Wednesday’s need-to-know money news

money-down-the-drainToday’s top story: Home improvements that don’t pay off in the long run. Also in the news: How to build a budget, easy ways to vet financial aid offers, and how to lay the financial groundwork for a career change.

4 Home Improvements That Don’t Pay (and 4 Better Options)
How to avoid turning your home into a money pit.

How to Build a Budget
Step by step.

Three Easy Ways to Vet Financial Aid Offers
What to ask when deciding on offers.

How to Survive a Career Change
Laying the financial groundwork in advance.

Is Debt-Free College Really Possible?

A reader in her 70s once asked me why kids today don’t do what she did: Work for a year after high school and save up enough to pay for a bachelor’s degree.

If you just busted out laughing, then you’re familiar with how high today’s college costs are compared with five or six decades ago. Even with substantial financial aid and one heck of a work ethic, it’s hard to imagine a high school graduate earning enough in a year to pay for four (or usually five or even six) years of college. The average annual sticker price for a public university is close to $20,000, while private schools average over $40,000.

In my latest for NerdWallet, a debt-free college reality check.

Q&A: College savings strategy

Dear Liz: I will be 66 in May 2016. My wife is 68 and retired. She began receiving Social Security when she turned 66. I am still working, making a high six-figure income, and will continue to do so until I reach 70, when my Social Security benefit reaches its maximum. I plan to use my Social Security earnings to save for my grandchildren’s college educations (unless an emergency occurs and we need the income). I want to maximize the amount that I can give them. What is the best strategy, taking into consideration the recent change in Social Security rules relating to “claim now, claim more later”?

Answer: You just missed the April 29 cutoff for being able to “file and suspend.” Before the rules changed, you could have filed your application at full retirement age (66) and immediately suspended it. That would allow your benefit to continue growing while giving you the option to change your mind and get a lump-sum payout dating back to your application date.

Since Congress did away with file-and-suspend for people who turn 66 after April 30, that option is off the table for you. There are other ways to maximize your household benefit, said economist Laurence Kotlikoff, author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” They include:

•Your wife suspends her benefit and lets it grow for another two years, then restarts getting checks when she turns 70.

•At 66, you file for a spousal benefit. People who are 62 or older by the end of this year retain the ability to file a “restricted application” for spousal benefits only once they turn 66. That option is not available to younger people, who will be given the larger of their spousal benefits or their own benefits when they apply.

•At 70, you switch to your own, maxed-out benefit. Again, the ability to switch from spousal to one’s own benefit is going away, but you still have the option to do this.

Consider saving in a 529 college savings plan, which offers tax advantages while allowing you to retain control of the money. You can even withdraw the money for your own use if necessary, although you would pay income taxes and a 10% federal penalty on any earnings.

You should know, however, that college-savings plans owned by grandparents can mess with financial aid. Plans owned by grandparents aren’t factored into initial financial aid calculations, but any disbursements are counted as income that can negatively affect future awards. One workaround is to wait until Jan. 1 of the child’s junior year, when financial aid forms will no longer be a consideration, and pay for all qualified education expenses from that point on.

Obviously, you won’t have to worry about this if your grandchildren wouldn’t qualify for financial aid anyway. If your children also make six-figure incomes, that’s likely to be the case.

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: The right way to close a credit card. Also in the news: Financial tools you no longer need, determining how much college tuition you can afford, and how baby boomers can survive retirement.

What’s the Right Way to Close a Credit Card?
How you say goodbye matters.

5 Financial Tools You No Longer Need
Some of these may surprise you.

How Much Tuition Can You Really Afford?
Time for a reality check.

How Boomers Can Avoid Going Bust in Retirement
There’s still time to get your act together.

Q&A: Investing vs Saving for college tuition

Dear Liz: We recently inherited some money. We’ve never had much. We want to invest our inheritance for our kids’ college education.

We asked around to find investment firms that people have had a good experience with. But how do we know they are honest and make sound investment decisions? How do we know if the rates they are charging are fair and reasonable? (For example, one charges a percentage of the value of the account. How do I know if their rate is a fair amount?)

Answer: If you want to invest the money for college education, you don’t need to consult an advisor at all. You simply can use a 529 college savings plan. These plans allow you to invest money that grows tax-deferred and can be used tax free for qualified college expenses nationwide.

These plans are sponsored by the states and run by investment firms. You might want to stick with your own state’s plan if you get a tax break for doing so (check http://www.savingforcollege.com for the details of each plan).

If not, consider choosing one of the plans singled out by research firm Morningstar as the best in 2014: the Maryland College Investment Plan, Alaska’s T. Rowe Price College Savings Plan, the Vanguard 529 College Savings Plan in Nevada and the Utah Educational Savings Plan.

College savings plans typically offer several investment choices, but you can make it easy by choosing the “age weighted” option, which invests your contributions according to your child’s age, getting more conservative as college draws nearer.

