3 Reasons to Get an Early Start on College Savings

Contributed by: Robert Ingram

The back-to-school season is right around the corner. And if you have school-aged children, the thought of planning for their college education may be enough to cause your own case of back-to-school jitters. Costs of a four-year education at many colleges and universities are already well into the six-figure range (per child!). For many families hoping to cover a large portion of the costs, significant savings goals are likely required. That’s why, more than ever, you should create a college savings plan as early as possible. 

College Costs Keep Rising

When planning to fund an education goal that may be years away, focusing on today’s costs is (unfortunately) just the beginning. Like the prices of many other goods and services, college costs have increased over time. These costs, however, have been rising much faster than those of other household expenses. According to JPMorgan Asset Management’s research, tuition costs have grown by an average annual rate of 6.4% since 1983. At this rate, today’s cost of tuition would double in about 11 years. Even if this rate of inflation slowed somewhat, potential college costs are eye-opening.

The illustration below shows projected total tuition, fees, and room and board expenses for a four-year, public or private college education, with a 5% annual increase in costs.

Source: JPMorgan Asset Management College Planning Essentials, using The College Board, 2018 Trends in College Pricing. Future college costs estimated to inflate 5% per year. Average tuition, fees and room and board for public college reflect four-year, in-state charges.

As you can see in this example, a child who is 10 years old today could expect a total cost of $136,085 at an in-state public college or university. Her education at a private college could cost over $308,000.

The power of compound growth on your savings and invested earnings can be one of your best allies as you save for these potential future costs. Let’s say the family of our 10-year-old child began saving $3,600 each year. At 7% growth compounded annually, they would have $36,935 by the time she turned 18. What if, instead, they began saving that same amount eight years earlier, when the child was age 2? At the same 7% annual return, they would have $100,396. The sooner you can begin saving and investing, the more time compounding has to work its magic.

The Burden of Student Loan Debt

As the costs of college have continued to rise, the amount of student loan debt has grown as well. A recent report from the New York Federal Reserve Consumer Credit Panel showed that outstanding student loan debt totaled $1.44 trillion as of September 30, 2018. In addition, studies from the Institute of College Access and Success found that 65% of students graduating in 2017 from public and private, non-profit colleges had student loans, and the average borrower owed $28,650.

Loans can help provide students the funds to complete their educations, but a large debt balance can have serious implications for a graduate’s personal finances. As new graduates begin their careers, servicing this student loan debt can take up a large portion of their budgets. More dollars going to pay down debt means fewer dollars available for other needs, for building an emergency fund, saving for a house, or saving for retirement. (Click here to see some financial tips for new graduates). Parents managing student loan debt can also feel similar constraints. Often, parents in the home stretch toward retirement are paying down debt instead of funding their own retirement plans. 

Of course, every dollar of college expenses paid from savings can mean one less dollar of debt to service. More than that, the longer you have to build college savings, the greater the difference between the out-of-pocket cost of paying for college with debt and the out-of-pocket cost of saving. Take a look at the following chart, which compares the cost of funding education through loans (the principal borrowed and interest) with the cost of saving over 18 years.

In this hypothetical example, the total out-of-pocket amount of $65,800 contributed to the savings plan combined with investment earnings of 6% annually provided the total balance of $117,698. Borrowing that same $117,698 could result in total spending of $168,390 for the loan principal and interest.

What about Financial Aid?

If you’re like many clients thinking about college planning, you may be concerned that your savings and investments will negatively affect your eligibility for college aid. You might be worried that the more you save, the less likely it is that you will receive assistance.

To determine financial aid eligibility, schools use an Expected Family Contribution (EFC), which is a measure of a family’s financial strength. The EFC formula takes into account the incomes and assets of both the student and the parents. While the amount of savings and investment assets are considered, assets – and particularly those held in parents’ names – are a much smaller factor than incomes.  

The EFC formula includes up to 50% of the student’s income and 47% of parents’ income. On the other hand, the EFC considers up to 20% of the student’s assets and only 5.64% of the parents’ non-retirement assets, above a protected amount. Although balances in college savings plans are counted along with other non-retirement assets, the smaller percentage applied to parental assets can allow parents to build some meaningful savings without drastically affecting their student’s EFC. For a closer look at the financial aid process, check out our college planning webinar.

As with other areas of financial planning, college savings involves balancing your goals and priorities in order to most effectively align your resources. Your own unique circumstances will determine the right amounts to save, and when and where to save. If we can be a resource for any of your college planning needs, please let us know!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

5 Financial Tips for Recent College Graduates

Contributed by: Robert Ingram

Congratulations Class of 2019! This is an exciting time for recent college graduates as they begin the next phase in their lives. Some may take their first job or start along their career path, while others may continue their education. Taking this leap into the “real world” also means handling personal finances, a skill not taught often enough in school. Fortunately, by developing good financial habits early and avoiding costly mistakes, new graduates can make time an ally as they set up a solid financial future.

