return. If your interest rates are on the high end — around 5% or more — prioritize how to pay them off a quickly as possible.

That’s where making extra payments come into play. The more you can pay toward your student loans, the less you pay toward interest, allowing you to chip away at the principal balance of your loan. You don’t necessarily have to pay extra all the time; pay more when you can, even if only once or twice a year.

Unaffordable payments. If you have federal loans, investigate the many flexible income-based repayment options available. Call your loan servicer and explain your situation and ask for a recommendation for a specific repayment plan. The Office of Federal Student Aid of the U.S. Department of Education also offers a guide on repayment plans, including the necessary qualifications.

You may also qualify for deferment or forbearance if you have financial hardship; deferment is a temporary period where you don’t have to make payments, and interest doesn’t accrue on your subsidized loans. Interest does accrue on unsubsidized loans. Forbearance is similar to deferment, except interest continues accruing on all your loans during the time that you don’t have to make payments.

Getting your loans forgiven, discharged or canceled is possible, but only in select circumstances (often involving military personnel, teachers, nurses, child-care providers or indebted borrowers who attended a school that’s closed).

Private loans don’t come with as many repayment options as do federal loans do, but many lenders will work with borrowers seeking forbearance. Call your loan servicer.

Refinancing – subject of recent political wrangling on Capitol Hill – or consolidating your loans are two more possible avenues. Refinancing generally improves your terms (to lower your interest rate, for example). Consolidating can make payment easier; if you owe seven different lenders, combining the loans rolls all your payments into one.

You can do both with federal loans, too.

Now that you’re armed with some essential knowledge, how do you get your loans out of your life?

Look at your entire financial situation. Do you have any other debt? What’s your salary? How much can you afford to pay toward your loans? Answers to these questions help you formulate a plan of attack.

Budget and track your expenses. Learn where your money goes and how you use it – especially if you often lack enough money to last you a month.

Evaluate expenses. After you establish your budget, re-examine your expenses. Question the value you get out of various purchases and outlays. If paying down student loans is your top priority, somehow find room for extra payments in your budget.

Earn more. If you’ve cut back on all your expenses, and are still struggling to make payments or find room in your budget for basic needs, try earning more money. You can work overtime at your job, take on additional shifts or get a second job.

Having trouble finding employment? Many individuals are making their own jobs based off of hobbies or skills they have. Do you enjoy pet-sitting, babysitting, crafting, consulting, freelancing, or organizing? Advertise your services and get the word out.

Have a plan and follow It: Paying your student loans off is going to be a long journey. It’s important to have a plan to refer back to when times get tough. Choose exactly how you’re going to pay off your debt. Pick one loan out from the rest and singularly focus on paying it down, while paying the minimum on the rest. This one loan might be the loan with the highest interest rate, the lowest balance or one you just want to see gone.

Stay hopeful: Remember, paying off debt can be a difficult journey filled with ups and downs. It’s important to build a support system and stay hopeful when you hit a roadblock. Surround yourself with friends who can relate to what you’re going through, and stick with people who help you achieve your goals.

Follow AdviceIQ on Twitter at @adviceiq.

Mary Beth Storjohann, CFP, is the founder of Workable Wealth, an RIA in San Diego. She is a writer, speaker and financial coach who is passionate about working with individuals and couples in their 20s and 30s to help them organize and gain confidence in their financial lives. She has been quoted or featured in various industry publications on the local and national level. You can find her on Twitter at @marybstorj.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

 

]]>
The debt of student loans can feel like an enormous burden. If you’re a millennial (born in the 1980s and early 1990s), you like many of your contemporaries may hold back as you struggle to afford minimum payments while you save for everything else in life. Here’s how to get your newly graduated head above water.

Fair Isaac Corp. recently found that delinquency rates on student loans made rose to 15% in recent years, to $27,253 in 2012 from $17,233 in 2005. With college costs climbing twice as fast as inflation, outstanding education debt has swelled to $1 trillion, more than what Americans owe on their credit cards.

Still, plenty of young adults successfully pay the debts off. How?

Saving versus debt. Chances are you know that saving your money is just as important as paying off your debt. But how much should you save? What you should save for, and how do you prioritize between putting money away and whittling your debt?