If you still want to talk to an advisor — which isn’t a bad idea when dealing with a windfall — you’ll want to choose carefully.

Relying on friends and family isn’t necessarily the best approach. Many of the people who invested with Bernie Madoff were introduced to him by people they knew.

Most advisors aren’t crooks, but they also don’t have to put your interests ahead of their own. That means they can steer you into expensive investment products that pay them larger commissions.

If you want an advisor who puts you first, you’ll want to find one who agrees to be a fiduciary for you, and who is willing to put that in writing.

Here are three sources for fiduciary advice:

•The Financial Planning Assn. at http://www.plannersearch.org

•The Garrett Planning Network at http://www.garrettplanningnetwork.com

•The National Assn. of Personal Financial Advisors at http://www.napfa.org.

Garrett planners charge by the hour with no minimums. Expect to pay around $150 an hour.

NAPFA planners often charge a percentage of assets — typically about 1%.

FPA members charge for advice in a variety of ways, including fees, commissions and a combination of the two.

Any planner should provide you with clear information about how he or she gets paid.

You’ll want to check the advisor’s credentials as well. The gold standard for financial planners is the CFP, which stands for Certified Financial Planner.

An equivalent designation for CPAs is the PFS, which stands for Personal Financial Specialist. People with these designations have received a broad education in comprehensive financial planning, have met minimum experience requirements and agree to uphold certain ethical standards.

Each of the organizations listed above has more tips for choosing a plan on its website.

Thursday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Planning for you child’s college costs. Also in the news: How to destroy your debt in 2015, the crucial steps in setting up your first 401(k), and what you should do with your year-end bonus.

How to Plan for Your Child’s College Costs
The sooner you get started, the better.

5 Sure-Fire Ways to Start Killing Your Debt Next Year
Your debt won’t know what hit it.

3 Crucial Steps to Setting Up Your First 401(k)
Starting off on the right foot.

What to do with your year-end bonus
Don’t spend it all in one place.

Make Sure Your Retirement Savings Last With the “Bucket” Method
Filling the buckets for peace of mind.

Monday’s need-to-know money news

22856641_SAToday’stop story: For a low-cost college education, consider moving to these places. Also in the news: Celebrating your small financial victories, the hype surrounding Black Friday, and why more Americans are having a tough time making ends meet.

The Best and Worst Places to Live for a Low-Cost College Education
Planning ahead.

Celebrate Your Small Financial Wins for Better Savings Motivation
Small victories quickly add up.

5 Black Friday Deals That Aren’t (and 3 That Should Be)
Don’t believe the hype.

America’s Top Money Problem: Trying to Make Ends Meet
More Americans are living paycheck to paycheck.

Everything You Need to Know About Down Payments
When to take that giant leap.

Monday’s need-to-know money news

AA-hommeToday’s top story: How to discover what personal finance nerds know. Also in the news: How to get a judgment off of your credit report, the high cost of college tuition convenience fees, and what’s really behind all of your financial fears.

10 Things Only Personal Finance Nerds Would Understand
We could all stand to be a little nerdy when it comes to personal finance.

How to Get a Judgment off Your Credit Report
Difficult but not impossible.

Is Convenience When Paying Your Tuition Worth a 2.62% Fee?
Not when it could add up to over $1000 a year.

Common Money Fears and How to Get Over Them
What’s really behind those nagging financial fears?

Five apps to help you organize your personal finances
Something to do on your phone that isn’t Candy Crush.

Monday’s need-to-know money news

22856641_SAToday’s top story: Tax breaks that can help pay for your kid’s college. Also in the news: How to prevent bad financial decisions in old age, when it’s time to call in a financial adviser, and the surprising answer as to whether or not you should pay off your mortgage early.

Tax breaks that can help when paying for college
See what your family may qualify for.

Preventing bad decisions in old age
Preparing for the time when you’re unable to make wise decisions.

Should You Pay Off a Mortgage Early? The Answer May Surprise You!
One of the rare occasions where paying early doesn’t pay off.

When Should You Use a Financial Advisor?
At what point should you enlist help with your finances?

3 Reasons to Check Your Credit Report Today
One in nine Americans have never checked their credit report.

Monday’s need-to-know money news

Chip cardToday’s top story: How to get rewarded for being responsible with your credit cards. Also in the news: The hidden costs of a new job, tips on how to avoid credit fraud, and how you should and shouldn’t pay for college.

3 Credit Cards That Reward You for Being Responsible
Paying on time has its benefits.

5 Hidden Costs of a New Job
That new salary could cost you.

5 Common-Sense Tips to Help Avoid Credit Card Fraud, ID Theft
Protect yourself.

Making smart choices when paying for college
Using your retirement savings isn’t one of them.

7 scams that just won’t die
Microsoft isn’t calling you.