Here are five financial strategies to help get your post-college life on the right path:

1. Have a Spending Plan

The idea of budgeting may not sound like a lot of fun, but it doesn’t have to be a chore that keeps you from enjoying your hard-earned paycheck. Planning a monthly budget helps you control the money coming in and going out. It allows you to prioritize how you spend and save for goals like buying a home, setting up a future college fund for children, and funding your retirement.

Everyone’s budget may be a little different, but two spending categories often consume a large portion of income (especially for younger people early in their careers): housing costs and car expenses. For someone who owns a home, housing costs would include not only a mortgage payment, but also expenses like property taxes and insurance. Someone renting would have the rental cost and any rental insurance.

Consider these general guidelines:

• A common rule of thumb is that your housing costs should not exceed about 30% of your gross income. In reality, this percentage could be a bit high if you have student loans, or if you want more discretionary income to save and for other spending. Housing costs closer to 20% is ideal.

• A car payment and other consumer debt, like a credit card payment, can quickly eat into a monthly budget. While you may have unique spending and saving goals, a good guideline is to keep your total housing costs and consumer debt payments all within about 35% of your gross income.

2. Stash Some Cash for Emergencies

We all know that unexpected events may add unplanned expenses or changes to your budget. For example, an expensive car or home repair, a medical bill, or even a temporary loss of income can cause major financial setbacks.

Start setting aside a regular cash reserve or “rainy day” fund for emergencies or even future opportunities. Consider building up to six months’ worth of your most essential expenses. This may seem daunting at first, but make a plan to save this over time (even a few years). Set goals and milestones along the way, such as saving the first $1,000, then one months’ expenses, three months’ expenses, and so on, until you reach your ultimate goal.

3. Build Your Credit and Control Debt

Establishing a good credit history helps you qualify for mortgages and car loans at the favorable interest rates and gets you lower rates on insurance premiums, utilities, or small business loans. Paying your bills on time and limiting the amount of your outstanding debt will go a long way toward building your credit rating. What goes into your credit score? Click here.

• If you have student loans, plan to pay them down right away. Automated reminders and systematic payments can help keep you organized. To learn how student loans affect your credit score, click here.

• Use your credit card like a debit card, spending only what you could pay for in cash. Then each month, pay off the accumulated balance.

• Some credit cards do have great rewards programs, but don’t be tempted to open too many accounts and start filling up those balances. You can easily get overextended and damage your credit.

4. Save Early for the Long Term

Saving for goals like retirement might not seem like a top priority, especially when that could be 30 or 40 years away. Maybe you think you’ll invest for retirement once you pay off your loans, save some cash, or deal with other, more immediate needs. Well, reconsider waiting to start.

In fact, time is your BIG advantage. As an example, let’s say you could put $200 per month in a retirement account, like an employer 401(k), starting at age 25. Assuming a 7% annual return, by age 60 (35 years of saving), you would have just over $360,000. Now, say you waited until age 35 to begin saving. To reach that same $360,000 with 25 years of saving, you would need to more than double your monthly contribution to $445. Starting with even a small amount of savings while tackling other goals can really pay off.

Does your employer offer a company match on your retirement plan? Even better! A typical matching program may offer something like 50 cents for each $1 that you contribute, up to a maximum percentage of your salary (e.g. 6%). So if you contribute up to that 6%, your employer would add an extra 3% of your salary to the plan. This is like getting an immediate 50% return on your contribution. The earlier you can contribute, the more time these matching funds have to compound. 

5. Get a Little More Educated (about money and finances)

Ok, don’t worry. Forming good financial habits doesn’t require an advanced degree or expertise in all money matters. To build your overall knowledge and confidence, spend a little time each week, even just an hour, on an area of your finances and learn about a different topic.

Start with a book or two on general personal finance topics. You can find reference books on specific topics, from mortgages and debt to investments and estate planning. Information offered through news media or internet searches also can provide resources. And you can even find a blog not too far away (Money Centered Blog).

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

Could We See Changes Coming to Fix Social Security?

Contributed by: Robert Ingram

For the past several years, you may have seen story after story questioning the health of the Social Security system and whether the federal program can be sustained into the future. If you, like many clients, are thinking about your retirement plan, you’ve probably wondered, “Will my Social Security benefits be there when I retire?”.

Certainly, different actuarial or economic assumptions can influence Social Security’s perceived financial strength and solvency, but it’s clear some steps must be taken. With a system the size and scope of Social Security, one that affects so many people, it's hard to overstate the challenge of finding solutions on which lawmakers and experts can agree.

