Most depressing article of the week………….. April 23, 2012
Posted by forwardfinancialplanning1 in Education Planning, Retirement Spending.add a comment
The internet, airwaves, newspapers and magazines have plenty of content that one would find to be disturbing. A recent release by the US Federal Reserve hit me particularly hard. Their research found that Americans 60 and older still owe about $36 billion in student loans. The report stated that 10% of the loans are delinquent and consumer advocates note that it is not uncommon for Social Security checks to be garnished due to unpaid student loans.
When you combine this information with the fact that the fastest growing age segment for holding mortgage debt is 60-69 year olds, it makes one wonder if these individuals will ever be able to live without debt service hanging over their heads. Since student loans cannot be wiped out by declaring bankruptcy, the collectors will most likely harass these people all the way to their grave.
If anyone needed a reason to avoid or minimize debt buildup, this sounds like it to me. Perhaps the Baby Boomers advice for the next generations will be to “make sure you don’t follow in our foot steps.”.
No child left behind…..retirement version March 26, 2012
Posted by forwardfinancialplanning1 in Education Planning, Financial Planning.add a comment
There is no shortage of opinions on what needs to change within our nation’s schools. The desire to throw in our “two cents” came from examining the results of a recent study by the benefits consulting firm, Towers Watson. They found that only 13 companies from the 2011 Fortune 100 offered a defined benefit retirement plan to new hires. This is in contrast to the 58 companies who did so in 2000. Likewise, only 30 companies on the list maintained a db plan in 2011, down from 72 of the Fortune 100 of 2000. Thus, there’s overwhelming evidence that future workers will be required to plan, save, and invest to fund their own retirements. Yet, very little is being done in our schools to prepare students to tackle this formidable task. I suppose our society expects everyone to ”pick it up as they go along”, but virtually all current macro indicators of America’s retirement readiness are flashing red. The Baby Boomers are facing a near certainty of reduced living standards in retirement———–perhaps as good grandparents, we’ll warn the future generations. But, wouldn’t it be easier if our schools effectively prepared them?????
Pain on the collegiate front November 21, 2011
Posted by forwardfinancialplanning1 in Credit Cards, Education Planning.add a comment
While some unemployed college graduates are voicing their frustrations by joining the Occupy Wall Street protests around the country, the financial challenge of funding a college education continues to be formidable. Recently released statistics quantify the difficulty.
According to a College Board report, tuition and fees at US public universities rose 8.3% in 2010, more than doubling the general rate of inflation. Non-profit private colleges held their increase to 4.5% which appears reassuring until you consider that private university tuiton and fees now average $28,500 annually. The College Board further reports that the average public university student who graduates with debt (of course, not all students utilize loans) owes an average of $22,000, up from $15,000 a decade ago. Debt holding private college graduates fare even worse with $28,000 of loans, an increase of $11,000 in the past ten years.
According to Mark Kantrowitz, publisher of FinAid.org, federal and private student loans outstanding now approach $1 trillion and now exceed our nations’ collective credit card debts. And much like credit card debt, holders are defaulting on student loans at a substantial rate. Defaults during the first two years of the payback period reached 8.8% as of September 30, 2010. This represents the highest default rate since 1997 and is particularly problematic as student lenders (in particular, the federal government) have much greater recourse than credit card lenders when pursuing student loan repayment.
Despite these ominous statistics, the percentage of people who feel they are saving enough to cover their children’s college costs is only 16%, down from 24% in 2007 (source: Fidelity Investments Annual College Savings Indicator Study).
However, there is some encouraging news among the gloom and doom. A full 67% of parents have begun saving for college compared to only 58% five years ago. Financial advisors are having a positive impact here as 50% of those families who are saving and also use an advisor are utilizing 529 plans. Only 28% of families who have commenced savings, but without an advisor are participating in 529 plans. Section 529 plans allow for tax free account growth when proceeds are used to cover qualified secondary education expenses. Many states also provide residents with tax breaks on contributions to their 529 plans.