Aim to create a cash cushion of about $1,000, a small emergency fund to help you through unexpected situations without pushing you further into debt. Also keep your big picture in mind: Repayment periods on student loans average 10 years; you probably don’t want to wait that long to save for a house or a wedding.

You can re-evaluate your budget to see if you can cut any costs or lessen some expenses. Be critical about what’s truly a need and what’s a mere want. If your multiple goals must coexist with paying off student debt, you can also earn extra money to fund savings.

Negotiate for what you’re worth at your current job or look for new positions that pay better. You can also take a side job.

Interest rates. Your interest rate is a percentage of your loan charged when you borrow money. The higher your interest rate, the more you pay to borrow. The longer your repayment term, the more you end up shelling out over the life of the loan.

Some believe in paying the minimum if your interest rates are around 2.2% or lower, reasoning that saving money to invest nets a better return. If your interest rates are on the high end — around 5% or more — prioritize how to pay them off a quickly as possible.

That’s where making extra payments come into play. The more you can pay toward your student loans, the less you pay toward interest, allowing you to chip away at the principal balance of your loan. You don’t necessarily have to pay extra all the time; pay more when you can, even if only once or twice a year.

Unaffordable payments. If you have federal loans, investigate the many flexible income-based repayment options available. Call your loan servicer and explain your situation and ask for a recommendation for a specific repayment plan. The Office of Federal Student Aid of the U.S. Department of Education also offers a guide on repayment plans, including the necessary qualifications.

You may also qualify for deferment or forbearance if you have financial hardship; deferment is a temporary period where you don’t have to make payments, and interest doesn’t accrue on your subsidized loans. Interest does accrue on unsubsidized loans. Forbearance is similar to deferment, except interest continues accruing on all your loans during the time that you don’t have to make payments.

Getting your loans forgiven, discharged or canceled is possible, but only in select circumstances (often involving military personnel, teachers, nurses, child-care providers or indebted borrowers who attended a school that’s closed).

Private loans don’t come with as many repayment options as do federal loans do, but many lenders will work with borrowers seeking forbearance. Call your loan servicer.

Refinancing – subject of recent political wrangling on Capitol Hill – or consolidating your loans are two more possible avenues. Refinancing generally improves your terms (to lower your interest rate, for example). Consolidating can make payment easier; if you owe seven different lenders, combining the loans rolls all your payments into one.

You can do both with federal loans, too.

Now that you’re armed with some essential knowledge, how do you get your loans out of your life?

Look at your entire financial situation. Do you have any other debt? What’s your salary? How much can you afford to pay toward your loans? Answers to these questions help you formulate a plan of attack.

Budget and track your expenses. Learn where your money goes and how you use it – especially if you often lack enough money to last you a month.

Evaluate expenses. After you establish your budget, re-examine your expenses. Question the value you get out of various purchases and outlays. If paying down student loans is your top priority, somehow find room for extra payments in your budget.

Earn more. If you’ve cut back on all your expenses, and are still struggling to make payments or find room in your budget for basic needs, try earning more money. You can work overtime at your job, take on additional shifts or get a second job.

Having trouble finding employment? Many individuals are making their own jobs based off of hobbies or skills they have. Do you enjoy pet-sitting, babysitting, crafting, consulting, freelancing, or organizing? Advertise your services and get the word out.

Have a plan and follow It: Paying your student loans off is going to be a long journey. It’s important to have a plan to refer back to when times get tough. Choose exactly how you’re going to pay off your debt. Pick one loan out from the rest and singularly focus on paying it down, while paying the minimum on the rest. This one loan might be the loan with the highest interest rate, the lowest balance or one you just want to see gone.

Stay hopeful: Remember, paying off debt can be a difficult journey filled with ups and downs. It’s important to build a support system and stay hopeful when you hit a roadblock. Surround yourself with friends who can relate to what you’re going through, and stick with people who help you achieve your goals.

Follow AdviceIQ on Twitter at @adviceiq.

