With average college tuition up 6.3 percent at private schools and up 6.6 percent at public schools this past school year, money management is a bigger issue than ever on college campuses. That’s why it’s good to send your freshman off to school with a 10-point plan on how to best manage their money:
1. Take baby steps with credit: It’s one thing for a teenager to use their parents’ credit card while they’re still living at home. It’s quite another when they get their first taste of freedom hundreds of miles away. Parents may co-sign the student’s credit card but keep it in the student’s name. That way, parents will know when financial missteps occur, which will be a strong incentive for the student to keep his credit rating clean for the next four years. Most important: Parents should do whatever it takes to make sure the child doesn’t sign up for any credit cards on campus.
2. Bank smart: Students need to get some familiarity with the banking system before they head to college. Kids generally should set up a checking account on campus, but talk to them about debit options and how banking fees (particularly for overdrafts) can eat away at their money. Also ask your child to ask the bank about direct-deposit options if you’re planning to deposit money for their tuition or agreed-to spending needs. You want your child to be independent, but if necessary, make it a joint account and check those balances online.
3. Work with them to set up their first emergency fund: A young person should get used to the idea of savings and reserves for unforeseen events such as emergency trips home or related expenses. Make it clear that late-night pizza and mochas are not an emergency.
4. Put the student in charge of maintaining her financial aid: Each year, the FAFSA (Free Application for Federal Financial Aid) is due in June. State applications are due earlier. While parents need to run the financial aid process, students need to be equally aware of how their education is paid. Everyone should file the form whether or not you think your child may be eligible, and your child should be searching for scholarships at all times. It might also make sense to take your child to your tax preparer to make sure you’re taking advantage of the child’s “tax capacity” and other income tax opportunities. It will be a good learning experience.
5. Make them budget: If they’re leaving for college with a new computer, consider giving them personal finance software to track their everyday expenses and make sure the computer has a security password. Work together to determine necessary realities about everyday expenses, tuition and financial aid. Then tell your kid that when he or she comes home at Thanksgiving, you will sit down again to review those figures and make reasonable adjustments. You obviously need to trust your kids, but you might want to do this for as long as it takes them to develop solid and consistent money habits.
6. Schedule a holiday budget and credit check: When the triumphant freshman returns home for the holidays, schedule some R&R, home cooking and the first reading ever of their fall budget figures and their first credit reports. Since credit reports can be ordered online, parents and student should sit down with each of the child’s three credit reports from Experian, TransUnion and Equifax and review them for activity and errors. Since everyone is entitled to one free report from each of the agencies each year, go to www.annualcreditreport.com for theirs.
7. Help them open their first IRA: Get some advice on this from a trusted financial planner but if your 18-year-old child is earning wages by working part-time at school, at home during breaks or for your own company, have them open a Roth IRA in a growth fund. Make sure they understand this is essential to their future savings so they don’t cash it in.
8. Discuss identity theft: Personal financial data left on laptop computers, cell phones and other electronic devices can be readily stolen on campus or in a dorm or roommate environment. Tell your kid to keep all paper records in a safe place and introduce passwords to keep all their digital information safe.
9. Get them networking: Internships and jobs in their chosen field during summer breaks can give your student a head start on their career path. Encourage them to research these opportunities freshman year so they’ll be in the front of the line when it’s time to apply.
10. Handle mistakes the right way: Most kids will make money mistakes in college. If they overdraw a checking account or overdo it with their credit card, make the criticism constructive but firm and always come up with a corrective plan you’ll work on together.
August 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Monday, August 25, 2008
Tuesday, August 12, 2008
What’s the Correct Amount to Withdraw from Your Retirement Funds Each Year?
Rules of thumb and guidelines abound in every investment arena – you’ll always hear about specific percentages you should save, spend or invest based on where you are in life. They’re made to draw attention to specific investment needs everyone has, and for that reason, it’s good to have them.
A popular one is that no one should spend more than 4 percent annually of the value of their nest egg in any given year. Another is that retirees only need 70-80 percent of their last working year’s income to maintain their standard of living.
The reality is that everyone’s retirement goals are different and should be planned based on specific needs, not general rules of thumb. This is why retirement plans should be made with the aid of experts in tax, estate and investment issues. A good starting point would be a meeting with a CERTIFIED FINANCIAL PLANNER™ professional who could go over your personal situation and define particular percentages that can be withdrawn from your overall retirement nest egg while you continue to work or relax.