Now, if only the equities markets would cause these 529 accounts to grow, rather than stagnate!! Perhaps then we could have a fighting chance of keeping up with ever increasing education expenses…….
Get started early March 25, 2011
Posted by forwardfinancialplanning1 in Education Planning.add a comment
Some recent statistics from The College Board affirm the challenge that parents face in funding a child’s college education. The average annual cost for a private college rose 4.3% in 2010 to $37,000 including room and board. Average tuition at state universities increased 6.1% for residents to $16,140 and for non-residents, the 5.6% increase brought the tuition total to $28,130. The cash strapped status of most states suggests that the cost inflation at state universities will most likely continue in the future.
Expecting your kids to qualify for financial aid?? According to Mark Kantrowitz, publisher of web site FinAid.com, only one in ten students receives an award from the $3.5 billion available in private scholarships. And, the average size of that award is only $2,815. Other public sources such as Pell grants may help as well, but it’s pretty easy to see why so many graduates are buried in debt upon leaving the ivy covered walls.
So, it makes sense to take maximum advantage of tax preferences such as 529 plans and Coverdell Education Savings accounts. Unfortunately, the average college saver waits until the student is in junior high before starting to accumulate funds for this purpose. In order to get maximum help from the financial markets, parents should let the power of compound growth work in their favor for as many years as possible.
Bush Tax Cut Subtleties II January 12, 2011
Posted by forwardfinancialplanning1 in Education Planning.add a comment
Another barely noticed tax preference included in the recent extension of the Bush tax cuts deals with the Coverdell Education Savings Account (ESA). Similar to the other provisions of the Bush tax cuts, the favorable treatment of ESA’s will extend two more years to cover the 2011 and 2012 tax years.
Because of the extension, qualifying taxpayers will be able to contribute $2,000 annually (versus only $500 without the extension) to ESA’s. Also, during these two years, distributions will be tax free if used for qualifying education expenses incurred for elementary, high school or post secondary expenses. Had the ESA not been included in this recent legislation, its tax free usage would have been limited to only post secondary qualifying education expenses.
While the ESA’s relatively low annual contribution limit makes it less useful than Section 529 plans in saving for college, its flexibility overcomes some of the shortcomings of the 529 plan. For instance, the Illinois Bright Start 529 plan contains no international equity option. Nor does it include a short term bond fund. Thus, ESA funds can be contributed to these types of investments to round out the overall education fund asset allocation. Also, Section 529 plans permit only one exchange per calendar year. ESA’s do not have this restriction.
Bush tax cuts not all that’s expiring November 14, 2010
Posted by forwardfinancialplanning1 in Education Planning.add a comment
There has been a great deal of public debate about whether or not the tax cuts passed during the Bush administration should be allowed to expire as scheduled on December 31, 2010. Also expiring, but receiving far less attention, are some enhancements to Coverdell Education Savings Accounts (ESA’s). These accounts, which were originally legislated during the Clinton administration, are designed to help parents save for their children’s educations. While contributions to ESA’s are not tax-deductible, earnings on contributions are not taxed when withdrawn to pay qualified education expenses of the account beneficiary. This tax-free treatment can be very valuable for parents struggling to accumulate funds for ever-increasing education expenses. An ESA may also offer additional tax-preferenced college savings investment alternatives to parents constrained by the limited number of investment choices typically offered within Sec 529 savings plans
Unless Congress acts to extend provisions enacted under George W. Bush, the maximum allowable annual contribution will decrease from $2,000 to $500. Also, tax-free withdrawals will no longer be permitted for elementary and secondary school expenses, as the rules will revert to covering postsecondary education expenses only. The Adjusted Gross Income phase-out range in order to be eligible to make ESA contributions will decrease from $190k-$220k to $150k-$160k. Lastly, parents will no longer be able to make contributions to both an ESA and a Section 529 savings plan for the same beneficiary in the same tax year.
