How Indecision Is Killing Your Pocketbook

One of the most common questions I receive is how to most efficiently save for education expenses. And I understand why – it’s a daunting prospect! The cost of college continues to rise, and student loan debt can plague you for decades following graduation. There is also a growing realization that college is not for everybody. How do you prepare for an expense that might not actually occur? However, it doesn’t have to be such an intimidating process. In fact, there are several effective strategies you can deploy to efficiently – and effectively – save for your child’s education expenses.

First, you need to determine how much you’ll need to save. Do you plan to cover the whole cost of school or just a portion (for instance: undergrad only, or will you cover grad school expenses for your child(ren)? Once you’ve set a number, your financial planner can assist in calculating a monthly savings rate required to work toward that goal.

The next step is deciding what type of savings account(s) to use. There are different accounts that are specifically designed to save for college, for example: 529 plans and Coverdell Education Savings Accounts. Below are some of the reasons why a 529 Plan and/or investment accounts may be a better solution.

A 529 plan allows you to contribute to an account on behalf of a named beneficiary (in this case, your child). Because the government wants to reward saving for educational expenses, contributions to 529 plans receive preferential tax treatment and are able to grow tax-deferred. You can use the money in the account to pay for qualified educational expenses, tax-free. Contributions to these accounts are also typically deductible on state tax returns. The drawback to a 529 is that the money must be used for qualified education expenses – or you will face tax penalties.

An individual/joint investment account is an account owned by yourself or jointly by you and your significant other. Money invested in this type of account does not receive preferential tax treatment; however, your money can be withdrawn for any reason without tax penalties.

Given the shifting trends in higher education, it is my belief that a combination of 529 plan contributions and individual/joint account contributions will help to save for college education. This form of education planning allows for flexibility; for instance, if your child(ren) decide(s) against traditional higher education, you won’t have to pay tax penalties on all of your education savings, as a portion of that savings is held in an individual/joint account with no restriction on how the assets are used.

While education planning is important it is only one component of a full financial plan. If you would like to talk more about education planning and its impact on your personal financial plan please contact me at zach.swaffer@trilogyfs.com

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.

There is one area of planning that gets glossed over, even by the many responsible people: long-term care planning. For so many, it is difficult to plan for something that seems so far removed from their current existence. Many also assume that their current health insurance or Medicare will cover most expenses associated with long-term care. Unfortunately, these mistakes leave them ill-prepared for the expensive reality.

As the US government estimates 70% of individuals who are currently 65 “will require some form of long-term care”.1 Therefore, this is more of an eventuality for most folks than it is a possibility. When an individual’s health starts to decline, hopefully, multiple levels have been put into place. Not only should you be concerned with who will care for you physically, you must all consider who will care for your finances.

Physical Care –The costs for long-term care can be surprising for many, with the average 65-year-old paying approximately $138,000 over his/her lifetime.2 As mentioned earlier, Medicare or private health insurance rarely covers all types and expenses of long-term care. Medicaid assistance varies by state and requires that an individual “must spend down his or her assets and meet other criteria.”3 Additionally, It is important to talk with your loved ones about long-term care options, not only about what one can afford but equally as important, what one prefers.

Ultimately, many end up paying for long-term care from their own finances – 50% according to the Bipartisan Policy Center report.4 To protect your finances and the finances of your loved ones, it is vital to prepare for these possible scenarios. There are many long-term care insurance policies that can provide you the assistance your particular situation needs. The premiums for these policies are much more affordable the younger you are. While some of these policies can get a bit confusing, a financial planner can easily go over these policies and help you determine which one would be best for your particular situation.

Financial Care – The key to financially protecting a client in declining physical or mental health lies in teamwork. The team, which consists of their financial team members (financial planner, tax professional or estate planning attorney), delegates and medical professionals. While we all continue to focus on our own particular role and duties, maintaining a professional relationship does give us the opportunity to share any concerning or unusual behavior concerning our client, as well as execute things quickly and as close to the client’s wishes as possible. Equally important is a Durable Power of Attorney (DPA), which legally allows an individual to designate someone to make financial and medical decisions on their behalf should they become mentally incapable to do so. Having these safeguards in place can save on time and hassle should health matters deteriorate and allow your delegate to focus on more pressing issues.

When so many of us pride our independence and self-reliance, declining health issues can be downright scary. I understand this well as I do my best to set my clients up for financial independence, so they can create the life they want to live. When circumstances step in and disrupt your life, it’s vital to know that you have people to rely on and safeguards to protect you.

1. https://www.usatoday.com/story/money/personalfinance/retirement/2017/11/17/retirement-planning-should-include-long-term-care-costs/866344001/

2. https://www.usatoday.com/story/money/personalfinance/retirement/2017/11/17/retirement-planning-should-include-long-term-care-costs/866344001/

3. https://www.consumerreports.org/elder-care/elder-care-and-assisted-living-who-will-care-for-you/

4. https://www.usatoday.com/story/money/personalfinance/retirement/2017/11/17/retirement-planning-should-include-long-term-care-costs/866344001/