Positioning Your Income/Assets to Enhance Financial Aid Eligibility

Positioning Your Income/Assets to Enhance Financial Aid Eligibility

Presented by Jared Daniel of Wealth Guardian Group

What does it mean to enhance your financial aid eligibility?

If you qualify for federal financial aid, there are a number of strategies you can try to implement to enhance the amount of aid your child will receive when you apply for financial aid. The idea is to lower your expected family contribution (EFC), which in turn raises your child's aid eligibility. Although some of these strategies can be employed as late as the base year--the year prior to the year you fill out the Free Application for Federal Student Aid form (FAFSA)--others can be implemented years before your child will be starting college.

It is important to note that these strategies are perfectly legal and are not in any way meant to undermine the federal financial aid process. These strategies simply examine the federal methodology and take advantage of its rules regarding which family assets and income are included in determining a student's financial aid eligibility.

Strengths

You increase your child's eligibility for federal financial aid

By implementing strategies that lower your assessable income and assets under the federal formula for financial aid, you decrease the amount of money your family is expected to contribute to college costs. A decrease in your EFC, in turn, means your child will be eligible for more financial aid. This translates into less current out-of-pocket costs for you.

You may reap incidental financial benefits that are important to you

By implementing certain strategies tailored to the federal methodology for financial aid, you not only increase your child's aid eligibility but also may place yourself in a better financial position. For instance, by paying down your mortgage, you not only increase your child's federal aid eligibility because home equity is not counted as an asset under the federal formula, but you also benefit by saving on mortgage interest and owning your home sooner.

Tradeoffs

Colleges don't use the same formula as the federal government in determining aid eligibility

The primary drawback of implementing specific strategies to take full advantage of federal financial aid is that you increase your chances for aid under the federal system only. Colleges have their own formula for determining which students are most deserving of campus-based aid, and this formula may not recognize a strategy that is successful under the federal methodology. For instance, under the federal methodology, the federal government does not consider your home equity in calculating your total assets. However, most colleges do consider home equity in determining a family's ability to contribute to college costs, and some may even expect parents to borrow against it.

The increased financial aid may consist entirely of loans

If you are successful at reducing your total income and assets under the federal methodology and thus increasing your child's financial aid package, there is no guarantee that a portion of the increased aid package will consist of grants or scholarships (which do not have to be paid back). Instead, your child's additional aid package could consist entirely of loans that will need to be paid back by you or your child.

You may not want to disrupt an otherwise sound investment program

It is generally not a good idea to drastically change your overall financial planning scheme for financial aid reasons only. Ideally, any changes you make should be in line with your overall financial planning picture.

Strategies to reduce available income

There are a number of steps you can take to reduce your adjusted gross income (AGI) under the federal methodology for determining financial aid. The lower your AGI, the less money you will be expected to contribute toward college costs and the higher your child's aid eligibility.

Tip:     Remember, you apply for financial aid each year. Thus you should consider the following strategies for each of the years you will be applying for aid, not just for the initial application.

Time the receipt of discretionary income to avoid the base year

Your income in the base year will directly affect your child's financial aid eligibility in the following year. Although it is highly unlikely you will be able to defer your weekly (or monthly) paycheck, it may be possible to defer other types of discretionary income beyond the base year. For example, if possible, you should try to:

·         Defer receiving employment bonuses until after December 31 of the base year.

·         Avoid selling investments that will have taxable capital gains or interest, such as mutual funds, stocks, or savings bonds, until after December 31 of the base year. To avoid taking an untimely distribution from an investment that is earning a favorable rate of return, use the investment as collateral for a low-interest loan instead.

·         Sell investments that can be taken at a loss during the base year, as long as the investments are not expected to recover.

·         Avoid pension and IRA distributions in the base year.

·         If you are on an expense account, ask your employer to reimburse you directly so that any reimbursement amounts do not artificially inflate your income.