Mary Beth Storjohann, CFP, is the founder of Workable Wealth, an RIA in San Diego. She is a writer, speaker and financial coach who is passionate about working with individuals and couples in their 20s and 30s to help them organize and gain confidence in their financial lives. She has been quoted or featured in various industry publications on the local and national level. You can find her on Twitter at @marybstorj.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

 

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Central Banks’ Supremacy http://unioneagle.com/2015/07/central-banks-supremacy/ http://unioneagle.com/2015/07/central-banks-supremacy/#comments Tue, 28 Jul 2015 13:01:00 +0000 http://unioneagle.com/?guid=c2da7f642a464552aae73dc4fc222e64 Central banks now lord it over the world’s economy. That has led to a lot of distortions and could end up harming the very system they seek to help.

One sign that all is not right in the field of investing is the increasing volatility.  Volatility is not a good thing for investors seeking to limit their risk and markets recently have been as spiked as Jonestown Kool-Aid.  The results could be nearly as disastrous. 

 

As the chart shows, currency, oil and interest rates have been up, down and all around.  Bonds, too, have been volatile, and price shifts have been taking place with increasing frequency.

It makes me uncomfortable when I see government bonds flash crashing along with currencies of developed markets with enormous debt levels.  The Swiss National Bank in January unpegged its currency from the euro, which Switzerland feared would drag down its franc.  

And if Japan keeps burning yen, pumping money into the nation’s economy to goose its dragging performance and thus pulling down the currency’s value, trading rival China is likely to unpeg its currency, too. China’s yuan is informally linked to the U.S. dollar, which over the past year has strengthened.

When Beijing uncouples the yuan, it isn’t going to be fun. Look for big disruptions in foreign exchanges and international trade, which affects economic growth and your investments.

Why is this turmoil happening?  Because central bankers have become the Masters of the Universe.

As Zerohedge notes, valuations in recent years have synched up to central banks’ quantitative easing or QE – buying bonds to keep interest rates low and stimulate their torpid economies.

The financial website points out: “In meetings with investors, we have been struck by how little time anyone spends discussing fundamentals these days, and how much revolves around central banks.  Record-high proportions of investors think fixed income is expensive and think equities are expensive.  A growing number of property market participants seem to think real estate is expensive. And yet almost all have had to remain long, as each of these markets has rallied.”  

Putting central bankers in charge of the world’s financial systems might have seemed like a good idea back in 2008, when the world needed to be saved and there were few options for saving it.  But in the seventh year of ruling the world, the most significant result is that markets have become distorted.  The new normal is abnormal.

Zerohedge further notes that “it is expectations of central bank liquidity, not economic or corporate fundamentals, which have become the main driver of everything” from euros to dollars to credit spreads, the difference in yield between Treasuries and other bonds.

One problem with the new order is that it’s unlikely that central bankers can make a smooth transition back to the good, old-fashioned markets that react to financial performance and economic reality, rather than today’s Fed-induced fantasyland.

The Federal Reserve Board was able to end its quantitative easing program without the world coming to an end, but what happens when the Fed raises interest rates, as it eventually must?  The stock market could go into cardiac arrest – and, having used all of its tools in an attempt to revive the economy, the toolbox is empty.  Even Fed Chair Janet Yellen is no longer talking about “macroprudential supervision,” as a Fed tool. (This refers to the Fed regulating the financial system to minimize risk.) So what’s left?

But someone will have to do something, Zerohedge says, as, “Central bank distortions have forced investors into positions they would not have held otherwise, and forced them to be the ‘same way round’ to a much greater extent than previously.”

When investors are all rushing into the same markets at the same time, prices increase.  When they all rush for the exits at the same time, prices decrease.  In the bond market, the result is an illiquid market.  

Because of this herding of investors, more central banks seek to add liquidity to markets, which ironically become more illiquid.  Herding “creates markets which trend strongly, but are then prone to sudden corrections.  It also leaves investors more focused on central banks than ever before – and is liable to make it impossible for the central banks to make a smooth exit.”

Add today’s regulatory environment and high-frequency trading into the mix and there’s plenty to worry about.  Even the Masters of the Universe may not be able to save us.

Follow AdviceIQ on Twitter at @adviceiq.

Brenda P. Wenning is president of Wenning Investments LLC in Newton, Mass. 

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

]]>
Central banks now lord it over the world’s economy. That has led to a lot of distortions and could end up harming the very system they seek to help.

One sign that all is not right in the field of investing is the increasing volatility.  Volatility is not a good thing for investors seeking to limit their risk and markets recently have been as spiked as Jonestown Kool-Aid.  The results could be nearly as disastrous. 

