College-&-Retirement -- #4 of 4

Taken up in this blog:

  • Social Security
Previous blogs in this series:
  • Retirement Readiness
  • Paying cash -- is it always best?
  • Parent borrowing -- it costs more than you may think
Can the federal government seize your social security benefit to satisfy delinquent education loans?
Yes, your social security benefit can be, and will be reduced in order to satisfy a delinquent education loan balance.

There is another interesting survey-based indication that, across three generations from baby-boomers to millenials, people indicate they plan to continue working in their retirement years. Fifty-percent and more say they do not look forward to idleness as part of old age. They want to work. The follow-up question is, however, do you want to have that choice, or do you want to be forced to continue working in order to make ends meet?

Social Security is not a retirement income. However, for those who plan well, that universal benefit does provide an irreducible minimum, a floor if you will, and a hedge against inflation for a diminishing nest egg as the years roll on.

A "must-know" fact for parents and grandparents who are borrowing money, or co-signing loans to help fund their children's educations, is that most of those loans are federal guaranteed. What that means is the federal government can, and will attach your assets, including your Social Security benefits in order to satisfy the debt.

Succeed Where It Counts, Inc. advises against borrowing for college, beyond the Federal Student Aid opportunity. FSA loans are limited to $27,000 over the course of undergraduate studies (that ceiling may rise by an additional $4,500 for some students). For students who earn their degrees, and who secure employment in a career-quality job, that is manageable -- in the $250-$300 per month range, depending on the interest rates.

And that brings us to another subject -- student debt and the expectation of loan forgiveness -- for our next blog.

Posted in College Planning, Retirement Planning, Wealth Creation Strategies.

College-&-Retirement -- #3 of 4

February 22, 2017
Taken up in this blog:
  • Parent borrowing
Taken up in the upcoming 4th blog:
  • Social Security
Previous blogs in this series:
  • Retirement Readiness
  • Paying cash -- is it always best?
Loans to pay for the costs of college, for many people, seem an inevitable choice. There are two, common sources of loans that involve parents and/or grandparents.
  • PLUS
  • SallieMae
PLUS is the acronym for Parent Loan for Undergraduate Students. As with the Stafford Loan program which is a loan directly to the student, PLUS is federally guaranteed with an interest rate tied to the T-Bill. For the current school year, that rate is 6.31%. The loan origination fee is 4.276%.

SallieMae loans are often co-signed by the student and parent or grandparent. Although no loan fee is charged, interest rates are variable and approach 10%.

Either way the loan is offered based on credit-worthiness, and shows on future credit reports. PLUS and SallieMae loans begin accruing interest upon disbursement. Repayment forbearance is available upon application and approval, but the interest continues to accrue and capitalizes into the balance due on the loan anniversary.

What does that look like in real life? Take a family with two children. The parents are on the hook for $50,000 for each child (either PLUS or as co-signers on SallieMae). Let's assume SallieMae offers the same 6.31% as PLUS (just to keep the math simple). After ten years the $100,000 principle plus interest = $184,392. 

Let's say those parents were 45 when they took the loans to pay for college for the kids. Had they paid that $100,000 into their retirement accounts, netting a modest 5% (five and not 6.31) per annum, by their 75th birthday they would have an additional $432,000 for those later retirement years.

That number ($432,000) is called Opportunity Cost. It is, in fact, the true cost of paying for your children's college education.

Is that really what you want to do?

Posted in College Planning, Retirement Planning, Wealth Creation Strategies.

College-&-Retirement -- #2 of 4

Taken up in this blog:
  • Paying cash -- is it always best?
Taken up in successive blogs:
  • Parent borrowing
  • Social Security
Previous blogs in this series:
  • Retirement Readiness
Few people stop to think and realize that paying cash and borrowing are, in fact, both forms of financing a purchase. Paying cash is nothing less than self-financing.
Here's a specific illustration using the Federal Student Loan program as an example.
  • Parent "I don't want my child graduating with debt. Therefore, I will pay the costs of college."
  • Stafford Loan privileges = $27,000 over four years ($5,500, $6,500, $7,500, $7,500) @ 3.76% p.a.
  • Repayment amortized over 10 years.
  • Assuming you can earn 3.76% on your money, if you pay cash and thereby give up that principle plus the accumulating, compounding interest, over 10 years you will realize a cost of $39,054. If your student takes the Stafford Loan and repays over 10 years, the sum of the repayments equals $39,054.
  • In addition, by taking advantage of the Stafford Loan, you keep control over your money; you have the cash to pay off the balance owed at any time, and your student creates a positive credit history.
  • Obviously, if you can earn more than 3.76% on your money then borrowing makes even more sense. You are leveraging your cash to create wealth.
The single most important tool in wealth creation is to take advantage of uninterrupted, compounding interest. If interest rates are favorable to borrowing, then paying cash is less advantageous than it appears on the surface.
"Debt free" is the mantra of a money talking entertainer heard on radio stations across the land. What the talk-radio host fails to disclose is this fact: there is a difference between a debt and a loan.
  • Debt = a financial obligation which is not offset by collateral of equal or greater value, and which can be discharged only from future earnings.
  • Loan = a leveraged position using collateral to retain access, use and control of your cash. A loan, balanced by collateral of equal or greater value, can be satisfied on any given day. Amortization is a tool to retain access, use and control of your cash; or to perhaps even gain wealth through more favorable rates of growth than the loan rates cost.
Remember: you finance every purchase you make. You either pay cash and lose the interest you could have earned, or you borrow at the same or lesser interest and leverage your cash position. Given the relatively low interest rates of Stafford Loans, those should be considered as an option for college expenses. We can help you with the math. 