Pay all federal and state income taxes due during the base year

This strategy is advantageous for two reasons: It reduces the amount of available cash on hand, and you can deduct the total amount of federal and state taxes you pay during the base year on the FAFSA.

Leverage student income protection allowance

For the academic year 2014/2015, the first $6,260 of income a student earns is not considered in determining a child's total income. This is known as the student's income protection allowance. However, everything a student earns beyond the allowance is assessed at 50 percent for financial aid purposes. In other words, the federal government expects your child to contribute 50 percent of all income earned over the allowance (after taxes).

To avoid this result, parents may want to consider having their children perform volunteer work once their kids reach the allowance limit. However, some children may balk at this suggestion because they want a job to earn extra spending money.

Strategies to reduce available assets

There are a number of steps you can take to reduce the amount of assets that will be included under the federal methodology. Under this formula, the federal government includes some assets and excludes others in arriving at your family's total assets. The lower your assessable assets, the less money you will be expected to contribute toward college costs and the higher your child's aid eligibility.

It is important to remember that the relevant date for determining whether you own a particular asset is the date that you submit the FAFSA. Consequently, the following strategies can be implemented up to the time you complete the FAFSA.

Use cash to pay down consumer debt

The federal methodology does not care about the amount of consumer debt you may have. So if you have $10,000 in assets and $10,000 worth of consumer debts, the federal government still lists your total assets as $10,000. When you use available cash to pay down consumer debt, you reduce the amount of your cash on hand.

Tip:     It is usually a good idea to retain three to six months worth of liquid assets for emergencies.

Use cash to make large purchases

Another strategy to reduce cash on hand (an assessable asset) is to make large planned purchases the year before your child begins college. Such items may include a car, furniture, or the like for parents and a car (second-hand, of course), computer, or the like for students. Remember, the idea is not to go out and spend the money on anything; the purchase should have been previously planned.

Increase home equity

The federal methodology does not count home equity as an asset in determining your child's financial aid eligibility. So using assessable assets to pay down the mortgage on your home is one way to reduce these assets and benefit yourself at the same time.

Caution:         Although the federal government does not include home equity in determining a family's total assets, most private colleges do include home equity in deciding which students are most deserving of campus-based aid. In addition, some colleges may expect parents to borrow against the equity in their homes to help finance their child's college education.

Leverage parents' asset protection allowance

Once the parents' assessable assets are totaled, the federal methodology grants parents an asset protection allowance, which enables them to exclude a certain portion of their assets from consideration. The amount of the asset protection allowance varies depending on the age of the older parent at the time the child applies for aid (the idea being the closer the parents are to retirement age, the larger the asset protection allowance). For example, if parents are married and the older parent is 48 when the child applies for financial aid, the asset protection allowance is $33,000 for the 2014/2015 academic year.

Once parents determine what their asset protection allowance will be, one strategy is to consider saving an equal amount of money in assets that are counted under the federal methodology. Then, any savings above this amount can be shifted to assets that are excluded by the federal methodology, such as home equity, retirement plans, cash value life insurance, and annuities.

Use student's assets for the first year

Under the federal methodology for financial aid, the federal government expects a child to contribute 20 percent of his or her assets each year to college costs, whereas parents are expected to contribute a maximum of 5.6 percent of their assets. If assets have been accumulated in a child's name, parents may want to consider using these assets to pay for the first year of college. By reducing the child's assets in the first year, the family will likely increase its chances to qualify for more financial aid in subsequent years.

Jared Daniel may be reached at www.WealthGuardianGroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Social Security and Retirement Income: a Primer

Social Security Retirement Income: a Primer

Presented by Jared Daniel of Wealth Guardian Group

What role does Social Security play in your retirement income strategy?