 

As the chart shows, currency, oil and interest rates have been up, down and all around.  Bonds, too, have been volatile, and price shifts have been taking place with increasing frequency.

It makes me uncomfortable when I see government bonds flash crashing along with currencies of developed markets with enormous debt levels.  The Swiss National Bank in January unpegged its currency from the euro, which Switzerland feared would drag down its franc.  

And if Japan keeps burning yen, pumping money into the nation’s economy to goose its dragging performance and thus pulling down the currency’s value, trading rival China is likely to unpeg its currency, too. China’s yuan is informally linked to the U.S. dollar, which over the past year has strengthened.

When Beijing uncouples the yuan, it isn’t going to be fun. Look for big disruptions in foreign exchanges and international trade, which affects economic growth and your investments.

Why is this turmoil happening?  Because central bankers have become the Masters of the Universe.

As Zerohedge notes, valuations in recent years have synched up to central banks’ quantitative easing or QE – buying bonds to keep interest rates low and stimulate their torpid economies.

The financial website points out: “In meetings with investors, we have been struck by how little time anyone spends discussing fundamentals these days, and how much revolves around central banks.  Record-high proportions of investors think fixed income is expensive and think equities are expensive.  A growing number of property market participants seem to think real estate is expensive. And yet almost all have had to remain long, as each of these markets has rallied.”  

Putting central bankers in charge of the world’s financial systems might have seemed like a good idea back in 2008, when the world needed to be saved and there were few options for saving it.  But in the seventh year of ruling the world, the most significant result is that markets have become distorted.  The new normal is abnormal.

Zerohedge further notes that “it is expectations of central bank liquidity, not economic or corporate fundamentals, which have become the main driver of everything” from euros to dollars to credit spreads, the difference in yield between Treasuries and other bonds.

One problem with the new order is that it’s unlikely that central bankers can make a smooth transition back to the good, old-fashioned markets that react to financial performance and economic reality, rather than today’s Fed-induced fantasyland.

The Federal Reserve Board was able to end its quantitative easing program without the world coming to an end, but what happens when the Fed raises interest rates, as it eventually must?  The stock market could go into cardiac arrest – and, having used all of its tools in an attempt to revive the economy, the toolbox is empty.  Even Fed Chair Janet Yellen is no longer talking about “macroprudential supervision,” as a Fed tool. (This refers to the Fed regulating the financial system to minimize risk.) So what’s left?

But someone will have to do something, Zerohedge says, as, “Central bank distortions have forced investors into positions they would not have held otherwise, and forced them to be the ‘same way round’ to a much greater extent than previously.”

When investors are all rushing into the same markets at the same time, prices increase.  When they all rush for the exits at the same time, prices decrease.  In the bond market, the result is an illiquid market.  

Because of this herding of investors, more central banks seek to add liquidity to markets, which ironically become more illiquid.  Herding “creates markets which trend strongly, but are then prone to sudden corrections.  It also leaves investors more focused on central banks than ever before – and is liable to make it impossible for the central banks to make a smooth exit.”

Add today’s regulatory environment and high-frequency trading into the mix and there’s plenty to worry about.  Even the Masters of the Universe may not be able to save us.

Follow AdviceIQ on Twitter at @adviceiq.

Brenda P. Wenning is president of Wenning Investments LLC in Newton, Mass. 

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

]]>
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6 Questions About 529 Plans http://unioneagle.com/2015/07/6-questions-about-529-plans/ http://unioneagle.com/2015/07/6-questions-about-529-plans/#comments Mon, 27 Jul 2015 20:30:34 +0000 http://unioneagle.com/?guid=b37ccf4cb446b5cde8d931e76c96a5ee If you’re saving for your child’s higher education, you probably have a lot of questions besides “When did college get so incredibly expensive?” One popular savings tool that might puzzle you the most is the relatively new 529 plan. Here are the most popular questions.

The 529 college savings plan – begun in the late 1980s and now operated by states or educational institutions – offers tax-advantaged ways to save for various costs of higher education. What else should you know?

Common questions I hear from my clients:

What can my child use 529 money for? The money can pay for qualified expenses such as tuition, fees, books, supplies, computer-related costs and room and board for someone who is at least a half-time student. Pizza, burritos and beer don’t qualify, unfortunately.