What’s the downside of not planning? Wachovia’s recent fourth annual Retirement Survey showed that many retirees enter their post-working years with no idea – or limitations – on how much of their nest egg they’ll spend on an annual basis. The financial firm reported that 28 percent of surveyed retirees with average total savings of $375,000 withdraw 10 percent or more of their retirement savings annually to pay for expenses. Further, only one-third (38 percent) pegged their withdrawal rate at 5 percent or less. Only about half (47 percent) said they had a written withdrawal strategy, and only 28 percent said they have a written budget for spending their savings.
Here are the major ways to determine an appropriate withdrawal amount withdraw each year in retirement:
Define a vision of retirement and revisit it every year: Anyone who has worked with a good investment manager or financial planner has addressed the kind of retirement they envision. Incorporating part-time work into the retirement picture might make other financial goals more affordable. A person who manages his or her finances or works with an expert needs to revisit those goals annually to assess the feasibility of affording a particular lifestyle in retirement.
Track working-life expenses for 3-6 months: This is where that vision of retirement becomes real. Understanding what an individual spends on lattes and late-night carryout may motivate an investor to shift his behavior from spending to saving.
Create a worst-case health scenario: For many retirees, increasing healthcare expenses and the cost of end-of-life-care account for significant spending. As a result, many retirees may pay for expensive experimental treatments to fight disease or long-term assisted living or nursing home care. According to AARP, annual nursing home costs will be at more than $100,000 a year in the next two decades compared to their current annual range of $45,000-$60,000. While public aid picks up medical expenses for those who exhaust their assets in most states, most of us desire more than minimal standards of care.
Shift into a retirement investment strategy in stages: With a clear majority of investors having inadequate retirement funds in place near or at retirement age, it may seem silly to talk about investing post-retirement. But the younger an investor is, the more valuable the conversation. Good advisers can help build more balanced portfolios that fit the exact needs of the investor as retirement nears.
See how long you can put off taking Social Security: The Wachovia study also reported that the majority of respondents planned to start taking Social Security benefits at age 62, the earliest point possible. Another 17 percent reported taking Social Security benefits at age 65. Only 9 percent reported delaying Social Security benefits past age 65. Even though no one will get rich off of Social Security, delaying taking those payments will result in larger payments later, but get advice to see if that decision is right for you.
July 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
A popular one is that no one should spend more than 4 percent annually of the value of their nest egg in any given year. Another is that retirees only need 70-80 percent of their last working year’s income to maintain their standard of living.
The reality is that everyone’s retirement goals are different and should be planned based on specific needs, not general rules of thumb. This is why retirement plans should be made with the aid of experts in tax, estate and investment issues. A good starting point would be a meeting with a CERTIFIED FINANCIAL PLANNER™ professional who could go over your personal situation and define particular percentages that can be withdrawn from your overall retirement nest egg while you continue to work or relax.
What’s the downside of not planning? Wachovia’s recent fourth annual Retirement Survey showed that many retirees enter their post-working years with no idea – or limitations – on how much of their nest egg they’ll spend on an annual basis. The financial firm reported that 28 percent of surveyed retirees with average total savings of $375,000 withdraw 10 percent or more of their retirement savings annually to pay for expenses. Further, only one-third (38 percent) pegged their withdrawal rate at 5 percent or less. Only about half (47 percent) said they had a written withdrawal strategy, and only 28 percent said they have a written budget for spending their savings.
Here are the major ways to determine an appropriate withdrawal amount withdraw each year in retirement:
Define a vision of retirement and revisit it every year: Anyone who has worked with a good investment manager or financial planner has addressed the kind of retirement they envision. Incorporating part-time work into the retirement picture might make other financial goals more affordable. A person who manages his or her finances or works with an expert needs to revisit those goals annually to assess the feasibility of affording a particular lifestyle in retirement.
Track working-life expenses for 3-6 months: This is where that vision of retirement becomes real. Understanding what an individual spends on lattes and late-night carryout may motivate an investor to shift his behavior from spending to saving.