As you near retirement, it's likely you'll have many questions about Social Security. How much will your retirement benefit be? When should you apply? Will earnings from a part-time job affect your benefit? Social Security has always been a major source of income for many retirees, but with fewer companies offering traditional pensions, Social Security is playing an even more important role in retirement income planning. Not only can Social Security help protect you against risks that retirees often face, including longevity risk (the risk of outliving your retirement income) and inflation risk (the risk that your income won't keep up with the rising cost of living), but it also offers built-in benefits for your family members and survivors.

When planning your retirement income strategy, you should be aware of three advantages that Social Security offers:

A steady stream of lifetime income

Social Security provides a steady source of retirement income that you can't outlive. Although you may not be able to rely on Social Security as the sole source of your retirement income, your benefit can serve as the foundation of your retirement income plan.

Annual inflation adjustments

Your Social Security benefit provides some protection against inflation risk. Your benefit is subject to automatic annual cost-of-living adjustments (COLAs) that will increase the amount you receive by a certain percentage each year to help offset the effects of inflation.

Benefits for eligible family members and survivors

After you retire, certain members of your family may also be eligible for benefits based on your Social Security record, which may increase your household income. They may receive continuing income from survivor's benefits upon your death as well. Eligible family members may include your spouse, your minor children, and your dependent parents. The amount they receive will depend on your earnings and other factors.

How much will you receive?

Your Social Security retirement benefit is based on the number of years you've been working and the amount you've earned. When you become entitled to retirement benefits, the Social Security Administration (SSA) calculates your primary insurance amount (PIA), upon which your retirement benefit will be based, using a formula that takes into account your 35 highest earnings years.

Your age at the time you begin receiving Social Security also affects your retirement benefit. If you were born in 1943 or later your full retirement age is 66 to 67, depending on your year of birth. Electing to receive benefits before your full retirement age (you can receive benefits as early as age 62) will result in a lower benefit than if you had waited until full retirement age to begin receiving Social Security. If you delay receiving benefits past your full retirement age, you can receive delayed retirement credits that will increase your benefit by a certain percentage for every month you wait, up until age 70.

Receiving benefits at full retirement age

At full retirement age, you will be eligible for full Social Security benefits (100 percent of your PIA), provided that you have worked in a job covered by Social Security and meet other eligibility requirements. Your full retirement age depends upon the year in which you were born.

If you were born in:	Your full retirement age is:
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

Tip:     If you were born on January 1st of any year, the full retirement age for the previous year applies.

Receiving benefits earlier than full retirement age

The minimum age at which you can retire and receive Social Security retirement benefits is currently 62. At age 62, you will be eligible for reduced retirement benefits based on a percentage of your PIA, provided that you are fully insured. Your retirement benefit will be reduced by 5/9ths of 1 percent (or 0.55556 percent) for every month between your retirement date and normal retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. This reduction is permanent; when you reach full retirement age, you will not be eligible for a benefit increase. However, it may still make sense to receive benefits early, because you may receive benefits over a longer period of time.

Example(s):   Mimi decides to begin collecting her Social Security benefit at age 62, five years before her full retirement age of 67. As a result, she will receive 30 percent less per month than if she had waited until her full retirement age. However, she will receive 60 more benefit checks than if she had waited until full retirement age.

Receiving benefits later than full retirement age

You will permanently increase your retirement benefit for each month that you delay receiving Social Security retirement benefits past your full retirement age. Your benefit will increase by a predetermined percentage for each month you delay retirement up to the maximum age of 70. The following chart shows the relationship between the year you were born and the delayed retirement credit you will be eligible to receive if you decide to work past normal retirement age.

Year you were born	Monthly percentage	Yearly percentage
1937-1938	13/24 of 1 percent	6.5 percent
1939-1940	7/12 of 1 percent	7 percent
1941-1942	5/8 of 1 percent	7.5 percent
1943 or later	2/3 of 1 percent	8 percent

Example(s):   Robert, who was born in 1950, will receive a $1,000 monthly retirement benefit at age 66. He decides to delay collecting Social Security until age 70, four years after his full retirement age of 66. At age 70, his retirement benefit will be $1,320, which is 32 percent higher than it would be if he had collected benefits at his full retirement age.