Posted in College Planning, Retirement Planning, Wealth Creation Strategies.

College Costs -- Options for paying

$24,000 every year that's what one, state-supported university publishes as the cost to attend for residents.  Out-of-state students add another $27,000 to make it $51,000 every year.
How do you manage to pay for that?  Heard of the 529 Plan?  It takes its name from the section of the IRS Code that stipulates its requirements and advantages.  Not a bad plan, in that you deposit money from your take-home-pay (yes after you've had your taxes withheld) into an account that, from then on, will grow without tax obligations IF . . .
That is a big IF. 
  • If you do not need it for something else urgent and expensive.
  • If those education costs line up with the approved list of expenses.
  • If your children attend college and spend all of the 529 account.
  • If your plan does well in the stock market.
  • If, when you need the money, the market isn't having a major correction.
  • If you do not mind paying a hefty penalty plus the tax owed if an if happens.
Let's just say, for the sake of conversation, you dodge all of that.  There is still the small matter of once you spend the money for approved college expenses, that's it.  All gone.  Account balance zero.
You managed to save $100,000 for each child.  Each child now has a college diploma and is looking for work, getting married, sprouting your grandchildren, trying to buy a house and all of those hundreds of thousands of dollars you had scrimped and sacrificed to save poof! -- are gone.
What if, instead of filling up that college savings tank full of money, and then draining it dry, you could have collateralized those funds?
What if your children, who earned the diploma, helped pay that all back as part of their future retirement?
In other words, what if your hundreds of thousands of dollars could have kept compounding interest while you used them as collateral to pay the expenses of a college education?

Posted in College Planning, College Planning Strategies, Wealth Creation Strategies. Tagged as 529 Plan, college planning strategies, paying for college.

The 4 Year Myth -- a true story

I had planned to write more from the Complete College America's white paper, but . . .yesterday I was on the soccer field with a young man who went off to one of America's top engineering universities after his graduation from a Charlotte Mecklenburg public high school. I asked if he graduated in four years or five. "Six" was his answer. 6 -- six -- twelve semesters -- and this is a bright, responsible, industrious individual (my esteem for him, having known him for eight years or more). Another young man who was with us, and is currently a senior at an area high school, responded, "Yeah, engineering is a five-year degree, I hear."There's a problem (my opinion) when students enter college with a defined notion that 4 years to a degree is unrealistic. I promise you, the university in question lays out a four year program. Why didn't my friend, therefore, complete his degree in the prescribed four years (eight semesters)? Uncertainty as to his major upon entering

Required classes that filled up and forced his hand to wait until subsequent semesters

Too many electives

A decision ahead of time that he would not, could not and, therefore, will not finish in four.

The young adult I reference is no slouch. He just bought into the story line that "it doesn't make a difference how long it takes, just so long as you earn your degree."Here's what it cost him: Grants-in-aid (aka scholarships) are, at most, offered over four years, and no more.

Federal Direct Loans are generally maxed out after four years @ $27,000.

Two years of missed employment. He is working, now, for a good firm and earning better than $50,000 annually. Times two means lost income of more than $100,000;

plus additional education costs of around $20,000 per year (for the specific university he attended) = $40,000.

That is a net minus of <$140,000> those extra semesters cost him. And Read more

Posted in College Planning, Wealth Creation Strategies.

Your best interests are my first concern

It is true that we live in a caveat emptor world. That means, "Buyer - beware!" I always advise my clients to understand thoroughly my process and recommendations. At any point along the way, your questions are relevant and of great importance; always ask your question. In addition to that, I strive to raise your level of confidence in me to a point where you can sleep at night after following my process and advice.As part of that I am required to complete 24 hours of Continuing Education (minimum) bi-annually. (In fact, I am working on that this month; which is what prompted me to write this.) Above and beyond that I participate in weekly training, review and education; plus I attend conferences for multi-day training and education at least 4 times per year, every year.It does not make me perfect. It does, hopefully, lend credibility and trustworthiness to my processes and services in your eyes -- the only ones, in the final analysis, that matter. Read more

Posted in College Planning Strategies, Retirement Planning, Wealth Creation Strategies.

How can you achieve growth and protect your principle? advocate balance. Discuss equities and risk with your investment advisor. Discuss with us alternative positions. Achieve balance, while still experiencing growth and the potential to leverage a cash position. Read more

Posted in Retirement Planning, Wealth Creation Strategies.

Your Greatest Financial Asset

We all have one great financial asset -- T I M E. Uninterrupted compounding of our money at interest, given enough time, will create substantial wealth.Uninterrupted compounding at interest -- there is a lot packed into that short phrase. First, placing your dollars in an account that earns a competitive rate of interest, with a minimal risk of loss is the due diligence every wise person follows.Second, the dollars must be left there to compound at interest. It has been said that compounding of interest remains, without rival, the single, most effective strategy to create wealth.Third, that compounding must be uninterrupted. The single greatest mistake in wealth creation is interrupting compounding by "draining the tank." For example, saving money to pay cash for the next automobile is a great idea. It remains great until you withdraw the money to make your purchase. After that, you must start all over again.The question naturally arises, "Well, if I save my money and never spend it, what's the point?" The question is important and the answer is this: collateralize your money, rather than spend it. Keep it gorwing over the longest possible period of time and you will create significant wealth.Time is the difference-maker. Dollars saved in a compounding account, uninterrupted, given enough time, will make you wealthy. Read more

Posted in Retirement Planning, Wealth Creation Strategies.

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