Create a worst-case health scenario: For many retirees, increasing healthcare expenses and the cost of end-of-life-care account for significant spending. As a result, many retirees may pay for expensive experimental treatments to fight disease or long-term assisted living or nursing home care. According to AARP, annual nursing home costs will be at more than $100,000 a year in the next two decades compared to their current annual range of $45,000-$60,000. While public aid picks up medical expenses for those who exhaust their assets in most states, most of us desire more than minimal standards of care.
Shift into a retirement investment strategy in stages: With a clear majority of investors having inadequate retirement funds in place near or at retirement age, it may seem silly to talk about investing post-retirement. But the younger an investor is, the more valuable the conversation. Good advisers can help build more balanced portfolios that fit the exact needs of the investor as retirement nears.
See how long you can put off taking Social Security: The Wachovia study also reported that the majority of respondents planned to start taking Social Security benefits at age 62, the earliest point possible. Another 17 percent reported taking Social Security benefits at age 65. Only 9 percent reported delaying Social Security benefits past age 65. Even though no one will get rich off of Social Security, delaying taking those payments will result in larger payments later, but get advice to see if that decision is right for you.
July 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Wednesday, August 6, 2008
Insuring Your Vacation? Make Sure You’re Actually Covered
High energy costs, a tough economy, you name it; there’s still plenty of travel delays and headaches in the skies and on the ground. Those delays can potentially cost a lot of money, which is why it’s a good idea to carry travel insurance on expensive trips to cover missed connections that can delay your arrival for a day or more. The same goes for lost baggage or sudden medical expenses in different regions of the U.S. or other parts of the world.
But take a moment before you rush out to buy a Cadillac policy for your two-week trip to Hawaii. Travel insurance, like any coverage, should be tailored to your specific needs. You’ll see it sold as a one-size-fits-all product, but that’s not how you should buy it. Here are some pointers:
Call your HR department or health insurer: Yes, you might be out hundreds or perhaps thousands if you can’t get to your destination, but that’s not the biggest potential money risk on any trip. What if your health benefits won’t cross state lines, much less international borders? As you’re planning your trip, check to see if your personal health coverage for you and family members will be effective at your destination. If the answer is no, see whether your credit card company offers health care coverage there and if so, what it costs and what it entails. The next step is purchasing specific travel health insurance that will be accepted at your destination, which may be sold in a package with other coverage we’ll mention momentarily. Also, it might make sense to make an action plan for a health emergency. Call the concierge at your destination to get information on the best nearby hospitals and clinics so you can check if your coverage applies, and see what ground or air transport options exist to get you to the best hospital. Transport can be costly if you’re in a remote location.
Start at least a month in advance: Most people make major trip reservations fairly far in advance to get the best fares and hotel rates, and you’ll need to do the same for travel insurance. You’ll find that carriers are particularly picky about pre-existing conditions for medical or dental treatments, so read the fine print.
There’s no such thing as full coverage – unless you’re willing to pay for it: What’s full coverage? That’s a good question, and it sometimes depends on dozens of factors unique to your trip. Your carrier might not offer protection on your chosen airline or cruise line. You’ll find that terrorism insurance is rare and complicated. And you have to examine medical insurance options closely to understand exactly what is covered. The rare soup-to-nuts coverage – covering trip cancellations, lost luggage, delays that leave you stranded, flight accident, emergency medical and medical evacuations – is typically priced in the hundreds of dollars and may only cover only up to 75 percent of the total cost of your trip.
Make sure your insurance covers missed connections: Cancellation insurance doesn’t cover everything. Investigate whether a missed connection – and the resulting meals, overnight hotel bills and taxi or train transportation you’ll need if you’re stuck overnight in a strange city – is covered.
Start online: Go to some of the leading websites that deal in single or multiple-insurer offerings. InsureMyTrip.com is a market leader and a good first stop in analyzing coverage – you start by punching in the necessary information on your trip (dates, age of travelers, medical coverage needed, etc.) and it spits back more than a dozen possibilities at all price levels. Clicking on any of the choices will give you a detailed view of what those policies will and won’t cover.
Ask about hurricane coverage: The 2008 Atlantic hurricane season began June 1 and will run through the end of November. Even if you don’t live in a hurricane area, hurricanes can disrupt the flow of air travel all over the country. Ask whether your travel insurance has hurricane coverage – or other weather-related coverage -- and what you’ll need to file a claim.
