College – The Next Chapter: The Selection Process

Your Financial Future Family ties are amazing. These connections, based in DNA, history and genuine care, can prompt many to support their loved ones through times of need, be it emotional, physical and even financial. It is natural to want to support your family, but the players involved can double (or even triple or quadruple in cases of blended families), increasing the financial strain. Since these familial situations can snowball quite quickly, I urge you to focus first on your own financial independence and be sure not to let your parents and your children squeeze your financial future. While many hate to be a burden on their family, it’s actually quite common for people to financially assist other family members. According to Ameritrade’s Financial Support Study, one-fifth of Americans are Financial Supporters, meaning they provide financial support to a parent and/or an adult child.1 A survey conducted by GoBankingRates found that 63 percent of children plan to financially support their parents in some way once they retire.2 On the other end, parents are also financially supporting their grown children. Per Financial Planning OWS, 24% are helping with rent and 39% are paying cell phone bills.3

My primary advice is to always pay yourself first. Be sure to establish a healthy emergency fund and contribute to your retirement. It’s similar to what you hear on airplanes about placing the oxygen mask on yourself before placing it on others. You need to be sure that you are fiscally secure before you provide for those who are financially struggling. This is very sound, logical advice, which can be difficult to follow once emotions come into play.

Most of the decisions I see my clients struggle with are when the emotional and the financials are at odds. When your daughter wants to go to that expensive, out-of-state college that you didn’t save enough for, it’s tempting to try to make it work, whatever means necessary. Or perhaps your son is going through a costly divorce, and the only way you feel you can support him and ensure you see your grandkids is to borrow from your retirement to hire him a good lawyer. These are the moments when you need to be able to tell your child and yourself, “No”. In most cases, there are other options and alternatives in place. They may not be the dream situation, but they will still get the job done. Don’t sacrifice your future for your child’s dream, no matter how compelling. Don’t let emotions cloud good judgment.

On the other end of the spectrum, is a harsh reality. When dealing with parents who may not have planned sufficiently or are in the midst of a financial crisis, be sure that you are communicating as one adult to another. If possible, you may want to tackle those financial conversations early. Some of these difficult financial conversations with parents are tied to medical issues, so be sure to discuss before physical situations become dire.

When you find yourself in the midst of these difficult situations, please don’t forget about your support system. Your financial advisor can act as an unbiased referee in moments of disagreement or emotional struggle. They will likely remember the important financial issues that may slip your mind and will be ruled by numbers rather than nostalgia. At the moments when you need a pragmatic perspective to shine through the cloud of emotions, a trusted financial advisor can be invaluable.

In a time where many people find themselves part of the Sandwich Generation, taking on financial burdens can seem inevitable. Yet, so much can be avoided and accomplished when you act in advance. Start chatting with mom and dad while they’re still in good physical and financial health. Start saving for colleges as early as possible. When you’re proactive, you can prepare. When you’re reactive, people and finances can take a hit.

1. https://s1.q4cdn.com/959385532/files/doc_downloads/research/TDA-Financial-Support-Study-2015.pdf
2. https://www.gobankingrates.com/retirement/planning/kids-plan-financially-support-parents-retirement/
3. https://www.forbes.com/sites/carolynrosenblatt/2018/07/09/aging-parents-helping-adult-children-financially-unhealthy-results/#321bb1e2ef39

Generally, people purchase life insurance because they have a spouse or child they want to protect financially in case they pass away. But, there are several other reasons to buy life insurance that can benefit more than just those who need to protect their family. One of those benefits is accumulating tax-deferred, tax-free, cash value.  Just like a Roth IRA, the cash value in a permanent life insurance policy can grow on a tax-deferred status and be accessed tax-free, but without the consequence of incurring a 10% penalty if accessed before attaining age 59.5. “Living Benefits”, also known as “Accelerated Benefit Riders” are another advantage of life insurance other than the death benefit. As the name suggests, “living benefits” can be utilized in certain circumstances by the policy holder without passing away.

Common living benefits allow the policy holder to access all or some of the death benefit of their policy to help provide managed care if they are diagnosed with a critical or chronic illness. ABRs originated in the 80s and 90s when companies called “viaticals” found a market for purchasing life insurance policies from people that were very sick who realized they needed money now to help pay their medical bills more than their beneficiaries needed the death benefit. The insurance industry realized what was happening and started adapting policies to include Accelerated Benefit Riders to help their consumers get access to expensive medical care, outside of what health care would cover, while they were sick.

Living Benefits that are common today are terminal, chronic and critical illness or critical injury riders. It is important to talk to your advisor and read the fine print when considering different insurance policies because riders can differ significantly between insurance companies and policies. Terminal illness riders will allow the insured to accelerate a portion of their death benefit, tax-free if they are diagnosed with a terminal illness. Some companies require a diagnosis of 24 months or less to live while others require 12 months or less to live. A chronic illness rider is generally triggered when the insured has a long-term illness in which they are unable to perform two of the six “Activities of Daily Living” including eating, dressing, toileting, transferring, bathing, and maintaining continence. Some companies structure these riders to pay a large benefit upfront and some will provide a much smaller amount but spread over a long period of time. Lastly, critical illness/injury can include many things – heart attacks, stroke, cancer, brain trauma, severe burns etc. and the amount of benefit that is paid out depends on how critical the injury/illness is and how much it will affect the insured’s life span.

Because medicine and medical technology have advanced so rapidly, people are living much longer lives than they used to live. The US Census Bureau reports that at least 70% of people over age 65 will require some long-term care at some point in their lives . In 2014, the annual rate for a skilled nursing facility was $95,707 .  Because traditional, stand-alone Long-Term Care policies can be incredibly expensive, utilizing life insurance can be a great way to build assets throughout your income-earning years that are earmarked for advanced medical costs later on and can protect yourself and your loved ones from unknown health scares.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company. Withdrawals from the policy may result in the reduction of the death benefit.

1. US Census Bureau, American Community Survey 2013
2. Univita Cost of Care Survey, Feb 2014