Tip:     You can estimate your benefits under current law by using the benefit calculators available on the Social Security website. You can also sign up to view your online Social Security Statement there. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor's, and disability benefits, along with other information about Social Security that may help you  plan for retirement. If you haven't registered for an online account and are not yet receiving benefits, you'll receive a statement in the mail every five years, from age 25 to age 60, and then annually thereafter.

When should you begin receiving Social Security benefits?

Should you begin receiving Social Security benefits early, or should you opt to wait until full retirement age or even longer? Obviously, if you need the money right away, your decision is clear cut. But otherwise, there's no ''right" time to begin receiving Social Security benefits; it depends on your personal circumstances, and there are many variables. Here are some questions that can help you make your decision.

Are you planning to work?

It may be advantageous to work as long as possible if you want to increase your Social Security retirement benefit because your PIA will be recalculated annually if you have had any new earnings that might result in a higher benefit.

However, although you can work and still receive Social Security, if you're under full retirement age, wages you earn as an employee (or net earnings from self-employment income) may reduce your retirement benefit. If you're under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($15,720 in 2015). A higher earnings limit applies in the year you reach full retirement age, and the calculation is different, too--$1 in benefits will be withheld for every $3 you earn over $41,880 (in 2015).

If your earnings will be high enough to affect your Social Security benefit, you may want to consider waiting until full retirement age to begin receiving benefits, because once you reach full retirement age, you can earn as much as you want, and your benefit won't be affected.

Tip:     The benefit reduction is based on your annual earnings and is not permanent; your monthly benefit is reduced starting in January of the year following the year you had excess earnings and will be reduced until the excess earnings are used up. Additionally, if your monthly benefit is reduced in the short term due to your earnings, you'll receive a higher monthly benefit later. That's because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

Will Social Security be around when you need it?

You've probably heard media reports about the worrisome financial condition of Social Security, but how heavily should you weigh this information when deciding when to begin receiving benefits? While it's very likely that some changes will be made to Social Security (e.g., payroll taxes may increase or benefits may be reduced by a certain percentage), there's no need to base your decision on this information alone. Although no one knows for certain what will happen, if you're within a few years of retirement, it's probable that you'll receive the benefits you've been expecting all along. If you're still a long way from retirement, it may be wise to consider various scenarios when planning for Social Security income, but keep in mind that there's been no proposal to eliminate Social Security.

How long will retirement last?

Retirees must make sure that they have enough income to last for a lifetime. But how many years will that be? You can never know for sure, but you can make an educated guess by using calculators or tables to calculate your life expectancy, then factoring in that information when deciding when to take your Social Security benefits. You'll also want to consider your current health and your family health history when deciding when to take your Social Security benefits. For example, if you have a serious health condition, you may decide to take benefits earlier. On the other hand, if you can reasonably expect to live well into your 80s or 90s, you may decide to delay receiving Social Security benefits so that you can increase your retirement benefit, and boost the odds that you'll have enough income for the years ahead.

Calculating your "break-even" age can help you compare the long-term financial consequences of starting benefits at one age versus another. Your break-even age is the age at which the total accumulated value of your retirement benefits taken at one age equals the value of your benefits taken at a second age. Although many factors can affect this number, you'll generally reach your break-even age about 12 years from your full retirement age if taxes and inflation aren't accounted for. For example, if you begin receiving benefits at age 62, and  your full retirement age is 66, you will generally reach your break-even age at 78. This calculation may vary by one to three years, depending on what factors are used.

However, unless you're able to invest your benefits rather than use them for living expenses, your break-even age is probably not the most important part of the equation. For many people, what really counts is how much they'll receive each month, rather than how much they'll accumulate over many years.

How will your spouse be affected?