Funding Social Security - Money In, Money Out

Payroll (FICA) taxes collected by the federal government fund Social Security. How much do we pay? The first $132,900 of an individual’s 2019 annual wages is subject to a 12.4% payroll tax, with employers paying 6.2% and employees paying 6.2% (self-employed individuals pay the full 12.4%).

The government deposits these collected taxes into the Social Security Trust Funds, which are used to pay benefits. Social Security benefits are also at least partially taxable for individuals with income above certain thresholds. For more on Social Security taxation, click here.

U.S. demographic changes pose challenges for Social Security’s financial framework.  Americans are living longer, but birth rates have declined. One implication is that while a growing population draws Social Security benefits, a smaller potential workforce pays into the system.

In its 2018 annual report, the Social Security Board of Trustees projected that the total benefit costs (outflows) would exceed the total income into the trust funds, and the trust fund reserves will be depleted by 2034. Now, the report does not suggest that Social Security would be unable to pay benefits at that point. It estimates that with the trust funds depleted, the incoming revenues would be able to cover about 77% of the scheduled retirement and survivor benefits.

This is still concerning for the millions of retirees collecting their benefits and for future retirees counting on their benefits over the next 15 to 20 years.

So the question is, how can we correct this funding shortfall?

Possible fixes for Social Security?

Ultimately, as with any budget, fixing the imbalances between the Social Security system’s inflows and outflows would involve increasing system revenues, reducing or slowing the benefit payouts, or some combination of both.

There have been a number of proposals discussed in recent years, including:

• Increasing the Full Retirement Age from age 67

• Changing the formula for calculating benefits based on earnings history

• Increasing (or even eliminating) the cap on income subject to the payroll tax

• Reducing benefits for individuals at certain income levels (“means testing”)

• Changing how the cost of living adjustment (COLA) for benefits is determined

This past January, the Social Security 2100 Act was re-introduced in the House of Representatives. This series of suggested reforms, originally introduced in 2014 and 2017, has several key items: 

• Increase the Primary Insurance Amount (PIA) formula for calculating benefits at one’s Full Retirement Age

• Change the Cost of Living Adjustment (COLA) calculation, tying it to the Consumer Price Index for the Elderly (CPI-E) rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)

• Increase the special minimum Primary Insurance Amount for workers who become newly eligible for benefits in 2020 or later

• Replace the current thresholds for taxing Social Security benefits, from a threshold for taxing 50% of Social Security benefits and a threshold for taxing 85% of benefits, to a single set of thresholds set at $50,000 (single filers) and $100,000 (married filing jointly) for taxation of 85%  of Social Security benefits, by 2020

• Apply the payroll tax rate for Social Security (12.4% in 2019) to earnings above $400,000

• Continue applying the the payroll tax to the first $132,900 of wages and exempting income from $132,901 up to $400,000, then apply the tax again to amounts above the $400,000 threshold

• Increase the Social Security payroll tax rate incrementally from the current 12.4%  to 14.8% by 2043

• The rate would increase by 0.1%age point per year, from 2020 until 2043

• Combine the reserves of the Social Security retirement and survivor benefits trust fund and the reserves of Social Security’s disability benefits trust fund into a single trust fund

(Note source data: Estimates of the Financial Effects on Social Security of the “Social Security 2100 Act” ssa.gov/OACT/solvency/LarsnBlumenthalVanHollen_20190130.pdf) 

Interestingly, the first four provisions in the proposed bill are actually intended to increase the benefits for recipients. The first provision would slightly increase the benefit amounts paid to recipients through the new formula. The change to CPI-W gives more weight to spending items particularly relevant for seniors, such as health care, resulting in a potentially higher COLA than under the current structure. The third provision increases the current minimum benefit earned, and the fourth item allows for a higher level of income before Social Security benefits become taxable.

To address Social Security’s long-term solvency, this bill focuses on boosting Social Security revenues by increasing the payroll tax rate over time and making more earned income subject to those payroll taxes. That approach is in contrast with other proposals that would focus on managing the outflow of benefits, such as raising the full retirement age from 67 to 70.

This illustrates the philosophical differences in how to address the problems facing Social Security, and what makes reaching consensus on a long-term solution so difficult. 

Should I plan for changes to the Social Security system?

With so many factors at play and strong voices on different sides of the issue, the specific reforms Congress will adopt and exactly when they will occur remain unclear. For most clients, Social Security is part of their overall retirement income picture, but a meaningful source of income.

It is important to have at least a basic understanding of your benefits and what affects them under the current system (benefits collected at full retirement age, changes to benefit amounts based on when they are collected, and the potential impacts of taxation on your benefits, just to name a few factors).