How much can I contribute? The answer is not as straightforward as with an individual retirement account or 401(k) retirement plan. Generally, contributions to a 529 max out at $350,000 per beneficiary.

You also need to remember federal gifting tax laws. A gift of more than $14,000 to a single person in one year incurs gift tax. A 529 allows an individual to potentially contribute up to $70,000 (married couples up to $140,000) tax-free in one year to an account for a particular beneficiary.

To do this, you elect to treat the entire gift as a series of five equal annual gifts when you file Internal Revenue Service Form 709, “Gift and Generation-Skipping Transfer” with your annual tax return. The IRS can tell you more.

There are no age or income restrictions to contribute.

What if our relatives want to contribute? Family members can either open a 529 account and name your child as the beneficiary or kick into an existing 529 that they don’t own.

If your family members contribute to a 529 account that they do own, they receive a state tax benefit if their state offers such a deduction. Opening just one account for the beneficiary and letting your family help fund it can be simpler.

Why use a 529 over a regular taxable account? These accounts defer taxes; your contributions grow tax-free as long as you use the funds on the qualified expenses mentioned above.

This beats paying the government for an after-tax account – but the latter does offer complete flexibility on where and how you can spend the money. A 529 doesn’t.

What if my child gets a full scholarship? You will not lose money.

You can withdraw from the 529 without penalty, though you do pay taxes on the earnings at the scholarship recipient’s tax rate. You can also use your 529 to pay for expenses that the scholarship doesn’t cover, such as room and board, books and other required supplies.

You can keep the 529 open with your child as beneficiary if he or she plans on graduate school, or you can also change the beneficiary and name another college-bound child.

What if my child does not want to go to college? You can change the beneficiary to another family member (a sibling, first cousin, grandparent, aunt, uncle or yourself, for example), and the money goes toward that person’s education. Most plans allow you to change your beneficiary only once a year; if your child has a change of heart and does decide to attend college, you can rename that child the beneficiary.

Remember too that these funds can help pay for two-year associate degrees, as well as for trade and vocational schools.

A final option: Withdraw the money, or cash out the plan. You pay income tax and a 10% penalty on the earnings, but not on your contributions.

If unsure that your child is in fact headed to college, sit tight on cashing out. One thing you learn fast about young adults: Life can always change.

Follow AdviceIQ on Twitter at @adviceiq.

Andrew Comstock, CFA, is president and chief investment officer of Castlebar Asset Management in Leawood, Kan.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

]]>
If you’re saving for your child’s higher education, you probably have a lot of questions besides “When did college get so incredibly expensive?” One popular savings tool that might puzzle you the most is the relatively new 529 plan. Here are the most popular questions.

The 529 college savings plan – begun in the late 1980s and now operated by states or educational institutions – offers tax-advantaged ways to save for various costs of higher education. What else should you know?

Common questions I hear from my clients:

What can my child use 529 money for? The money can pay for qualified expenses such as tuition, fees, books, supplies, computer-related costs and room and board for someone who is at least a half-time student. Pizza, burritos and beer don’t qualify, unfortunately.

How much can I contribute? The answer is not as straightforward as with an individual retirement account or 401(k) retirement plan. Generally, contributions to a 529 max out at $350,000 per beneficiary.

You also need to remember federal gifting tax laws. A gift of more than $14,000 to a single person in one year incurs gift tax. A 529 allows an individual to potentially contribute up to $70,000 (married couples up to $140,000) tax-free in one year to an account for a particular beneficiary.

To do this, you elect to treat the entire gift as a series of five equal annual gifts when you file Internal Revenue Service Form 709, “Gift and Generation-Skipping Transfer” with your annual tax return. The IRS can tell you more.

There are no age or income restrictions to contribute.

What if our relatives want to contribute? Family members can either open a 529 account and name your child as the beneficiary or kick into an existing 529 that they don’t own.

If your family members contribute to a 529 account that they do own, they receive a state tax benefit if their state offers such a deduction. Opening just one account for the beneficiary and letting your family help fund it can be simpler.

Why use a 529 over a regular taxable account? These accounts defer taxes; your contributions grow tax-free as long as you use the funds on the qualified expenses mentioned above.