If you're married, you and your spouse should consider how Social Security will affect your joint retirement plan. Are you both eligible for benefits? How much will you each receive? What are your combined life expectancies and break-even ages? These variables can affect the decisions you make regarding your Social Security benefits.

For example, the age at which you begin receiving benefits may significantly affect the amount of lifetime income your spouse or surviving spouse may receive. If your spouse has never worked outside the home or in a job covered by Social Security, or has worked but doesn't qualify for a retirement benefit higher than yours based on his or her own work record, he or she may be able to receive a spousal retirement benefit based on your work record. At full retirement age, your spouse may be entitled to receive 50 percent of your full retirement benefit amount, and will generally be eligible for a survivor's benefit equal to 100 percent of your benefit upon your death. If you're the primary wage earner, it may make sense for you to delay receiving benefits, because the larger your benefit, the larger benefit your spouse may receive, both before and after your death. If your spouse's life expectancy is much longer than yours, this can be an especially important consideration.

However, your spouse can't file for spousal benefits based on your earnings record until you reach full retirement age and file for benefits. One alternative you might consider is to "file and suspend." You apply for Social Security benefits, then request to have your benefit payments suspended. Your spouse can then file for spousal benefits, and you can accrue delayed retirement credits (up until age 70).

What is the impact on your overall retirement income plan?

Any decisions you make regarding Social Security income should take into account other potential sources of retirement income, and your overall retirement income plan. For example, you may need to determine whether it's wise to take early Social Security benefits so that you can delay withdrawing funds from tax-advantaged investments (e.g., 401(k) plans, 403(b) plans, or traditional IRAs), allowing them to continue to accumulate tax deferred. If you're eligible for pension benefits, you'll need to consider how Social Security impacts that income. For example, pension benefits from a job not covered by Social Security may be reduced (offset) by any Social Security income you receive.

Another major consideration is your tax situation. If the only income you had during the year was Social Security income, then your benefit generally won't be taxable. However, other income you receive during the same year (generally earned income or substantial investment income) may trigger taxation of part of your Social Security benefit. It's important to look at how other sources of income are taxed and how your overall tax liability might be affected when considering when to take your Social Security benefits.

Caution:         The rules surrounding taxation of Social Security benefits are complex. The IRS has a worksheet you can use to determine whether or not your Social Security benefits are taxable. You can find this worksheet and more information about the taxation of Social Security benefits in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

How do you apply for Social Security benefits?

According to the SSA, you should apply for Social Security benefits approximately three months before your retirement date. No matter when you apply for Social Security, you'll be eligible for Medicare at age 65, so make sure you contact the SSA three months before you turn 65 even if you plan to retire later. To apply for Social Security benefits, you can fill out an application on the SSA website, or call or visit your local Social Security office. You can also call the SSA at (800) 772-1213 to discuss your options or to get more information about the application process.

Jared Daniel may be reached at www.WealthGuardianGroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Will You Outlive Your Money?

Will You Outlive Your Money?

Presented by Jared Daniel of Wealth Guardian Group

Will you outlive your money?

Before you retire, take the time to figure out just how much money you'll need for retirement. One of the biggest concerns for retirees is whether their retirement savings will last the rest of their lives-- will they run out of money? Social Security is not the guaranteed source of retirement income it once was, and people generally don't want to depend on public assistance or their children during their retirement years. Whether you might run out of money hinges upon several factors; how much money you've saved, how long you need your savings to last, and how quickly you spend your money, to name a few. You'll be better off if you can tackle these issues before retirement by maximizing your retirement nest egg. But, if you are entering retirement and you still have concerns about making your savings last, there are several steps you can take even at this late date. The following are tips and ideas to help make sure you don't outlive your money.

Tips to help make your savings last longer

You may be able to stretch your retirement savings by adjusting your spending habits. You might be able to get by with only minor changes to your spending habits, but if your retirement savings are far below your projected needs, drastic changes may be necessary. Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return.