Understanding how your Social Security benefits fit within your own retirement income plan can help you stay proactive as you make decisions in the face of uncertainty, whether controlling your savings rate, choosing investment strategies, or evaluating your retirement goals. If you have questions about your retirement income, we’re always here to help!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

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*Repurposed from 2016 blog: Will Social Security Be Around When I Retire?

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and are not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor the third party website listed or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Is the Diversified Portfolio Back?

Contributed by: Robert Ingram

(Repurpose of the 2014 blog: ‘Why I Didn’t Like My Diversified Portfolio’)

As our team finished 2018 and began reviewing the 2019 investment landscape, I couldn’t help but to think of a Money Centered blog written by our Managing Partner, Tim Wyman. As Tim shared:

“I was reminded of the power of headlines recently as I was reviewing my personal financial planning; reflecting on the progress I have made toward goals such as retirement, estate, tax, life insurance, and investments. And, after reviewing my personal 401k plan, and witnessing single digit growth, my immediate reaction was probably similar to many other investors that utilize a prudent asset allocation strategy (40% fixed income and 60% equities). I’d be less than candid if I didn’t share that my immediate thought was, “I dislike my diversified portfolio”.

The headlines suggest it should have been a better year. However, knowing that the substance is below the headlines, and 140 characters can’t convey the whole story, my diversified portfolio performed just as it is supposed to in 20xx.”

This may have been a familiar thought throughout 2018. Interestingly though, Tim’s blog post was actually from 2015. He was describing 2014.

THE FINANCIAL HEADLINES – Same Old, Same Old?

The financial news about investment markets today still focuses primarily on three major market indices: the DJIA, the S&P 500, and the NASDAQ. All three are measures for large company stocks in the United States; they provide no relevance for other assets in a diversified portfolio, such as international stocks, small and medium size stocks, and bonds of all types. As in 2014, the large U.S. stock indices were at or near all-time highs throughout much of 2018. Also in that year, many other major asset classes gained no ground or were even negative for the year. These included core intermediate bonds, high yield junk bonds, small cap stocks, commodities, international stocks, and emerging markets.

Looking Beyond the Headlines

Here at The Center, our team continues to apply a variety of resources in developing our economic outlook and asset allocation strategies. We take into account research from well-respected firms such as Russell Investments, J.P.Morgan Asset Management, and Raymond James. Review the “Asset Class Returns” graphic below, which shows how a variety of asset classes have performed since 2003.

This chart shows the historical performance of different asset classes through November of 2018, as well as an asset allocation portfolio (35% fixed and 65% diversified equities). The asset allocation portfolio incorporates the various asset classes shown in the chart.

If you “see” a pattern in asset class returns over time, please look again. There is no determinable pattern. Because asset class returns are cyclical, it’s difficult to predict which asset class will outperform in any given year. A portfolio with a mix of asset classes, on average, should smooth the ride by lowering risks that any one asset class presents over a full market and cycle. If there is any pattern to see, it would be that a diversified portfolio should provide a less volatile investment experience than any single asset class. A diversified portfolio is unlikely to be worse than the lowest performing asset class in any given year. And on the flip side, it is unlikely to be better than the best performing asset class. Just what you would expect!

STAYING FOCUSED & DISCIPLINED

As during other times when we have experienced strong U.S. stock markets and periods of accelerated market volatility, some folks may be willing to abandon discipline because of increased greed or increased fear. As important as it is to not panic out of an asset class after a large decline, it remains equally important to not panic into an asset class. In the case of the S&P 500’s outperformance of many other asset classes, for example, many have wondered why they should invest in anything else. That’s an understandable question. If you find yourself in that position, you might consider the following:

• As in the five years leading up to 2015, the S&P 500 Index (even with the recent pullback in stock prices) has had tremendous performance over the last five years. However, it’s difficult to predict which asset class will outperform from year to year. A portfolio with a mix of asset classes, on average, should smooth the ride by lowering risk over a full market cycle.

• Fundamentally, prices of U.S. companies relative to their expected earnings are hovering around the long-term average. International equities, particularly the emerging markets, are still well below their normal estimates and may have con­siderable room for improvement. This point was particularly relevant in 2018 and continues to be as we begin 2019.

• Through 2018, U.S. large caps, as defined by the S&P 500 Index, have outperformed international equities (MSCI EAFE) in six of the last eight years. The last time the S&P outperformed for a significant time, 1996-2001, the MSCI outperformed in the subsequent six years.

• What’s the potential impact on a portfolio concentrated in a particular asset class, if that asset class experiences a period of loss? Remember, an investment that experienced a loss requires an even greater percentage return to get back to its original value. For example, an investment worth $100,000 that loses 50% (down to $50,000) would actually require a 100% return from $50,000 to get back to $100,000.