Fight ATM fees – before you leave: It’s not guaranteed, but your bank might agree to waive any fees you incur at overseas ATMs if you ask in advance. Call them and check.
Watch that cell phone: Increasingly, domestic cellular phones are working in more areas of the world. That’s the good news. The bad news is whether you’ll be charged extra fees for using your phone in those areas. Check before you leave.
Marooned? Ask for a break: If you’re sidetracked as the result of a major disaster (weather-related or otherwise), always ask if your airline, hotel or other components of your vacation might be willing to give you a credit or discount on your bill. It’s rare, but some destinations might see it as a chance to build goodwill so you’ll be a repeat customer. The worst thing they can do is say no.
July 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
But take a moment before you rush out to buy a Cadillac policy for your two-week trip to Hawaii. Travel insurance, like any coverage, should be tailored to your specific needs. You’ll see it sold as a one-size-fits-all product, but that’s not how you should buy it. Here are some pointers:
Call your HR department or health insurer: Yes, you might be out hundreds or perhaps thousands if you can’t get to your destination, but that’s not the biggest potential money risk on any trip. What if your health benefits won’t cross state lines, much less international borders? As you’re planning your trip, check to see if your personal health coverage for you and family members will be effective at your destination. If the answer is no, see whether your credit card company offers health care coverage there and if so, what it costs and what it entails. The next step is purchasing specific travel health insurance that will be accepted at your destination, which may be sold in a package with other coverage we’ll mention momentarily. Also, it might make sense to make an action plan for a health emergency. Call the concierge at your destination to get information on the best nearby hospitals and clinics so you can check if your coverage applies, and see what ground or air transport options exist to get you to the best hospital. Transport can be costly if you’re in a remote location.
Start at least a month in advance: Most people make major trip reservations fairly far in advance to get the best fares and hotel rates, and you’ll need to do the same for travel insurance. You’ll find that carriers are particularly picky about pre-existing conditions for medical or dental treatments, so read the fine print.
There’s no such thing as full coverage – unless you’re willing to pay for it: What’s full coverage? That’s a good question, and it sometimes depends on dozens of factors unique to your trip. Your carrier might not offer protection on your chosen airline or cruise line. You’ll find that terrorism insurance is rare and complicated. And you have to examine medical insurance options closely to understand exactly what is covered. The rare soup-to-nuts coverage – covering trip cancellations, lost luggage, delays that leave you stranded, flight accident, emergency medical and medical evacuations – is typically priced in the hundreds of dollars and may only cover only up to 75 percent of the total cost of your trip.
Make sure your insurance covers missed connections: Cancellation insurance doesn’t cover everything. Investigate whether a missed connection – and the resulting meals, overnight hotel bills and taxi or train transportation you’ll need if you’re stuck overnight in a strange city – is covered.
Start online: Go to some of the leading websites that deal in single or multiple-insurer offerings. InsureMyTrip.com is a market leader and a good first stop in analyzing coverage – you start by punching in the necessary information on your trip (dates, age of travelers, medical coverage needed, etc.) and it spits back more than a dozen possibilities at all price levels. Clicking on any of the choices will give you a detailed view of what those policies will and won’t cover.
Ask about hurricane coverage: The 2008 Atlantic hurricane season began June 1 and will run through the end of November. Even if you don’t live in a hurricane area, hurricanes can disrupt the flow of air travel all over the country. Ask whether your travel insurance has hurricane coverage – or other weather-related coverage -- and what you’ll need to file a claim.
Fight ATM fees – before you leave: It’s not guaranteed, but your bank might agree to waive any fees you incur at overseas ATMs if you ask in advance. Call them and check.
Watch that cell phone: Increasingly, domestic cellular phones are working in more areas of the world. That’s the good news. The bad news is whether you’ll be charged extra fees for using your phone in those areas. Check before you leave.
Marooned? Ask for a break: If you’re sidetracked as the result of a major disaster (weather-related or otherwise), always ask if your airline, hotel or other components of your vacation might be willing to give you a credit or discount on your bill. It’s rare, but some destinations might see it as a chance to build goodwill so you’ll be a repeat customer. The worst thing they can do is say no.
July 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
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