Make major changes to your spending patterns

If you have major concerns about running out of money, you may need to change your spending patterns drastically in order to make your savings last. The following are some suggested changes you may choose to implement:

·         Consolidate any outstanding loans to reduce your interest rate or monthly payment. Consider using home equity financing for this purpose.

·         If your home mortgage is paid in full, weigh the pros and cons of a reverse mortgage to increase your cash flow.

·         Reduce your housing expenses by moving to a less expensive home or apartment.

·         If you are still paying off your home mortgage, consider refinancing your mortgage if interest rates have dropped since you took the loan.

·         Sell your second car, especially if it is only used occasionally.

·         Shop around for less expensive insurance. You'd be amazed how much you can save in a year (and even more over a period of years) by switching to insurance policies that have lower premiums, but that still provide the coverage you need. Life and health insurance are the two areas where you probably stand to save the most, since premiums can go up dramatically with age and declining health. Consult your insurance professional.

·         Have your child enroll in or transfer to a less expensive college (a state university as opposed to a private one, for example). This can be a particularly good idea if the cheaper college has a strong reputation and can provide a quality education. You could save significantly over the course of just two or three years.

Make minor changes to your spending patterns

Minor changes can also make a difference. You'd be surprised how quickly your savings add up when you implement a written budget and make several small changes to your spending patterns. If you have only minor concerns about making your retirement savings last, small changes to your spending habits may be enough to correct this problem. The following are several ideas you might consider when adjusting your spending patterns:

·         Buy only the auto and homeowners insurance you really need. For example, consider canceling collision insurance on an older vehicle and self-insure instead. This may not save you a bundle, but every little bit helps. Of course, if you do have an accident, the amount you saved on your premium could be wiped out very quickly.

·         Shop for the best interest rate whenever you need a loan.

·         Switch to a lower interest credit card. Transfer your balances from higher interest cards and then cancel the old accounts.

·         Eat dinner at home, and carry "brown-bag" lunches instead of eating out.

·         Consider buying a well-maintained used car instead of a new car.

·         Subscribe to the magazines and newspapers you read instead of paying full price at the newsstand.

·         Where possible, cut down on utility costs and other household expenses.

·         Get books and movies from your local library instead of buying or renting them.

·         Plan your expenditures and avoid impulse buying.

Manage IRA distributions carefully

If you're trying to stretch your savings, you'll want to withdraw money from your IRA as slowly as possible. Not only will this conserve the principal balance, but it will also give your IRA funds the opportunity to continue growing tax deferred during your retirement years. However, bear in mind that you must start taking required minimum distributions (RMDs) from traditional IRAs (but not Roth IRAs) after age 70½.

Use caution when spending down your investment principal

Don't assume you'll be able to live on the earnings from your investment portfolio and your retirement account for the rest of your life. At some point, you will probably have to start drawing on the principal. You'll want to be careful not to spend too much too soon. This can be a great temptation particularly early in your retirement, because the tendency is to travel extensively and buy the things you couldn't afford during your working years. A good guideline is to make sure you don't spend more than 5 percent of your principal during the first five years of retirement. If you whittle away your principal too quickly, you won't be able to earn enough on the remaining principal to carry you through the later years.

Portfolio review

Your investment portfolio will likely be one of your major sources of retirement income. As such, it is important to make sure that your level of risk, your choice of investment vehicles, and your asset allocation are appropriate considering your long-term objectives. While you don't want to lose your investment principal, you also don't want to lose out to inflation. A review of your investment portfolio is essential in determining whether your money will last.