MANAGING RISK

Benjamin Graham, known as the “father of value investing,” dedicated much of his book, The Intelligent Investor, to risk. In one of his many timeless quotes, he says, “The essence of investment management is the management of risks, not the management of returns.” This statement may seem counterintuitive to many investors. Rather than raising an alarm, risk may provide a healthy dose of reality in all investment environments. That’s important in how we meet financial goals. Diversification is about avoiding the big setbacks along the way. It doesn’t protect against losses – it helps manage risk.

Often, during times of more volatile financial markets like those we have experienced during the last couple of months, the benefits of diversification become apparent. If you have felt the way Tim did back in 2015 about your portfolio, we hope that after review and reflection, you might also change your perspective from “I dislike my diversified portfolio” to “My diversified portfolio – just what I would expect.”

As always, if you’d like to schedule some time to review anything contained in this writing, or your personal circumstances, please let me know. Lastly, our investment committee has been hard at work for several weeks and will be sharing 2019 comments in the near future. Make it a great 2019!

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®

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Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI is an index of stocks compiled by Morgan Stanley Capital International. The index consists of more than 1,000 companies in 22 developed markets. Investments can not be made directly in an index.

Employee Benefits Open Enrollment: 2018 Game Plan

Contributed by: Robert Ingram

Now that the Fall season is upon us and the holidays are right around the corner, it is also the annual benefits open enrollment season for many employers.  I know it can be tempting to quickly flip through the booklet checking the boxes on the forms without too much consideration, especially if things haven’t changed too much in your situation.  You’re certainly not alone.  However, setting aside some extra time to review your options is important for not only understanding the benefits you have and what might be changing, but also for identifying potential gaps in your coverages or underutilized opportunities.

Below are some benefits that, if offered by your employer, you should keep top of mind as you are making your elections.

Retirement plan contributions (401(k)/403(b) )

• Are you contributing up to the maximum employer match? (Take advantage of free money!)

• Are you maximizing the account?  ($18,500 or $24,500 for age 50 and over in 2018)

• Traditional 401(k) vs. Roth 401(k) options? 

Click here for a summary of 2018 retirement plan contribution limits and adjustments

Health insurance plans

• Review and compare your available plan offerings (e.g. PPO vs HMO). Want to explore some of the differences between plan types in more detail? Click here.

• Focus on more than just the premium cost. Think about the deductibles, copays, and the annual out-of-pocket maximums

• Consider your health history and the amount of services you use. For example, are you likely to hit the deductible or maximum out-of-pocket costs each year? The benefit of lower premiums for a high deductible plan may be outweighed by higher overall costs out-of-pocket.  Are you less likely to hit the deductible but you have excess cash saving just in case?  A lower premium, high deductible plan could make sense.

Health Care Flexible Spending Accounts vs. Health Savings Accounts

Flexible Spending Accounts and Health Savings Accounts both allow you to contribute pre-tax funds to an account that you can then withdraw tax-free to pay for qualified out-of-pocket medical expenses.  There are, however, some key differences to remember.

Flexible Spending Account for health care (FSA)

• Maximum employee contribution in 2018 is $2,650

• Generally must spend the balance on eligible expenses by the end of each plan year or forfeit unspent amounts (use-or-lose provision).

• Employers MAY offer more time to use the funds through either a grace period option (you have an extra 2 ½ months to spend the funds) or a carryover option (you can carry over up to $500 of the balance into the following year)

For more information on the FSA click here.

Health Savings Account (HSA)

• Can only be used with a high deductible health insurance plan

• Maximum contribution in 2018 for an individual $ 3,450  ($4,450 for age 55 and over)

• Maximum contribution in 2018 for an family plan $6,900  ($7,900 for age 55 and over)

• All HSA balances carryover (no use-or-lose limitations apply)

Click here for more information about the basics of using an HSA

Dependent Care Flexible Spending Account

• Pre-tax contributions to an account that can be withdrawn tax-free for qualified dependent care expenses within the plan year

• Maximum contribution in 2018 is $5,000 ($2,500 if married filing separately)

• Use-or-lose provision applies 

Life and Disability Insurance

• Employers often provide a basic amount of life insurance coverage at no cost to you (typically 1 x salary). 

• You may have the option to purchase additional group coverage up to certain limits at a low cost.

• Many employers also provide a group disability insurance benefit. This can include a short-term benefit (typically covering up to 90 or 180 days) and/or a long-term benefit (covering a specified number of years or up through a certain age such as 65).

• Disability benefits often cover a base percentage of income such as 50% or 60% of salary at no cost with some plans offering supplemental coverage for an additional premium charge.