This beats paying the government for an after-tax account – but the latter does offer complete flexibility on where and how you can spend the money. A 529 doesn’t.

What if my child gets a full scholarship? You will not lose money.

You can withdraw from the 529 without penalty, though you do pay taxes on the earnings at the scholarship recipient’s tax rate. You can also use your 529 to pay for expenses that the scholarship doesn’t cover, such as room and board, books and other required supplies.

You can keep the 529 open with your child as beneficiary if he or she plans on graduate school, or you can also change the beneficiary and name another college-bound child.

What if my child does not want to go to college? You can change the beneficiary to another family member (a sibling, first cousin, grandparent, aunt, uncle or yourself, for example), and the money goes toward that person’s education. Most plans allow you to change your beneficiary only once a year; if your child has a change of heart and does decide to attend college, you can rename that child the beneficiary.

Remember too that these funds can help pay for two-year associate degrees, as well as for trade and vocational schools.

A final option: Withdraw the money, or cash out the plan. You pay income tax and a 10% penalty on the earnings, but not on your contributions.

If unsure that your child is in fact headed to college, sit tight on cashing out. One thing you learn fast about young adults: Life can always change.

Follow AdviceIQ on Twitter at @adviceiq.

Andrew Comstock, CFA, is president and chief investment officer of Castlebar Asset Management in Leawood, Kan.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

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When Advice Falls Short http://unioneagle.com/2015/07/when-advice-falls-short/ http://unioneagle.com/2015/07/when-advice-falls-short/#comments Mon, 27 Jul 2015 16:32:26 +0000 http://unioneagle.com/?guid=48ff956eb71e61a3a92aa07cb18b09f6 Yes, you can get a bad financial plan, one that doesn’t cover every facet of your life. Like matching your income and your spending.

Take my client Joanna. At 10:06 a.m. on Feb. 22, 2007, her divorce was finally final. She headed straight for the outlets: Retail therapy was in store and she looked forward to some healing.

The people who love Joanna wanted her happy, healthy and healed. No doubt they also wanted her to be able to pay the bills she racked up in her celebration.

Seven years later, Joanna comes into my office. By this time she’s in her mid-50s with a few health issues and still earns about $65,000 a year, not much more than in 2007. What has changed, she explains to me, is that her accounts are nearing empty and she might have to sell her home so she can send her last son to the kind of expensive college her first three sons enjoyed.

She pushes all her paperwork across the table. I see she hired an advisor from a well-known big firm and took the time to list her expenses on a worksheet I sent to her before our meeting. Looking over her tax returns, spending records and account statements, I clearly see she’s $5,000 underwater every month.

I ask her what plan she worked off to this point, and she says she expected her investments to do better and her money to last longer.

Advisors can come in one of two types: 1) Commission-based, which means they earn money based on your investment and planning choices. 2) Fee-only (like me), which means they work for a flat rate or a percent of your assets and earn nothing extra based on your decisions. Joanna had seen a commission-based advisor

But you also can divide advisors by how well they plan your finances. Her previous one didn’t do a very good job when it came to tracking her spending. A financial plan needs to look at every bit of your life, not just your investments. We lock eyes as she grins in acknowledgement of oops! hanging in the air.

In 2007, Joanna walked away from her 23-year marriage with $960,000 in cash, a paid-for home she thinks is now worth $975,000 and $5,000 in monthly support that ended just before she came to see me.

Joanna says she’s ready to get serious. We have the home appraised – the amount comes in at $725,000, much less of course than she figured. We factored in another 8%, or $58,000 in her case, for costs of selling the home. That left $667,000 as the net Joanna can expect from the sale of her home before taxes – another surprise for her.

She’s tested the idea of earning more. At her age with health issues and her inability to work more hours, employers showed little willingness to hire her. Reviewing her expenses, she agrees she can cut back on some items but remains worried about her son waiting to go to that expensive college.

I get paid to be straight with clients, and they are allowed to hate my answers.

For Joanna, we first projected conditions of her life going forward if she makes no changes. We thought who might provide shelter for her and her son before the end of the year if she decided to make no adjustments to her money situation (a short list). Then we modeled her life with very sharp and immediate changes.