Continue to invest for growth

Traditional wisdom holds that retirees should value the safety of their principal above all else. For this reason, some people totally shift their investment portfolio to fixed-income investments, such as bonds and money market accounts, as they approach retirement. The problem with this approach is that it completely ignores the effects of inflation. You will actually lose money if the return on your investments does not keep up with inflation. The allocation of your portfolio should generally become progressively more conservative as you grow older, but it is wise to consider maintaining at least a portion of your portfolio in growth investments. Many financial professionals recommend that you follow this simple rule of thumb: The percentage of stocks or stock mutual funds in your portfolio should equal approximately 100 percent minus your age. So, for example, at age 60 your portfolio should contain 40 percent stocks and stock funds (100% - 60% = 40%). Obviously, you should adjust this rule according to your risk tolerance and other personal factors.

Basic rules of investment still apply during retirement

Although you will undoubtedly make changes to your investment portfolio as you reach retirement age, you should still bear in mind the basic rules of investing. Diversification and asset allocation remain important as you make the transition from accumulation to utilization.

Laddering investments

Laddering investments is a method of controlling your investments to avoid having them all mature at the same time. The principle of laddering is simple: Stagger the maturity dates of the associated deposits or investments so that they mature in different time periods. You can apply laddering to any type of deposit, loan, or security having a specified maturity date, such as bonds.

Laddering can reduce interest rate risk

Interest rates rise and fall in response to many factors. Consequently, they are largely unpredictable. Whether you apply laddering to a cash reserve or use it in portfolio investing, minimizing interest rate risk is one of its most important benefits. Laddering investments minimizes interest rate risk because you will be investing at various times and under various interest rates. Thus, you are unlikely to be consistently locked into lower-than-market interest rates.

A single large deposit or investment that matures during an interest rate slump will leave you with two undesirable choices regarding reinvestment. You can hold the money in a low-interest savings account until rates improve or roll it over at the now low rate. However, a later rebound of interest rates can catch you locked into the prior low rate for an extended period. Breaking your investment into smaller pieces and laddering maturity dates allows you to avoid this situation.

How do you do it?

When you first begin your laddering strategy, you will need to acquire several term deposits (e.g., certificates of deposit) or securities with specified maturity dates. Initially, your individual investments should have terms of varying lengths, and you should intend to hold them until maturity. This will set up your staggered maturity dates. For example, you might purchase three separate certificates of deposit--one with a three-month term, one with a six-month term, and one with a nine-month term. When you reinvest as your CDs mature, your new investments should each be of the same length to perpetuate the staggering, or laddering, of maturity dates. Keep your laddering strategy intact by promptly redepositing each maturing investment for a new term.

Long-term care insurance

A catastrophic injury or debilitating disease that requires you to enter a nursing home can destroy your best-laid financial plans. You will need to decide whether to take out a long-term care insurance policy that may cover nursing home care, home health care, adult day care, respite care, and residential care. If you decide to purchase such a policy, you'll need to choose the best time to do so. Typically, unless you have a chronic condition that makes you more likely to require long-term care, there is generally no reason to begin thinking about this issue before age 50. Usually, there is no reason to purchase such a policy before age 60.

Won't Medicare pay for any long-term care expenses you might incur?

Contrary to popular belief, Medicare will not pay for most long-term care expenses, and neither will any health insurance you may have through your employer. Medicare benefits are only available if you enter a nursing home within 30 days after a hospital stay of three days or more. Even then, Medicare typically will only provide full coverage for 20 days of skilled nursing home care in Medicare-approved facilities. After 20 days, Medicare will cover part of the cost of care. You will pay $157.50 per day in 2015, and Medicare will cover the rest through day 100. No further coverage is available after 100 days.

What about Medicaid?

Medicaid is sponsored jointly by federal and state governments. Each state's Medicaid program is required to provide certain minimum medical benefits to qualified persons, including inpatient hospital services, nursing home care, and physicians' services. States also have the option of providing additional services. All states require proof of financial need. However, each state has different rules regarding benefits and eligibility, so it is essential that you understand your state's Medicaid program before you decide that Medicaid will provide adequate long-term care coverage.