• Life and disability insurance benefits can vary widely from employer to employer and in many cases only provide a portion of an employee’s needs.It is important to consult with your advisor on the appropriate amount of coverage for your own situation.

Like most things related to financial planning, your benefit selections are specific for your family’s own unique circumstances; and your choices probably would not make sense for your co-worker or neighbor.  We encourage all clients to have conversations with us as they are reviewing their benefit options during open enrollment, so don’t hesitate to pass along any questions you might have. If we can be a resource for you, please let us know.

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®

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This information has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional. Life insurance Guarantees are based on the claims paying ability of the insurance company.

Webinar in Review: College Planning Navigating the Financial Aid Process and the FAFSA

Contributed by: Robert Ingram

Are you unsure of where to start when it comes to applying for financial aid or what to make of the award letter your child has received? You’re not alone! Many parents are confused about the FAFSA, about what it actually means, or how they will benefit from completing it each year. Throughout this 45-minute webinar, our guest speaker, Carrie Gilchrist, Ph.D., Senior Financial Aid Outreach Advisor at Oakland University will share her insights on why you should always complete the FAFSA and how the information is used to determine financial aid awards. Carrie will also discuss the FAFSA filing deadlines and details, provide advice on steps to consider leading up to starting school, and address how college savings accounts can potentially affect financial aid.

Link to recording: https://www.youtube.com/watch?v=F0yjOqZzYHQ

Check out the time stamps below to listen to the topics you’re most interested in:

• 4:25: Explanation of the Elements of Financial Aid

• 5:30: What is the FAFSA, and How to Apply

• 23:30: FAFSA Processing

• 28:00 Sources of Financial Aid: Federal Government, State, College & University, Private Sources

• 38:30: Change in Financial Circumstances

• 39:30: Your Next Steps

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®

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The opinions expressed in the webinar are those of the speaker and not necessarily those of Raymond James Financial Services, Inc. Raymond James is not affiliated with Carrie Gilchrist or Oakland University.

Fun Money Lessons over Summer Vacation

Contributed by: Robert Ingram

Now that summer is officially here and the kids are out of school, a lot of our attention may be on cookouts, camping, days at the beach, or fun on the water.  Yet, summer vacation can also provide great opportunities for teaching children and grandchildren lessons about money and good financial habits that can grow with them.  

Here are some ideas to get the kids learning about money while enjoying the summer fun:

Make It a Game

Playing games is certainly a fun way for kids (and many adults) to entertain themselves during the summer months. It can also help develop counting and math skills and introduces many money management concepts around earning, spending and saving.  There are so many kinds of games in all different formats.

• Technology is a big part of our daily lives. Children are growing up immersed in the world of smartphones, tablets and computers. The good news is that kids allotted time on those can be spent doing online games focused on building money skills. For example, the website practicalmoneyskills.com offers games for different age groups:

  • Peter Pig’s Money Counter for younger elementary school children

  • Sports-themed Financial Football and Financial Soccer for ages 11 and above

• In the wide universe of smartphone apps, there are thousands of games available. By searching your app store under educational categories, financial, or money games, you can find some hidden gems. A couple of examples recognized by Parents Choice Awards and financial literacy organizations include:

  • Marble Math and Savings Spree for elementary school age children

  • Farm Blitz for pre-teens to young adults

• Although these might seem “low tech,” you can’t forget about the old-fashioned family board games. These include classics like Monopoly, Monopoly Jr, Pay Day, and the Game of Life, or other unique games like Allowance or Acquire. Board games introduce kids of all ages to different financial choices from managing income and spending to making investment decisions. And who doesn’t love a good family game night once in a while?!

Getting the Kids Involved in Decision-Making

• The piggy bank has always been a great way to introduce younger children to the lesson of saving and seeing how small regular contributions can really add up. Finding one that lets kids see what’s inside, helps them understand their progress along the way and keeps them interested. To delve even further, some piggy banks have different slots where kids are able to save their pennies for different purposes. The Money Savvy Pig, for example, has four sections that allow kids to set aside amounts for saving, spending, donating, and investing.

• Family vacation or outings this summer? Get the kids involved in the planning. What activities might you do? What treats or souvenirs could they want? Set some budget guidelines for these categories and have them help you prioritize and decide how you’ll spend the money. Do the kids want to expand the budget? This can be an opportunity for them to set goals of saving some of their allowance, summer job income, or even spare change to use toward those extra budget items.

• Back-to-school shopping can be another great learning opportunity, especially for pre-teens and the teenagers. Rather than scrambling in late August only to see the stack of credit card bills in September, help the kids put together a shopping plan they can own. Work with them on setting up a reasonable budget and making their lists. They can start prioritizing their “needs” vs. “wants” and then figuring out how they can best use their budget. This also gives kids the chance to learn to compare brands, research the best deals, and even find special discounts.