If these provisions are permitted to expire, it may prove to be the “death knell” for these types of accounts. In the event the Bush era rules are not extended, some financial institutions have already announced plans to discontinue offering ESA accounts to new investors.
Asking for help bears fruit August 29, 2010
Posted by forwardfinancialplanning1 in Education Planning.add a comment
Recent posts (August 2, August 15) have stressed the need for parents to accumulate college savings to avoid burdening their children with substantial debt. The fourth annual College Savings Indicator study conducted by Fidelity Investments found that the percentage of college costs that parents are projected to meet has fallen to 16% in this years survey. This is a decrease from an 18% figure in last years survey and a 24% projection from the initial survey in 2007.
More encouraging, however, is the finding that the comparable preparedness figure for parents that work with a financial advisor is 28%. In addition, 88% of parents working with advisors have started saving for college, compared with only 67% of parents who are not using advisors. So clearly, seeking the help of financial advisors is making a difference for their clients.
It’s still debt……… August 15, 2010
Posted by forwardfinancialplanning1 in Credit Cards, Education Planning, Personal Budgets.add a comment
Much has been written about the enormous revolving debt load of the American people. Of course, most of this outstanding financial obligation stems from credit cards. Much less heralded, however, has been a similar run-up of student loan debt. According to Mark Kantrowitz, publisher of Fin Aid.org, outstanding student loan debt reached $829.8 billion in June 2010—-a figure which exceeds even the comparable total of $826.5 billion for revolving credit. Mr. Kantrowitz also estimates that $300 billion of this debt has been accumulated in just the past four years.
Some might argue that student loan debt is “good” debt, in that it is purportedly used to improve one’s earning power. Further, they might argue that student loan interest is often tax deductible. Nonetheless, it is debt just the same and in most cases cannot be discharged in a bankruptcy proceeding. While it’s long been known that college graduates earn more than individuals lacking degrees, a diploma comes with no guarantee. Students and parents should weigh the pro’s and con’s thoroughly before over-indulging!!
College Savings are an imperative August 2, 2010
Posted by forwardfinancialplanning1 in Education Planning.add a comment
Many parents question the necessity of saving for their children’s college educations. They attempt to justify this practice by noting that accumulating funds for college reduces the student’s financial aid. While it is a fact that the financial aid formulas consider accumulated non-retirement funds in arriving at the Expected Family Contribution (EFC), it’s clearly a good idea to save for this financial goal. Universities proclaim they are able to meet a large percentage of a qualified student’s financial need, but it’s informative to look a bit closer at these claims.
According to the Trends in Student Aid 2009 report from the College Board, more than 50% of financial aid is in the form of loans. The average debt per borrower attending a four year college was about $22,700 in the 2006-07 school year the most recent data available. This is a 15% increase in student loan debt from the beginning of the decade and we can easily surmise that the figure has continued to rise in the second half of the decade. Getting started in life is challenging enough without the burden of huge loans to be repaid. So, unless your student is a future Rhodes scholar or Heisman Trophy winner, saving regularly for future college costs is a winning strategy.
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These sunsets aren’t romantic June 13, 2010
Posted by forwardfinancialplanning1 in Education Planning, Income Taxes.add a comment
Much has been written about the federal income tax increases that are scheduled to take place in 2011 due to the “sunset” provisions of the tax legislation passed during the Bush administration. Even more substantial tax increases will occur within the estate tax laws. While some might argue that the wealthy will be the group most negatively affected by the sunset provisions, there are some notable exceptions.
Coverdell Education Savings accounts were created to help families fund education expenses by exempting account growth from taxation. Currently, withdrawals from the accounts can be used for qualifying education expenses at all levels of schooling. However, due to sunset provisions, tax exempt distributions for expenses prior to high school graduation will no longer be allowed after December 31, 2010. Also, the maximum annual amount that can be contributed to fund these accounts will drop to $500. Many middle class families benefit from these tax preferences and they will certainly be negatively impacted when the sun sets for the last time in 2010.