She chose immediate – and substantial – pain over certain destitution. We sold the home and she banked $600,000 from the sale, paid her credit card off and started renting a nearby townhome to lower her expenses.

She takes about $2,000 each month from her accounts to supplement the $5,000 she earns. We work to pinpoint what she cares most about spending on while we also identify her ability to pay her bills on her own. We look at her whole financial picture.

Many days, she cursed us, the heavens, her former advisor and her ex – and in the end enjoys a level of confidence she says she’s never had.

Her health issues are improving. She will not send her son to the expensive college and instead includes him in some of our meetings as we help him get used to the new normal. He says he likes seeing his mom happy and healthy, and he thinks she’s healing.

She paid a big price, though, for too little advice.

Follow AdviceIQ on Twitter at @adviceiq

Bonnie Sewell, CFP, CDFA, AIF, is the principal at American Capital Planning LLC in Leesburg, Va. 

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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Yes, you can get a bad financial plan, one that doesn’t cover every facet of your life. Like matching your income and your spending.

Take my client Joanna. At 10:06 a.m. on Feb. 22, 2007, her divorce was finally final. She headed straight for the outlets: Retail therapy was in store and she looked forward to some healing.

The people who love Joanna wanted her happy, healthy and healed. No doubt they also wanted her to be able to pay the bills she racked up in her celebration.

Seven years later, Joanna comes into my office. By this time she’s in her mid-50s with a few health issues and still earns about $65,000 a year, not much more than in 2007. What has changed, she explains to me, is that her accounts are nearing empty and she might have to sell her home so she can send her last son to the kind of expensive college her first three sons enjoyed.

She pushes all her paperwork across the table. I see she hired an advisor from a well-known big firm and took the time to list her expenses on a worksheet I sent to her before our meeting. Looking over her tax returns, spending records and account statements, I clearly see she’s $5,000 underwater every month.

I ask her what plan she worked off to this point, and she says she expected her investments to do better and her money to last longer.

Advisors can come in one of two types: 1) Commission-based, which means they earn money based on your investment and planning choices. 2) Fee-only (like me), which means they work for a flat rate or a percent of your assets and earn nothing extra based on your decisions. Joanna had seen a commission-based advisor

But you also can divide advisors by how well they plan your finances. Her previous one didn’t do a very good job when it came to tracking her spending. A financial plan needs to look at every bit of your life, not just your investments. We lock eyes as she grins in acknowledgement of oops! hanging in the air.

In 2007, Joanna walked away from her 23-year marriage with $960,000 in cash, a paid-for home she thinks is now worth $975,000 and $5,000 in monthly support that ended just before she came to see me.

Joanna says she’s ready to get serious. We have the home appraised – the amount comes in at $725,000, much less of course than she figured. We factored in another 8%, or $58,000 in her case, for costs of selling the home. That left $667,000 as the net Joanna can expect from the sale of her home before taxes – another surprise for her.

She’s tested the idea of earning more. At her age with health issues and her inability to work more hours, employers showed little willingness to hire her. Reviewing her expenses, she agrees she can cut back on some items but remains worried about her son waiting to go to that expensive college.

I get paid to be straight with clients, and they are allowed to hate my answers.

For Joanna, we first projected conditions of her life going forward if she makes no changes. We thought who might provide shelter for her and her son before the end of the year if she decided to make no adjustments to her money situation (a short list). Then we modeled her life with very sharp and immediate changes.

She chose immediate – and substantial – pain over certain destitution. We sold the home and she banked $600,000 from the sale, paid her credit card off and started renting a nearby townhome to lower her expenses.

She takes about $2,000 each month from her accounts to supplement the $5,000 she earns. We work to pinpoint what she cares most about spending on while we also identify her ability to pay her bills on her own. We look at her whole financial picture.

Many days, she cursed us, the heavens, her former advisor and her ex – and in the end enjoys a level of confidence she says she’s never had.

Her health issues are improving. She will not send her son to the expensive college and instead includes him in some of our meetings as we help him get used to the new normal. He says he likes seeing his mom happy and healthy, and he thinks she’s healing.

She paid a big price, though, for too little advice.

Follow AdviceIQ on Twitter at @adviceiq

Bonnie Sewell, CFP, CDFA, AIF, is the principal at American Capital Planning LLC in Leesburg, Va. 

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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