Ideas for the Summer Reading List

For kids that plan to spend some time on their summer break kicking back with a good book, they can add a few titles to their reading list.  There are a ton of great books out there on the subject of money and personal finance. 

A few come to mind that are relatively easy reads and have valuable insights for students and adults alike: 

• “Learn to Earn” by famed mutual fund manager Peter Lynch is aimed particularly at young adults, providing concepts in the basics of investing, the stock market, and business in general. One of Peter Lynch’s investing principles over the years has been “buy what you know,” meaning that many investment ideas can begin with products, services, and brands you know and use. Kids may be able to apply this to things in their own everyday life today such as:

  • What is the latest game they enjoy or what app are they and all of their friends using?

  • They can begin to learn about the companies behind them.

• Two other titles, “The Wealthy Barber” by David Chilton and “The Millionaire Next Door” by Thomas Stanley and William Danko, have also been around for over 20 years now and are still just as relevant today. Both of these books have several lessons about developing simple habits in spending, saving, managing debt and investing. Common themes in each book are:

  • Achieving financial confidence and independence is a process done over time.

  • The concept of wealthy may not fit the image we often have in our head.

Robert Ingram is a Financial Planner at Center for Financial Planning, Inc.®

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Views expressed are not necessarily those of Raymond James Financial Services and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature. The website link included and apps mentioned are provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any third-party web site, app or their respective sponsors.  Raymond James is not responsible for the content of any web site, app, or the collection or use of information regarding any web site's users and/or members. Raymond James Financial Services, Inc. is not affiliated with the above independent organizations.

Center Stories: Bob Ingram, Financial Planner

Contributed by: Robert Ingram

Money and finances can be very emotional topics and they can certainly seem confusing in today’s busy and complex world.  We all may have different emotions when it comes to money, emotions that shape how we manage our finances.  To me, financial planning is not just numbers on a spreadsheet or a group of investments in an account.  It is your own evolving roadmap to help guide you in making confident decisions in the face of uncertainties, concerns, or even exuberance.  A strong financial planning relationship is about helping you develop your life goals, truly understanding your personal situation and priorities, and taking steps to make the most of your resources to help achieve your goals.

I hope the video helps you get to know a little more about me and how I work with clients here at The Center.  If I can be a resource for you, please don’t hesitate to contact me!

Robert Ingram is a Financial Planner at Center for Financial Planning, Inc.®

Choosing a Down Payment Option on a House: Beyond the Numbers

Contributed by: Robert Ingram

Whether you’re buying your first home, looking to downsize or are considering that ultimate dream house, you’re probably facing a couple of common questions. How much should I put down on the purchase?  How much should I finance through a mortgage?  A 20% down payment is typically recommended as a good starting point because amounts less than 20% will likely subject you to private mortgage insurance (PMI) in most conventional loan programs, which increases your mortgage payment.  However, as financial planners we’re often asked if it makes more sense to put down larger amounts and carry smaller mortgages, or to keep those extra funds and invest them.

Making a larger down payment

There are several benefits to increasing the amount you put down on your home purchase.  Having a smaller mortgage balance that you repay over time lowers your monthly payment.  This can provide more flexibility in and control over your monthly budget with smaller portions being committed to servicing debt. 

The smaller mortgage also means you will pay less interest on your loan.  For example, if you put an additional $25,000 down on your home purchase, you are borrowing $25,000 less and you save interest that you would be paying had you borrowed it.  This interest cost savings is like a return on the $25,000 that you are not borrowing.

There are, however, some important considerations when taking more of your assets and putting them towards the home purchase.

• Those resources are no longer as accessible for your other needs or financial goals. Is your cash reserve still intact in case of unexpected emergencies? Would you still be on track to retire or to fund that college plan?

• Changes to your financial circumstances or in the economic environment could make it difficult to access the equity in your home through future borrowing. Unfortunately, we saw this all too often during the financial crisis in 2008-2009 when many banks and lending institutions cut home equity lines of credit and drastically tightened their lending standards.

• Having to fall back on other assets such as your qualified retirement plans or IRA accounts could result in additional taxes and/or early withdrawal penalties depending on your age and other circumstances. Not only could this negate some of the cost savings from making the larger down payment, but it may also derail your retirement.

Smaller down payment and investing the difference

Choosing to make a smaller down payment and investing the additional dollars rather than adding them to the down payment can make sense financially if a key assumption holds true. This assumption is that your investment’s returns outperform the interest cost of your mortgage.  Consider a bank that pays depositors an interest rate (its borrowing cost) and then lends those funds to borrowers for a charged interest rate (its investment return).  If the bank pays 2% interest to depositors and earns 5% interest on the money it lends, its potential earnings exceed its costs, a profitable financial move.