How much does long-term care insurance cost?

Unfortunately, long-term care insurance can be quite expensive. If you begin coverage when you are younger, premiums will be more reasonable, but you will likely be paying for the insurance for a much longer period of time. The cost of LTCI will vary depending on your age, the benefits, and the insurer you choose.

Jared Daniel may be reached at www.WealthGuardianGroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Teaching Your Child About Money

Teaching Your Child about Money

Presented by Jared Daniel of Wealth Guardian Group

Ask your five-year old where money comes from, and the answer you'll probably get is "From a machine!" Even though children don't always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely. The simple lessons you teach today will give your child a solid foundation for making a lifetime of financial decisions.

Lesson 1: Learning to handle an allowance

An allowance is often a child's first brush with financial independence. With allowance money in hand, your child can begin saving and budgeting for the things he or she wants.

It's up to you to decide how much to give your child based on your values and family budget, but a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of age. To come up with the right amount, you might also want to consider what your child will need to pay for out of his or her allowance, and how much of it will go into savings.

Some parents ask their child to earn an allowance by doing chores around the house, while others give their child an allowance with no strings attached. If you're not sure which approach is better, you might want to compromise. Pay your child a small allowance, and then give him or her the chance to earn extra money by doing chores that fall outside of his or her normal household responsibilities.

If you decide to give your child an allowance, here are some things to keep in mind:

·         Set some parameters. Sit down and talk to your child about the types of purchases you expect him or her to make, and how much of the allowance should go towards savings.

·         Stick to a regular schedule. Give your child the same amount of money on the same day each week.

·         Consider giving an allowance "raise" to reward your child for handling his or her allowance well.

Lesson 2: Opening a bank account

Taking your child to your local bank or credit union to open an account (or opening an account online) is a simple way to introduce the concept of saving money. Your child will learn how savings accounts work, and will soon enjoy making deposits.

Many banks and credit unions have programs that provide activities and incentives designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

·         Help your child understand how interest compounds by showing him or her how much "free money" has been earned on deposits.

·         Offer to match whatever your child saves towards a long-term goal.

·         Let your child take a few dollars out of the account occasionally. Young children who see money going into the account but never coming out may quickly lose interest in saving.

Lesson 3: Setting and saving for financial goals

When your children get money from relatives, you want them to save it for college, but they'd rather spend it now. Let's face it: children don't always see the value of putting money away for the future. So how can you get your child excited about setting and saving for financial goals? Here are a few ideas:

·         Let your child set his or her own goals (within reason). This will give your child some incentive to save.

·         Encourage your child to divide his or her money up. For instance, your child might want to save some of it towards a long-term goal, share some of it with a charity, and spend some of it right away.

·         Write down each goal, and the amount that must be saved each day, week, or month to reach it. This will help your child learn the difference between short-term and long-term goals.

·         Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a young child make the connection between setting a goal and saving for it.

Finally, don't expect a young child to set long-term goals. Young children may lose interest in goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it up to experience. Over time, your child will learn to become a more disciplined saver.

Lesson 4: Becoming a smart consumer

Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but aren't born with the ability to spend it wisely. Your child needs guidance from you to make good buying decisions. Here are a few things you can do to help your child become a smart consumer:

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·         Set aside one day a month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying something on impulse.

·         Just say no. You can teach your child to think carefully about purchases by explaining that you will not buy him or her something every time you go shopping. Instead, suggest that your child try items out in the store, then put them on a birthday or holiday wish list.

·         Show your child how to compare items based on price and quality. For instance, when you go grocery shopping, teach him or her to find the prices on the items or on the shelves, and explain why you're choosing to buy one brand rather than another.

·         Let your child make mistakes. If the toy your child insists on buying breaks, or turns out to be less fun than it looked on the commercials, eventually your child will learn to make good choices even when you're not there to give advice.

Jared Daniel may be reached at www.WealthGuardianGroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.