A risk to this strategy of investing the additional funds in lieu of a larger down payment, however, is that earning the required investment return is not guaranteed.

When thinking about making the investment decision, there are some important points to consider.

• What kind of investor are you?
  Investors should have the appropriate risk tolerance and willingness to invest in a portfolio of different asset categories that may provide the opportunity to earn their required rate of return long-term. For very conservative investors it may be more difficult for their portfolios to outperform the mortgage interest costs. (It may be especially difficult if the mortgage interest rates are higher than historical averages)
  

• Following your investment strategy also takes discipline over the long-term.
  It can be challenging to avoid some of the emotional buying and selling decisions that in hindsight can lead to under-performance, and to keep your investments invested.
  

• How do you handle debt?
  If the mortgage without the larger down payment is not a burden to your cash flow and you have been successful in limiting other forms of consumer debt, this strategy may fit. If you are prone to getting overextended or have a large part of your budget allocated to paying off debt, reducing your potential mortgage debt may be the appropriate option.

As you can see, many factors can play into the down payment decision depending on your own unique circumstances and values.  As always, consult your planner when considering these financial moves.  We are here to look at the big picture to help you make confident decisions.

Robert Ingram is a Financial Planner at Center for Financial Planning, Inc.®

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Any opinions are those of Bob Ingram and not necessarily those of Raymond James or RJFS. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Asset allocation and diversification do not ensure a profit or protect against a loss. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Raymond James Financial Services does not provide advice on tax, legal or mortgage issues. These matters should be discussed with an appropriate professional.

Tax Reform Series: Changes to Federal Income Tax Brackets

Contributed by: Robert Ingram

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

The TCJA brings many changes to both corporate and individual tax laws in 2018.  You may be asking yourself, “what do these changes mean for me?” A good place to start may be with the new personal income tax brackets.

How tax brackets work

When calculating our Federal tax liability on regular income, we apply a tax rate schedule to our taxable income. The taxable income is a filer’s income after any adjustments and exclusions (adjusted gross income) and after subtracting applicable deductions and exemptions. Specific rates are then charged on different ranges of income (tax brackets) as determined by tax filing status. Currently, in 2017 there are 7 brackets where the rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The tax bracket structures and how the taxes would be assessed for two of the most common filings statuses (single and married filing joint returns) are as follows:

Current 2017 Individual & Married Tax Brackets

Under the current 2017 tax brackets, for example, a married couple filing jointly with taxable income of $150,000 would have the first portion of their income up to $18,650 taxed at 10%.  The amount from $18,651 up to $75,900 would be taxed at 15% and then the remaining amount of their income from $75,901 up to the $150,000 would be taxed at 25%.

What is changing?

While the House of Representatives’ original tax reform proposal would have consolidated the 7 brackets down to 4, the final Tax Cuts and Jobs Act retains 7 brackets but reduces the tax rates on most the brackets by a couple of percentage points and adjusts the income ranges within them.  The examples for those filing as single and for married couples filing jointly are below.

New 2018 Individual & Married Tax Brackets Under the TCJA

If the bracket rates are generally lower, does that mean my taxes will be lower?

Well, the good news is that the answer is…maybe.

If taxpayers apply the new tax rates in 2018 to the same level of taxable income they would have in 2017, many people would see a lower overall, effective tax rate on that taxable income. (Good news, right?)  However, other changes outlined in the TCJA, such as the new standard deduction amount, the elimination of the personal exemptions, and the cap on the amount of state and local taxes that are deductible could have an impact on your taxable income amount.  As a result, the actual taxes applied may or may not see as much of a reduction. 

Ultimately, how your own tax situation may change in this new tax landscape will depend on a combination of factors and decisions.  It is important to consult with your advisors.  As always, if you have any questions surrounding these changes, please don’t hesitate to reach out to our team!

Robert Ingram is a Financial Planner at Center for Financial Planning, Inc.®

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Check out our other Tax Reform articles:

Changes to Standard Deduction, Personal Exemption, Misc. Deductions, and the Child Credit

Changes to Investments and the Financial Market

Changes to State and Local Tax Deduction

Changes to Mortgage Interest Deduction (including Home Equity Loans and LOC Implications)

Changes to Estate Tax Planning in 2018 and Beyond

Changes to Charitable Giving and Deductions

Changes to Medical Deductions

Changes to Business & Corporate Tax, and Pass-Through Entities

This information and all sources have been deemed to be reliable but its accuracy and completeness cannot be guaranteed. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax matters. Tax matters should be discussed with the appropriate professional.